1 00:00:05,120 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,200 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg The 5 00:00:33,240 --> 00:00:36,760 Speaker 1: Top News this morning, Lisa does come from China. I'm 6 00:00:36,760 --> 00:00:43,040 Speaker 1: cutting the car import duty on passenger cast from previously. Um. 7 00:00:43,080 --> 00:00:45,320 Speaker 1: It's news and it's a big move. It is a 8 00:00:45,320 --> 00:00:48,120 Speaker 1: big move. The question is who will it help? Is 9 00:00:48,159 --> 00:00:50,360 Speaker 1: it going to more likely help Tesla? Is it going 10 00:00:50,400 --> 00:00:53,440 Speaker 1: to more likely help European carmakers. They also say that 11 00:00:53,479 --> 00:00:56,520 Speaker 1: they're going to increase some of their agricultural purchases, and 12 00:00:56,720 --> 00:00:59,000 Speaker 1: the US is saying that they're probably not going to 13 00:00:59,040 --> 00:01:01,600 Speaker 1: impose some of the pariffs that they had talked about earlier. 14 00:01:01,920 --> 00:01:05,120 Speaker 1: My question is with all of this, what's tradeable here? Right? 15 00:01:05,160 --> 00:01:08,839 Speaker 1: I mean, how how much you actually rely on these 16 00:01:08,880 --> 00:01:11,560 Speaker 1: sorts of tea leaves that are coming from Washington, d C. 17 00:01:12,120 --> 00:01:14,479 Speaker 1: And here to answer that for US is Bill Blaine. 18 00:01:14,720 --> 00:01:17,200 Speaker 1: He is Mint Partners, a fixed and come strategist and 19 00:01:17,280 --> 00:01:20,120 Speaker 1: head of capital markets. Bill come on in here, can 20 00:01:20,160 --> 00:01:23,000 Speaker 1: you just give us your sense of whether any headlines 21 00:01:23,080 --> 00:01:25,120 Speaker 1: that we've gotten with respect to China and U s 22 00:01:25,160 --> 00:01:29,440 Speaker 1: trade negotiations have actually made you want to trade anything. Um, 23 00:01:29,520 --> 00:01:33,120 Speaker 1: good morning. It's all part of the ongoing narrative. I 24 00:01:33,160 --> 00:01:38,280 Speaker 1: suppose it's very easy to find negative confirmation bias in 25 00:01:38,400 --> 00:01:44,039 Speaker 1: practically anything that's to do with global geopolitical news these days. 26 00:01:44,160 --> 00:01:47,559 Speaker 1: So when you do get something that sounds positive, like 27 00:01:48,000 --> 00:01:51,680 Speaker 1: your Treasury secretary saying the trade war is over, or 28 00:01:51,720 --> 00:01:55,800 Speaker 1: the Chinese making such a conciliatory gesture, you would expect 29 00:01:55,880 --> 00:01:59,080 Speaker 1: that markets would go soaring high words on the good news. 30 00:01:59,520 --> 00:02:02,880 Speaker 1: But in act, that rally we had yesterday in the 31 00:02:02,960 --> 00:02:07,360 Speaker 1: US stock market was just about the least convincing thing 32 00:02:07,920 --> 00:02:11,600 Speaker 1: I've ever seen. Volumes were tiny, and it petered out 33 00:02:11,680 --> 00:02:14,040 Speaker 1: during the day. John, that's a technical term. Is that? 34 00:02:14,200 --> 00:02:16,919 Speaker 1: Is that a technical term? Bill? What? Which one? Which 35 00:02:16,919 --> 00:02:21,640 Speaker 1: one of my many? Yeah, least convincing lest least convincing 36 00:02:21,680 --> 00:02:24,760 Speaker 1: ever since last week? But what what was I'm convincing 37 00:02:24,800 --> 00:02:27,240 Speaker 1: about it? Bill? And what's I'm convincing about? The moves 38 00:02:27,280 --> 00:02:30,080 Speaker 1: that we've seen in the volume was absolutely tiny. It 39 00:02:30,200 --> 00:02:33,480 Speaker 1: opened up much higher and then just range traded through 40 00:02:33,520 --> 00:02:35,880 Speaker 1: the day. So do you think this is it? Bill? 41 00:02:36,040 --> 00:02:38,000 Speaker 1: Do you think the market is unconvinced of what can 42 00:02:38,040 --> 00:02:40,160 Speaker 1: happen with China in the United States? So ultimately is 43 00:02:40,160 --> 00:02:42,320 Speaker 1: your view that what happens with China in the United 44 00:02:42,360 --> 00:02:47,720 Speaker 1: States isn't of importance at this point? People always overestimate 45 00:02:47,760 --> 00:02:51,680 Speaker 1: the effects del politics or politics. What you need to 46 00:02:51,720 --> 00:02:54,560 Speaker 1: do is draw what the long term is going to be. 47 00:02:54,720 --> 00:02:58,000 Speaker 1: And I'm actually very positive on the long term. What's 48 00:02:58,080 --> 00:03:02,400 Speaker 1: really going on in terms of the US China called 49 00:03:02,520 --> 00:03:06,520 Speaker 1: trade war, is about negotiating new terms of trade which 50 00:03:06,520 --> 00:03:09,399 Speaker 1: are long term going to be very very positive. We're 51 00:03:09,400 --> 00:03:12,320 Speaker 1: going to see the issue of IP addressed. We're going 52 00:03:12,360 --> 00:03:16,880 Speaker 1: to see a complete change in the way that trade 53 00:03:16,880 --> 00:03:19,560 Speaker 1: has done, not just between China and the US, but 54 00:03:19,560 --> 00:03:22,800 Speaker 1: we're going to see negotiations all around the world, especially 55 00:03:22,880 --> 00:03:26,040 Speaker 1: here in the UK where we need to make new friends. Yeah, 56 00:03:26,360 --> 00:03:29,440 Speaker 1: you have quite quite something positive in your porridge. You know, 57 00:03:29,440 --> 00:03:32,400 Speaker 1: in your morning note that you put out last week, 58 00:03:32,680 --> 00:03:35,600 Speaker 1: you you blamed us. You said that we just like 59 00:03:35,720 --> 00:03:38,200 Speaker 1: bad news because it's what sells, and then people are 60 00:03:38,240 --> 00:03:41,160 Speaker 1: focusing on that um but that we've got it all 61 00:03:41,200 --> 00:03:44,960 Speaker 1: wrong and things are great. I wouldn't say things are great, 62 00:03:45,040 --> 00:03:48,240 Speaker 1: but things are far less bad than than a lot 63 00:03:48,280 --> 00:03:51,120 Speaker 1: of the negative bias would have us believe. Al Right, 64 00:03:51,200 --> 00:03:53,560 Speaker 1: so give us a sense, given the fact that we 65 00:03:53,600 --> 00:03:56,240 Speaker 1: do have a strengthening dollar, that we have seen you know, 66 00:03:56,280 --> 00:03:59,160 Speaker 1: some increasing jitters and emerging markets and some other places. 67 00:03:59,520 --> 00:04:01,839 Speaker 1: You know, is that wrong? I mean, do you think 68 00:04:01,880 --> 00:04:04,120 Speaker 1: that that we can just have, you know, yield rise 69 00:04:04,240 --> 00:04:07,040 Speaker 1: and you know in the US and ever else, stay 70 00:04:07,040 --> 00:04:10,560 Speaker 1: calm and this is all fine and a great normalization 71 00:04:10,800 --> 00:04:13,640 Speaker 1: or does anything keep you up at night? Oh gosh, 72 00:04:13,640 --> 00:04:15,680 Speaker 1: there's so many things keep me up at night just now. 73 00:04:16,480 --> 00:04:18,880 Speaker 1: Lots of things to worry about, and there are so 74 00:04:18,920 --> 00:04:22,400 Speaker 1: many inconsistencies in this market. But if we we go 75 00:04:22,480 --> 00:04:25,120 Speaker 1: to the basics, there's three things I think like the 76 00:04:25,120 --> 00:04:28,360 Speaker 1: basics of where we should be market wise. Just now, 77 00:04:28,480 --> 00:04:32,280 Speaker 1: it is clear that interest rates are going to normalize. 78 00:04:32,800 --> 00:04:36,600 Speaker 1: We are into a bond bear market. The problem is 79 00:04:36,760 --> 00:04:40,200 Speaker 1: parts of that bear market don't yet realize it. So 80 00:04:40,240 --> 00:04:45,040 Speaker 1: we've got the incredible situation where investment grade bonds issued 81 00:04:45,120 --> 00:04:48,440 Speaker 1: by the most likely people to pay you back are 82 00:04:48,480 --> 00:04:52,080 Speaker 1: actually the worst performing part of the market, whereas the 83 00:04:52,160 --> 00:04:55,200 Speaker 1: high yield market, ie those who are least likely to 84 00:04:55,240 --> 00:04:58,479 Speaker 1: pay you back are outperforming the people who will pay 85 00:04:58,520 --> 00:05:02,880 Speaker 1: you back, and that just doesn't make any sense to me. Um, 86 00:05:03,000 --> 00:05:08,200 Speaker 1: then we've got people worried about stock markets because if 87 00:05:08,279 --> 00:05:12,240 Speaker 1: bond rates rise, that's bad for stocks, where we were 88 00:05:12,279 --> 00:05:15,719 Speaker 1: a long way from that being a real concern. But 89 00:05:15,760 --> 00:05:18,320 Speaker 1: then I think we're also seeing completely new parts of 90 00:05:18,360 --> 00:05:22,479 Speaker 1: the market marriage for instance, the alternative sector investing in 91 00:05:22,560 --> 00:05:27,000 Speaker 1: real assets, which provides you with natural inflation hedges because 92 00:05:27,040 --> 00:05:29,960 Speaker 1: you own a real asset, and that's very important in 93 00:05:30,000 --> 00:05:33,359 Speaker 1: the world where we see the oil prices have now 94 00:05:33,520 --> 00:05:37,799 Speaker 1: effectively doubled since the low. And remember when oil prices 95 00:05:37,880 --> 00:05:41,080 Speaker 1: hit forty dollars, we were all telling ourselves this was 96 00:05:41,120 --> 00:05:44,400 Speaker 1: the new long term future for oil. Well, guess what. 97 00:05:44,440 --> 00:05:46,560 Speaker 1: We're back up to eighty and I guess we're going 98 00:05:46,600 --> 00:05:49,800 Speaker 1: to go higher from here because the world changes, and 99 00:05:49,839 --> 00:05:53,560 Speaker 1: the world is an incredibly complex place, and it is changing. 100 00:05:53,560 --> 00:05:55,720 Speaker 1: And let's pick up on the first point, the issuing 101 00:05:55,760 --> 00:05:58,360 Speaker 1: credit right now, it's not just that junk is outperforming, 102 00:05:58,440 --> 00:06:01,880 Speaker 1: it's the junkiest part of junk that is outperforming. It's 103 00:06:01,880 --> 00:06:05,560 Speaker 1: been the triple cs. What is the message, the signal 104 00:06:05,640 --> 00:06:08,279 Speaker 1: that someone experienced in the world of credit like yourself, 105 00:06:08,800 --> 00:06:13,479 Speaker 1: takes from that this year. Um, well, what's signal? Well, 106 00:06:13,560 --> 00:06:15,440 Speaker 1: you know what, John, I've been doing this so long 107 00:06:15,480 --> 00:06:19,320 Speaker 1: that nothing surprises me anymore. What worries me more than 108 00:06:19,400 --> 00:06:24,320 Speaker 1: high yield is why people are involved in high yield. Now. 109 00:06:24,360 --> 00:06:27,760 Speaker 1: There are lots of people who understand high yield perfectly. 110 00:06:27,839 --> 00:06:32,000 Speaker 1: What's worrying me is the number of yield tourists who 111 00:06:32,040 --> 00:06:34,800 Speaker 1: ten years ago would be buying triple A sovereign paper, 112 00:06:34,839 --> 00:06:38,279 Speaker 1: who are now buying triple C paper, and even worse, 113 00:06:38,320 --> 00:06:42,320 Speaker 1: are buying triple B paper that one little step above 114 00:06:42,440 --> 00:06:46,080 Speaker 1: junk status in the expectation that it's an investment grade 115 00:06:46,120 --> 00:06:48,880 Speaker 1: piece of paper. Now they're going to get a terrible 116 00:06:48,880 --> 00:06:52,719 Speaker 1: shock when interest rates really start to bite and we 117 00:06:52,800 --> 00:06:55,320 Speaker 1: start to see an awful lot of companies going into 118 00:06:55,320 --> 00:06:58,839 Speaker 1: a downgrade cycle because we are still lagging when it 119 00:06:58,920 --> 00:07:01,560 Speaker 1: comes to downgrades. So to what extent, Bill, is there 120 00:07:01,560 --> 00:07:05,800 Speaker 1: significant right risk in high yield that perhaps people aren't appreciating. 121 00:07:08,080 --> 00:07:11,280 Speaker 1: That's a very very good question. My own view is 122 00:07:11,320 --> 00:07:14,600 Speaker 1: that there is significant risk that a lot of zombie 123 00:07:14,600 --> 00:07:18,760 Speaker 1: companies that have been there are highly levered in the 124 00:07:18,800 --> 00:07:22,240 Speaker 1: bond markets and the leverage lending markets are going to 125 00:07:22,320 --> 00:07:28,239 Speaker 1: experience difficulties, but that could be overcome if we see 126 00:07:28,720 --> 00:07:32,520 Speaker 1: real economic performance that enables these companies to do better. 127 00:07:33,080 --> 00:07:35,680 Speaker 1: My warrior is that we are going to remain in 128 00:07:35,720 --> 00:07:39,560 Speaker 1: this kind of new normal, slow recovery rather than stellar 129 00:07:39,640 --> 00:07:42,200 Speaker 1: growth environment, and that's very negative for a lot of 130 00:07:42,240 --> 00:07:46,880 Speaker 1: over leverage companies as rates starts to seriously rise. Bill Blank, 131 00:07:47,000 --> 00:07:48,280 Speaker 1: great to catch out with you. A good friend of 132 00:07:48,320 --> 00:07:50,200 Speaker 1: mine from back in London who haven't been able to 133 00:07:50,200 --> 00:07:51,760 Speaker 1: speak to for a long long time. So Bill, we 134 00:07:51,800 --> 00:07:54,440 Speaker 1: finally got to do it on radio live. Bill blame 135 00:07:54,520 --> 00:07:58,440 Speaker 1: Mint Partners, Fixed incomes strategist and head of capital Markets, 136 00:07:58,440 --> 00:08:00,880 Speaker 1: always greing to catch out with you. It's not a 137 00:08:00,920 --> 00:08:03,480 Speaker 1: pop quiz as such. But of the twenty eight point 138 00:08:03,520 --> 00:08:07,000 Speaker 1: nine million automobiles sold in China last year, do you 139 00:08:07,040 --> 00:08:10,800 Speaker 1: know how many were imported? Uh? No, I do not, 140 00:08:11,040 --> 00:08:13,600 Speaker 1: but I'm going to guess a smart proportional. It was 141 00:08:13,720 --> 00:08:16,600 Speaker 1: four point two percent. There you go, by the way. 142 00:08:16,680 --> 00:08:20,080 Speaker 1: Four So I don't think that we fully appreciated the 143 00:08:20,120 --> 00:08:23,400 Speaker 1: intimacy of your connections that you catch up with people. Well, 144 00:08:23,400 --> 00:08:26,320 Speaker 1: I've got to do so I have no time to 145 00:08:26,360 --> 00:08:29,680 Speaker 1: pick up the phone. There's real life, those lovely heart 146 00:08:29,720 --> 00:08:33,920 Speaker 1: to hearts that if you don't know Bill Blaine on 147 00:08:33,960 --> 00:08:37,200 Speaker 1: pretty much every credit desk in London, if you've been 148 00:08:37,200 --> 00:08:39,160 Speaker 1: around for a couple of decades, at some point you've 149 00:08:39,160 --> 00:08:42,680 Speaker 1: worked with Bill builds that well connected in credit markets 150 00:08:42,920 --> 00:08:44,720 Speaker 1: in the city. So it's always great to get bills 151 00:08:44,760 --> 00:08:47,280 Speaker 1: inside because so many people have worked alongside Bill. So 152 00:08:47,280 --> 00:08:49,199 Speaker 1: we'll have listeners in the city of London right now 153 00:08:49,440 --> 00:08:52,160 Speaker 1: in a world of credit that probably no Bill at 154 00:08:52,240 --> 00:08:54,880 Speaker 1: some point from somewhere, and they'll be catching up with 155 00:08:54,960 --> 00:09:12,480 Speaker 1: him the same way that you are. Precisely, I'm ready 156 00:09:12,480 --> 00:09:14,280 Speaker 1: pleased to say that joining us now is a giant 157 00:09:14,320 --> 00:09:17,000 Speaker 1: in advertising. He ran USLS for Google. He is the 158 00:09:17,040 --> 00:09:19,360 Speaker 1: former CEO of a o L. He now serves as 159 00:09:19,400 --> 00:09:22,600 Speaker 1: the CEO of OATH, overseeing a o L and Yahoo 160 00:09:22,920 --> 00:09:26,360 Speaker 1: for the Rising, it's Tim Armstrock, the OATH CEO, and Tim, 161 00:09:26,440 --> 00:09:29,320 Speaker 1: I didn't realize that you're a journalist back in the day, 162 00:09:29,640 --> 00:09:32,800 Speaker 1: Back in the day Boston Local News point five years ago. 163 00:09:32,960 --> 00:09:34,560 Speaker 1: So should we start there and have a chat about 164 00:09:34,640 --> 00:09:37,280 Speaker 1: journalism just to begin, Are we seeing the death of 165 00:09:37,320 --> 00:09:39,960 Speaker 1: click bait? Is that finally happening. Tim. I think what 166 00:09:40,040 --> 00:09:43,160 Speaker 1: you've seen is you're seeing a flight to quality right now. 167 00:09:43,280 --> 00:09:45,320 Speaker 1: And one of the great things that's happening on the 168 00:09:45,360 --> 00:09:48,160 Speaker 1: Internet mobile right now is as the services are getting 169 00:09:48,200 --> 00:09:52,319 Speaker 1: more and more focused on not having fake news and 170 00:09:52,360 --> 00:09:56,239 Speaker 1: really consumer trust, that's going to have all the algorithms 171 00:09:56,320 --> 00:09:58,880 Speaker 1: change underneath how news gets distributed, and you're going to 172 00:09:58,960 --> 00:10:01,920 Speaker 1: find that journalism as going to come up in the ecosystem, 173 00:10:02,000 --> 00:10:05,120 Speaker 1: you know, very quickly. Back in two thousand nine, Google 174 00:10:05,160 --> 00:10:07,960 Speaker 1: release something called the Panda release on the Web Index 175 00:10:07,960 --> 00:10:09,960 Speaker 1: which put higher quality up and I think what you're 176 00:10:10,000 --> 00:10:12,640 Speaker 1: seeing now is the quote unquote Panda release for the 177 00:10:12,679 --> 00:10:15,320 Speaker 1: rest of the Internet and social and so I'm very bullish. 178 00:10:15,360 --> 00:10:17,079 Speaker 1: Even if you look at this all the services in 179 00:10:17,080 --> 00:10:20,000 Speaker 1: the last six seven months, all of them have been 180 00:10:20,000 --> 00:10:22,640 Speaker 1: putting higher quality journalism up to the top of the 181 00:10:22,679 --> 00:10:25,840 Speaker 1: consumer front end. And that's great, great for journalism. Um, 182 00:10:25,880 --> 00:10:30,600 Speaker 1: there's a dirty secret though, that quality journalism actually costs money, 183 00:10:30,760 --> 00:10:33,720 Speaker 1: and you're seeing an increasing number of outlets, including this one, 184 00:10:33,800 --> 00:10:37,920 Speaker 1: recognized that and start charging people to see their articles. 185 00:10:37,920 --> 00:10:41,199 Speaker 1: And wondering how that challenges you from a distributor model, 186 00:10:41,360 --> 00:10:45,000 Speaker 1: given the fact that so many headlines lead to pay walls. Yeah, 187 00:10:45,040 --> 00:10:47,440 Speaker 1: so we're in a process right now. Our our future 188 00:10:47,480 --> 00:10:53,280 Speaker 1: will have advertising models and also subscription models for content UM. 189 00:10:53,320 --> 00:10:55,520 Speaker 1: But I would also say one thing that's really great 190 00:10:55,559 --> 00:10:59,080 Speaker 1: about what you just said is that consumer time is 191 00:10:59,280 --> 00:11:02,080 Speaker 1: really important, and I think consumers optimize their time around it. 192 00:11:02,120 --> 00:11:05,080 Speaker 1: So if consumers willing to pay for content UM, I 193 00:11:05,080 --> 00:11:07,120 Speaker 1: think that's a good signal. And second of all, I 194 00:11:07,120 --> 00:11:10,320 Speaker 1: think on the ads model, the quality UM will force 195 00:11:10,400 --> 00:11:13,520 Speaker 1: advertising to get higher quality as well. Overall, so this 196 00:11:14,000 --> 00:11:16,520 Speaker 1: whole whole trend will have improvements on both sides of 197 00:11:16,520 --> 00:11:19,280 Speaker 1: the business. You talked about subscription model, and one thing 198 00:11:19,320 --> 00:11:21,720 Speaker 1: the number of outlets have tried to do is pull 199 00:11:21,800 --> 00:11:25,160 Speaker 1: together a bunch of the major media outlets and offer 200 00:11:25,320 --> 00:11:27,720 Speaker 1: a sort of joint subscription to all of them. That's 201 00:11:27,720 --> 00:11:30,560 Speaker 1: struggled to get all of them on board. I'm wondering, 202 00:11:30,720 --> 00:11:32,640 Speaker 1: have you tried that, are you going to try that? 203 00:11:33,040 --> 00:11:35,200 Speaker 1: What progress is there to be made in that front. Yeah. 204 00:11:35,200 --> 00:11:37,400 Speaker 1: One of the things that we're heavily thinking through is 205 00:11:37,400 --> 00:11:40,520 Speaker 1: a much deeper membership model where where members will uh 206 00:11:40,880 --> 00:11:43,040 Speaker 1: you know, basically get more and more benefits from us. 207 00:11:43,080 --> 00:11:45,200 Speaker 1: And we have a billion consumers, so we have access 208 00:11:45,240 --> 00:11:49,040 Speaker 1: to a lot of consumer scale. Um, the biggest thing 209 00:11:49,080 --> 00:11:51,640 Speaker 1: that we want out of the future of the media 210 00:11:51,640 --> 00:11:54,960 Speaker 1: system and journalism is to basically have we're big investors 211 00:11:54,960 --> 00:11:58,480 Speaker 1: in high quality journalism is for our journalists and our 212 00:11:58,520 --> 00:12:01,520 Speaker 1: partner We have about forty publishing partners for all of 213 00:12:01,559 --> 00:12:04,400 Speaker 1: the biggest scale access they can and whether that's paid, 214 00:12:04,480 --> 00:12:06,800 Speaker 1: whether it's a subscription model, or whether it's through ads. 215 00:12:07,160 --> 00:12:08,640 Speaker 1: One of the things we're innovating right now on the 216 00:12:08,640 --> 00:12:11,000 Speaker 1: front end a lot is how do we have more 217 00:12:11,040 --> 00:12:14,480 Speaker 1: consumers on more types of high quality content more constantly. 218 00:12:14,800 --> 00:12:17,840 Speaker 1: In the summer, we're gonna launch for super channels and news, sports, finance, 219 00:12:18,160 --> 00:12:21,559 Speaker 1: and entertainment, and that will give our partners plus our 220 00:12:21,600 --> 00:12:24,680 Speaker 1: content direct access on mobile to some of the highest 221 00:12:24,760 --> 00:12:26,920 Speaker 1: quality journalism in the world. We just announced to do 222 00:12:26,960 --> 00:12:29,800 Speaker 1: with Samsung two weeks ago to put our brands directly 223 00:12:29,800 --> 00:12:32,600 Speaker 1: on Samsung phones, and so you know, our we're a 224 00:12:32,600 --> 00:12:35,200 Speaker 1: company that's investing in what you're talking about, So our 225 00:12:35,280 --> 00:12:37,080 Speaker 1: job is to get it on the biggest distribution we 226 00:12:37,120 --> 00:12:39,319 Speaker 1: possibly can. Seem it just feels like we're a bit 227 00:12:39,320 --> 00:12:42,400 Speaker 1: of a tipping point at the moment. With Mark Zuckerberg 228 00:12:42,480 --> 00:12:45,240 Speaker 1: on his apology tour on the way they've used data 229 00:12:45,360 --> 00:12:48,400 Speaker 1: and the way they've essentially made money through advertising as well. 230 00:12:48,720 --> 00:12:51,760 Speaker 1: Have we reached a tipping point? Have we reached saturation 231 00:12:51,960 --> 00:12:54,880 Speaker 1: so to speak? After years of immense growth of places 232 00:12:54,960 --> 00:12:57,800 Speaker 1: like Google, Facebook, etcetera. Are we there now? Yeah? We'll 233 00:12:57,880 --> 00:13:00,600 Speaker 1: just say, you know, there's something physical happening this week 234 00:13:00,640 --> 00:13:03,360 Speaker 1: in the digital world, which is GDPR, you know, launching 235 00:13:03,360 --> 00:13:06,080 Speaker 1: in Europe. And that's a that's a real physical change 236 00:13:06,160 --> 00:13:08,439 Speaker 1: the way that the internet and mobile works in Europe. 237 00:13:08,480 --> 00:13:10,880 Speaker 1: It's also going to cascade across the rest of the world. 238 00:13:11,000 --> 00:13:13,439 Speaker 1: So what you're seeing in Europe this week of the 239 00:13:13,480 --> 00:13:16,400 Speaker 1: reviews with Mark Zuckerberg is really the start of what 240 00:13:16,440 --> 00:13:19,080 Speaker 1: I would say is I would call it almost reverse 241 00:13:19,200 --> 00:13:22,120 Speaker 1: commerce with consumers, where consumers have had all their data 242 00:13:22,120 --> 00:13:24,360 Speaker 1: on servers and now data is going to start to 243 00:13:24,400 --> 00:13:27,320 Speaker 1: be transferred back to the consumer. We built our dashboards 244 00:13:27,360 --> 00:13:29,840 Speaker 1: a year ago thinking this was going to happen globally, 245 00:13:29,840 --> 00:13:32,120 Speaker 1: so we're we're our business model in the future will 246 00:13:32,160 --> 00:13:34,920 Speaker 1: allow consumers to own their data transact on their data, 247 00:13:35,080 --> 00:13:36,920 Speaker 1: and that's a super important change. And by the way, 248 00:13:37,160 --> 00:13:39,040 Speaker 1: that's why this week is getting a lot of attention, 249 00:13:39,080 --> 00:13:41,120 Speaker 1: but there's actually a big physical change that many people 250 00:13:41,160 --> 00:13:43,240 Speaker 1: don't know about happening this week. Well, you talk about 251 00:13:43,280 --> 00:13:44,960 Speaker 1: transact on their data. I want to pick up on 252 00:13:45,000 --> 00:13:47,120 Speaker 1: that because that's a really compelling point. In other words, 253 00:13:47,160 --> 00:13:49,880 Speaker 1: people might be able to get paid for giving their 254 00:13:49,920 --> 00:13:53,680 Speaker 1: data over to certain advertisers. That might take the revenue 255 00:13:53,679 --> 00:13:57,080 Speaker 1: away from you, right because advertisers can just go direct 256 00:13:57,160 --> 00:14:01,040 Speaker 1: to the consumer, uh and pay them. How concerned are 257 00:14:01,040 --> 00:14:03,720 Speaker 1: you about that? UM and our business model, We're not concerned. 258 00:14:03,760 --> 00:14:06,120 Speaker 1: To add, businesses between a probably eight hundred billion and 259 00:14:06,120 --> 00:14:09,000 Speaker 1: trillion dollar industry, much of it is built on not 260 00:14:09,200 --> 00:14:12,800 Speaker 1: direct to consumer right now, going through really large third parties, 261 00:14:13,280 --> 00:14:15,800 Speaker 1: we can be one of the largest directed consumer businesses 262 00:14:15,800 --> 00:14:18,319 Speaker 1: and facilitate that. So I think our model actually is 263 00:14:18,360 --> 00:14:21,040 Speaker 1: going to get advantaged in this change because we have 264 00:14:21,120 --> 00:14:24,160 Speaker 1: access directly on people's mobile phones. We have access directly 265 00:14:24,200 --> 00:14:26,480 Speaker 1: to a billion consumers, So you're going to offer them 266 00:14:26,480 --> 00:14:29,280 Speaker 1: money by way of the advertisers act as a broker 267 00:14:29,280 --> 00:14:32,200 Speaker 1: for them kind of we uh. We believe in the 268 00:14:32,240 --> 00:14:35,720 Speaker 1: future there will be more economic models for consumers to 269 00:14:35,720 --> 00:14:39,000 Speaker 1: to make money or get value directly from their data, 270 00:14:39,040 --> 00:14:41,440 Speaker 1: which is not at scale out there right now, so 271 00:14:41,800 --> 00:14:43,920 Speaker 1: so we we I think that's one of the things 272 00:14:43,920 --> 00:14:46,680 Speaker 1: that we're hopeful that that will innovate. Tim what the 273 00:14:46,720 --> 00:14:49,320 Speaker 1: advertisers sank you at the moment. If you take Facebook 274 00:14:49,320 --> 00:14:51,120 Speaker 1: as an example, a couple of months ago, people were 275 00:14:51,120 --> 00:14:53,720 Speaker 1: worried if they were in the stock whether the advertisers 276 00:14:53,760 --> 00:14:55,920 Speaker 1: would run UM. Next sign of that actually happening, what 277 00:14:55,920 --> 00:14:58,160 Speaker 1: do they signed to you? So the advertisers, you know, 278 00:14:58,320 --> 00:15:00,840 Speaker 1: again the big digital players. If you're an advertiser, you 279 00:15:00,840 --> 00:15:03,040 Speaker 1: have pretty much have to be in digital state with consumers. 280 00:15:03,040 --> 00:15:05,040 Speaker 1: So I think over time a lot of the advertisers 281 00:15:05,040 --> 00:15:07,320 Speaker 1: will say they want to have some of the changes 282 00:15:07,360 --> 00:15:09,560 Speaker 1: they've been talking about, but the reality that they're continuing 283 00:15:09,600 --> 00:15:12,760 Speaker 1: to spend um. I was just on the phone yesterday 284 00:15:12,760 --> 00:15:16,440 Speaker 1: with our new president CEO, Guru uh with the head 285 00:15:16,480 --> 00:15:19,000 Speaker 1: of strategy Form, one of the largest brands in the world. 286 00:15:19,000 --> 00:15:21,800 Speaker 1: Actually when we're taught, we had this exact conversation with them, 287 00:15:21,880 --> 00:15:23,520 Speaker 1: and that you know, the brand said to us, there's 288 00:15:23,560 --> 00:15:26,160 Speaker 1: three things they're really interested in. One is direct to 289 00:15:26,200 --> 00:15:29,760 Speaker 1: consumer relationships. Two is using their data effectively. They have 290 00:15:29,840 --> 00:15:31,360 Speaker 1: tons of data but don't know how to use it. 291 00:15:31,440 --> 00:15:36,240 Speaker 1: And three is how do they basically add non commoditized value. 292 00:15:36,400 --> 00:15:38,640 Speaker 1: Some of the digital channels they go through take all 293 00:15:38,640 --> 00:15:41,080 Speaker 1: the value away from them, and the consumer thinks the 294 00:15:41,120 --> 00:15:43,880 Speaker 1: platform has the value and not the brand. So you know, 295 00:15:43,960 --> 00:15:46,320 Speaker 1: our business right now is to take those three items 296 00:15:46,360 --> 00:15:49,400 Speaker 1: direct the consumer data and how to decommoditize the ad 297 00:15:49,480 --> 00:15:52,080 Speaker 1: system and build that. And that's a differentiator from us 298 00:15:52,080 --> 00:15:54,320 Speaker 1: from Google and Facebook. Let's wrap things up by talking 299 00:15:54,320 --> 00:15:56,520 Speaker 1: about your business. It's been a year, I believe since 300 00:15:56,560 --> 00:15:59,240 Speaker 1: oath came about and I laughed at you want to 301 00:15:59,240 --> 00:16:02,880 Speaker 1: air and said, really, Tim, And you said to me, 302 00:16:03,000 --> 00:16:05,200 Speaker 1: give it time, you'll get used to it. And I 303 00:16:05,240 --> 00:16:07,200 Speaker 1: guess I've got used to it a little bit. Do 304 00:16:07,240 --> 00:16:09,520 Speaker 1: you have your three word oath yet? I don't? Should 305 00:16:09,560 --> 00:16:12,280 Speaker 1: I have? You have to have one? Yea, you have 306 00:16:12,320 --> 00:16:16,600 Speaker 1: to have a Mine is never give up you guys, 307 00:16:16,640 --> 00:16:20,240 Speaker 1: You each everybody in your company have Everyone has an oath, 308 00:16:20,320 --> 00:16:22,560 Speaker 1: and not just everyone in our company. Now our partners 309 00:16:22,560 --> 00:16:26,200 Speaker 1: and customers are starting to come up with them. They laugh. No. 310 00:16:26,360 --> 00:16:29,440 Speaker 1: They By the way, if you go around people meaningfully, 311 00:16:29,600 --> 00:16:32,600 Speaker 1: on their email signatures or on the walls around the office, 312 00:16:32,880 --> 00:16:34,840 Speaker 1: put their oath up and you would be a surprised. 313 00:16:34,880 --> 00:16:37,160 Speaker 1: How you know, thirteen thousand people come up with three 314 00:16:37,160 --> 00:16:40,720 Speaker 1: word ohs that are just amazing and very personal to them. 315 00:16:40,760 --> 00:16:43,320 Speaker 1: So it's actually become a big part. What would it be, 316 00:16:43,440 --> 00:16:49,000 Speaker 1: Let's go, mets, let's go. That's a perfect One's gonna 317 00:16:49,000 --> 00:16:53,640 Speaker 1: have to come up with a com Well, next time 318 00:16:53,680 --> 00:16:58,280 Speaker 1: I come back, I promise I'll have that house business doing. 319 00:16:58,320 --> 00:17:00,720 Speaker 1: What are you excited about at the moment? UH, Super 320 00:17:00,760 --> 00:17:03,200 Speaker 1: excited about what we're doing, both on the brand experience 321 00:17:03,280 --> 00:17:05,679 Speaker 1: the side. So we have tech Crunch Disrupt coming up 322 00:17:05,680 --> 00:17:08,720 Speaker 1: in September and San Francisco. It's at the Mosconi Center, 323 00:17:08,760 --> 00:17:11,280 Speaker 1: which is the largest convention center there. So that's gone 324 00:17:11,320 --> 00:17:13,239 Speaker 1: from a startup when we bought it now to being 325 00:17:13,240 --> 00:17:15,920 Speaker 1: one of the most influential tech brands. We have can 326 00:17:15,960 --> 00:17:18,440 Speaker 1: coming up with all the global advertisers in France. A 327 00:17:18,480 --> 00:17:21,160 Speaker 1: couple of weeks we're launching a new UH add uh 328 00:17:21,760 --> 00:17:25,160 Speaker 1: system basically there. So we're excited about all the work 329 00:17:25,240 --> 00:17:28,000 Speaker 1: that's gotten done and more importantly excited about the fact 330 00:17:28,000 --> 00:17:30,359 Speaker 1: that the companies came together. You know, we have a 331 00:17:30,359 --> 00:17:33,240 Speaker 1: clear strategy of building brands people love and UH. I 332 00:17:33,240 --> 00:17:35,119 Speaker 1: think as you go through the summer and into the fall. 333 00:17:35,520 --> 00:17:38,119 Speaker 1: The proof points we've gone through a construction zone into 334 00:17:38,280 --> 00:17:41,280 Speaker 1: something that will look like a finished product. And UH, 335 00:17:41,600 --> 00:17:44,159 Speaker 1: just really excited about the thirteen thousand people and the 336 00:17:44,520 --> 00:17:46,760 Speaker 1: billion consumers we have and putting them at the center 337 00:17:46,800 --> 00:17:48,679 Speaker 1: of everything that we're doing. I promised to come up 338 00:17:48,680 --> 00:17:51,760 Speaker 1: with a three word if I gets cans um with 339 00:17:52,119 --> 00:17:54,679 Speaker 1: the See there you go. Tim, never never give us. 340 00:17:56,680 --> 00:17:59,639 Speaker 1: I always learned something when Tim joins us and whenever 341 00:17:59,680 --> 00:18:01,840 Speaker 1: I list since to him. Truly a jihant in advertising, 342 00:18:01,840 --> 00:18:03,359 Speaker 1: and I mean that sim is trying to catch up 343 00:18:03,359 --> 00:18:19,040 Speaker 1: with you. Thank you, sim Anstrom, the o CEO. Since 344 00:18:19,080 --> 00:18:22,680 Speaker 1: the March Lows, the shares of Facebook have gained more 345 00:18:22,800 --> 00:18:26,919 Speaker 1: than twenty and today members of the European Parliament are 346 00:18:26,920 --> 00:18:29,600 Speaker 1: going to get the chance to question Facebook Chief executive 347 00:18:29,680 --> 00:18:34,160 Speaker 1: Mark Zuckerberg about everything from Cambridge Analytica as well as 348 00:18:34,200 --> 00:18:38,000 Speaker 1: Europe's new privacy rules. Here to help us understand what's 349 00:18:38,040 --> 00:18:42,479 Speaker 1: going on at Facebook is David Kirkpatrick. He is the 350 00:18:42,520 --> 00:18:46,119 Speaker 1: author of The Facebook Effect, and he is also the 351 00:18:46,160 --> 00:18:50,960 Speaker 1: chief executive and the founder of Teconomy. David Kirkpatrick, what 352 00:18:51,000 --> 00:18:55,600 Speaker 1: do you believe Mark Zuckerberg will try to get across 353 00:18:55,760 --> 00:19:00,560 Speaker 1: to EU regulators. Hey, thanks toim Well. I think the 354 00:19:00,600 --> 00:19:03,000 Speaker 1: main thing he's going to get across is please don't 355 00:19:03,240 --> 00:19:07,080 Speaker 1: mess with me, um. And what he will do how 356 00:19:07,119 --> 00:19:10,840 Speaker 1: he will do that is by saying he's sorry. Um. 357 00:19:10,920 --> 00:19:14,320 Speaker 1: It's I think some of his testimony has already been 358 00:19:14,320 --> 00:19:19,360 Speaker 1: reported publicly where he's planning to apologize and say they 359 00:19:19,400 --> 00:19:23,840 Speaker 1: need to do better, that they're taking responsibility, blah blah blah. 360 00:19:23,960 --> 00:19:28,040 Speaker 1: It's pr one oh one, and an effort simply too, 361 00:19:28,400 --> 00:19:32,679 Speaker 1: I would say, deflect attention and try to minimize the 362 00:19:32,760 --> 00:19:38,720 Speaker 1: significance of the inquiry. Generally, So, David, uh, some pretty 363 00:19:38,760 --> 00:19:41,280 Speaker 1: negative on Facebook and you have been and with respect 364 00:19:41,400 --> 00:19:46,480 Speaker 1: to their data disclosures, their data usage and uh and 365 00:19:46,600 --> 00:19:49,119 Speaker 1: sort of the lack of a quick fix to some 366 00:19:49,200 --> 00:19:51,919 Speaker 1: of the problems that people have pointed out for many years. 367 00:19:52,200 --> 00:19:55,760 Speaker 1: And yet what should they be doing right now that 368 00:19:55,880 --> 00:19:59,560 Speaker 1: would put them in better standing? To you? They should 369 00:19:59,600 --> 00:20:02,359 Speaker 1: be much more transparent than their beings. They should be 370 00:20:02,400 --> 00:20:05,520 Speaker 1: having a much more ongoing dialogue where they're much more 371 00:20:05,600 --> 00:20:10,720 Speaker 1: open to really explaining, taking input from They should be 372 00:20:10,760 --> 00:20:13,680 Speaker 1: asking others what they should do rather than saying what 373 00:20:13,720 --> 00:20:15,439 Speaker 1: they're that they're going to do the right thing and 374 00:20:15,520 --> 00:20:19,120 Speaker 1: leaving it to an opaque process for that to be determined. 375 00:20:19,520 --> 00:20:22,760 Speaker 1: And I want to clarify I'm actually not negative on Facebook. 376 00:20:22,800 --> 00:20:25,800 Speaker 1: I'm I consider myself quite knowledgeable about them, but I 377 00:20:25,800 --> 00:20:28,960 Speaker 1: think among their critics, I'm somewhat unusual in that I 378 00:20:29,040 --> 00:20:32,199 Speaker 1: still argue Facebook as fundamentally a very positive force in 379 00:20:32,280 --> 00:20:36,320 Speaker 1: society and has a lot of wonderful characteristics. But I 380 00:20:36,359 --> 00:20:39,800 Speaker 1: believe that when it comes to their political impact and 381 00:20:39,840 --> 00:20:42,959 Speaker 1: also to a similar in a similar way, their impact 382 00:20:43,000 --> 00:20:47,240 Speaker 1: on the privacy of individuals, they have been extremely cavalier 383 00:20:47,440 --> 00:20:51,480 Speaker 1: over an extremely long time, and they refuse to even 384 00:20:51,520 --> 00:20:55,359 Speaker 1: think about taking to even use the word responsibility until 385 00:20:55,440 --> 00:21:00,160 Speaker 1: the Russian electoral manipulation scandal arose in the United States 386 00:21:00,880 --> 00:21:05,520 Speaker 1: UM and the Cambridge Analytica thing that followed UM and 387 00:21:05,520 --> 00:21:08,240 Speaker 1: and they've really changed their tune for what seemed to 388 00:21:08,320 --> 00:21:12,320 Speaker 1: me to be pr reasons rather than a genuine desire 389 00:21:12,440 --> 00:21:17,120 Speaker 1: to take stock of and take responsibility for the inordinate 390 00:21:17,160 --> 00:21:21,080 Speaker 1: weight they have in public discourse around the world. They 391 00:21:21,119 --> 00:21:25,080 Speaker 1: are in an absolutely unique position as a commercial company 392 00:21:25,119 --> 00:21:27,600 Speaker 1: that is in effect the public square in many many 393 00:21:27,640 --> 00:21:33,439 Speaker 1: countries and that is probably fundamentally untenable, but at a minimum, 394 00:21:33,480 --> 00:21:37,200 Speaker 1: it is something that requires a much more robust dialogue 395 00:21:37,240 --> 00:21:39,760 Speaker 1: between the company and the public, which they have been 396 00:21:39,800 --> 00:21:43,960 Speaker 1: resisting and continued to resist. David Kirkpatrick, is it at 397 00:21:43,960 --> 00:21:46,320 Speaker 1: all possible? And I'm just you know, I have no 398 00:21:46,520 --> 00:21:50,399 Speaker 1: detailed knowledge of their own technology systems, but that the 399 00:21:50,480 --> 00:21:56,399 Speaker 1: company is just technically overwhelmed by their success and the 400 00:21:56,560 --> 00:21:59,040 Speaker 1: scale of the issue. I mean, I read last I 401 00:21:59,040 --> 00:22:01,600 Speaker 1: guess it was the last plow weeks that they took 402 00:22:01,640 --> 00:22:07,360 Speaker 1: down something like a half a billion accounts and I 403 00:22:07,400 --> 00:22:11,800 Speaker 1: was staggered by that number. And yet that doesn't seem 404 00:22:11,840 --> 00:22:14,400 Speaker 1: to be a big deal when it comes to their 405 00:22:14,480 --> 00:22:18,359 Speaker 1: daily operations. Are they just over their heads? Well, that's 406 00:22:18,400 --> 00:22:21,520 Speaker 1: a great question, Tim, And that number shocked me also 407 00:22:21,680 --> 00:22:24,400 Speaker 1: considering that they claimed to have two point two billion 408 00:22:25,080 --> 00:22:28,240 Speaker 1: active users. They did say recently that they took down 409 00:22:28,280 --> 00:22:31,040 Speaker 1: half a billion fake fake accounts is what they said 410 00:22:31,040 --> 00:22:33,080 Speaker 1: they took down, and that was the first time they'd 411 00:22:33,080 --> 00:22:36,240 Speaker 1: ever disclosed the number of fake accounts they were taking down. 412 00:22:36,880 --> 00:22:41,439 Speaker 1: It seemed discordant with the active user number. And I 413 00:22:41,480 --> 00:22:45,280 Speaker 1: don't again, though they won't really answer questions about things 414 00:22:45,320 --> 00:22:47,240 Speaker 1: like this. This is just the kind of thing I mean, 415 00:22:47,320 --> 00:22:51,080 Speaker 1: it doesn't really make sense. It's almost impossible for outsiders 416 00:22:51,119 --> 00:22:56,000 Speaker 1: like us to assess what capabilities they do have because 417 00:22:56,080 --> 00:22:59,920 Speaker 1: they are very high handed and they have extraordinary high 418 00:23:00,000 --> 00:23:03,600 Speaker 1: opinion of their own technical competence. And from their standpoint, 419 00:23:03,640 --> 00:23:06,200 Speaker 1: they would say, oh, no, we're not overwhelmed, absolutely not. 420 00:23:06,600 --> 00:23:09,160 Speaker 1: But in reality, I think looking in from the outside, 421 00:23:09,200 --> 00:23:11,640 Speaker 1: it's easy to imagine that they may be. And here's 422 00:23:11,680 --> 00:23:13,800 Speaker 1: an example where I think they are. If I might 423 00:23:13,880 --> 00:23:18,000 Speaker 1: just slightly take a different subject slightly, um, look at 424 00:23:18,000 --> 00:23:21,000 Speaker 1: the way they've expanded in literally every country around the world. 425 00:23:21,400 --> 00:23:23,320 Speaker 1: Then look at the fact that in many many of 426 00:23:23,359 --> 00:23:26,040 Speaker 1: the countries where they refuse to update their growth in 427 00:23:26,080 --> 00:23:29,120 Speaker 1: any way, where they simply allowed themselves and encourage themselves 428 00:23:29,119 --> 00:23:33,280 Speaker 1: to grow rapidly, they have absolutely no local language expertise. 429 00:23:33,720 --> 00:23:37,159 Speaker 1: So in countries like Myanmar, for example, UM, which is 430 00:23:37,200 --> 00:23:40,160 Speaker 1: one that's been very well documented, or Sri Lanka where 431 00:23:40,160 --> 00:23:44,000 Speaker 1: they have no local language speakers speak that the monitor 432 00:23:44,080 --> 00:23:48,000 Speaker 1: content their their service has been used in extremely toxic 433 00:23:48,000 --> 00:23:52,080 Speaker 1: political ways, even as they're accepting large amounts of advertising 434 00:23:52,119 --> 00:23:56,200 Speaker 1: revenue from the government from bad actors, from good actors 435 00:23:56,200 --> 00:23:59,199 Speaker 1: from all spectrums of the political scene, which that's the 436 00:23:59,200 --> 00:24:02,080 Speaker 1: way they work. Aybody advertises on Facebook. They have no 437 00:24:02,160 --> 00:24:06,679 Speaker 1: ability to monitor that. To me, that's fundamentally irresponsible that 438 00:24:06,760 --> 00:24:09,480 Speaker 1: they let themselves grow in that way and they don't 439 00:24:09,480 --> 00:24:11,639 Speaker 1: have the capability to manage it. So in that sense, 440 00:24:11,640 --> 00:24:15,240 Speaker 1: they are overwhelmed. So, David, you raise a really interesting point, 441 00:24:15,240 --> 00:24:18,200 Speaker 1: and I want to build on that because Bloomberg News 442 00:24:18,280 --> 00:24:21,280 Speaker 1: Report today talked a little bit about what Zuckerberg plans 443 00:24:21,320 --> 00:24:25,040 Speaker 1: to emphasize when he does testify in front of European officials. 444 00:24:25,400 --> 00:24:29,320 Speaker 1: He plans to emphasize his investments in an artificial intelligence 445 00:24:29,320 --> 00:24:33,560 Speaker 1: research lab in Paris and data centers in Sweden. Given 446 00:24:33,560 --> 00:24:37,280 Speaker 1: the fact that your point, perhaps they may be a 447 00:24:37,280 --> 00:24:40,440 Speaker 1: little overwhelmed or not capable of monitoring things appropriately at 448 00:24:40,440 --> 00:24:43,440 Speaker 1: this point in the eyes of many who are concerned, 449 00:24:44,119 --> 00:24:46,600 Speaker 1: is this the right tac to take? Well, it's a 450 00:24:46,640 --> 00:24:49,360 Speaker 1: good tax to take, but it's not sufficient. It's it's 451 00:24:49,400 --> 00:24:53,720 Speaker 1: definitely a good direction. They do contribute to the economy massively, 452 00:24:53,800 --> 00:24:58,040 Speaker 1: and obviously they will capture the attention of European legislators 453 00:24:58,080 --> 00:25:00,320 Speaker 1: to that degree. There. You know, they say they employe 454 00:25:00,440 --> 00:25:02,960 Speaker 1: ten thousand people in the EU. But let's keep in 455 00:25:03,040 --> 00:25:06,160 Speaker 1: mind these this company is gonna make close to twenty 456 00:25:06,240 --> 00:25:10,120 Speaker 1: billion dollars in net profit this year. I mean, these 457 00:25:10,160 --> 00:25:12,640 Speaker 1: guys are not hurting. They could do anything they want, 458 00:25:12,680 --> 00:25:15,240 Speaker 1: and they you know, of course, there are a huge 459 00:25:15,280 --> 00:25:18,560 Speaker 1: political and and and economic force, and they want to 460 00:25:18,560 --> 00:25:21,399 Speaker 1: brag about that. But again it's a matter of what 461 00:25:21,560 --> 00:25:24,160 Speaker 1: is sufficient what is insufficient, And I think it's very 462 00:25:24,240 --> 00:25:29,200 Speaker 1: complicated because we've never seen a commercial company with this 463 00:25:29,280 --> 00:25:34,560 Speaker 1: combination of political and social power and profits. I mean, 464 00:25:35,080 --> 00:25:37,320 Speaker 1: either one of them. We haven't seen either one. We've 465 00:25:37,359 --> 00:25:40,280 Speaker 1: never seen a company with net margins at a fifty 466 00:25:40,359 --> 00:25:43,800 Speaker 1: five billion dollar annual revenue runway, and we've never seen 467 00:25:43,880 --> 00:25:46,520 Speaker 1: a commercial company that has this kind of weight in 468 00:25:46,560 --> 00:25:51,159 Speaker 1: the social discourse around the world. These are bizarre, unprecedented 469 00:25:51,200 --> 00:25:53,600 Speaker 1: developments that the world has to take stock of much 470 00:25:53,640 --> 00:25:57,520 Speaker 1: more methodically, and the company is resisting that. That's my point, David, 471 00:25:57,760 --> 00:26:02,920 Speaker 1: thank you so much for joining us. Dovid Kirkpatrick David Kirkpatrick, 472 00:26:03,160 --> 00:26:22,280 Speaker 1: the Techonomy chief executive, talking about Facebook's apology tour. He 473 00:26:22,600 --> 00:26:26,119 Speaker 1: lows J C. Penny dynamic. Today you can see j C. 474 00:26:26,200 --> 00:26:29,800 Speaker 1: Petty shares uh down more than four percent as it 475 00:26:29,840 --> 00:26:34,879 Speaker 1: announces that it's CEO Marvin Ellison is leaving abruptly, taking 476 00:26:34,920 --> 00:26:38,560 Speaker 1: the top job at home improvement retailer lows Low shares 477 00:26:38,640 --> 00:26:40,680 Speaker 1: up just a bit. I want to bring in puna'm 478 00:26:40,760 --> 00:26:43,520 Speaker 1: goyle who covers all these things for us for Bloomberg 479 00:26:43,560 --> 00:26:46,080 Speaker 1: Intelligence and Punam, what's your reaction to this? Do we 480 00:26:46,119 --> 00:26:49,159 Speaker 1: have any sense why Marvin Ellison is leaving j C. Penny? 481 00:26:49,720 --> 00:26:51,800 Speaker 1: I mean, I mean, look, I think you know, for him, 482 00:26:51,960 --> 00:26:55,719 Speaker 1: he's had such an extensive background in the home space 483 00:26:55,840 --> 00:26:59,439 Speaker 1: with home Depot that this probably is a great opportunity 484 00:26:59,480 --> 00:27:02,159 Speaker 1: for him to go to lows Um. That said, you 485 00:27:02,160 --> 00:27:04,439 Speaker 1: know where that leaves j C. Penny is in a 486 00:27:04,480 --> 00:27:07,960 Speaker 1: bit of a tight spot because now what right he's 487 00:27:08,040 --> 00:27:12,080 Speaker 1: he's implemented all this diversification with the extension of big 488 00:27:12,119 --> 00:27:15,720 Speaker 1: ticket appliances, furniture and so forth. Who's going to come 489 00:27:15,760 --> 00:27:19,000 Speaker 1: in and take a position? Um and and what will 490 00:27:19,040 --> 00:27:20,840 Speaker 1: they do? Will they keep that vision or will they 491 00:27:20,920 --> 00:27:24,920 Speaker 1: change it completely similar to Ron Johnson did prior Now, 492 00:27:24,920 --> 00:27:28,440 Speaker 1: Marvin Allison is in a sense returning to the home 493 00:27:28,520 --> 00:27:33,240 Speaker 1: improvement world because previous to his employment at j C. Penny. 494 00:27:33,480 --> 00:27:36,679 Speaker 1: He was in charge of the Home Depot's US stores, 495 00:27:37,280 --> 00:27:41,880 Speaker 1: that is correct, and he worked for Target previous to that. Correct, 496 00:27:42,440 --> 00:27:46,159 Speaker 1: So he's got all the experience necessary to make Lows 497 00:27:46,760 --> 00:27:50,560 Speaker 1: a real powerhouse. Well, I mean he has the experience 498 00:27:50,560 --> 00:27:53,400 Speaker 1: that he could transfer to loads very easily. Will affix 499 00:27:53,520 --> 00:27:57,520 Speaker 1: Lows or not? As a separate question, so there's a 500 00:27:57,600 --> 00:28:00,960 Speaker 1: question whether Ellison was truly effective j C. Penny. He 501 00:28:01,400 --> 00:28:05,240 Speaker 1: joined in, assumed the top job. A year later, the 502 00:28:05,280 --> 00:28:07,680 Speaker 1: company still hasn't done well. In fact, if you ask 503 00:28:07,800 --> 00:28:10,760 Speaker 1: most people when the last time they went to low J. C. 504 00:28:10,880 --> 00:28:14,159 Speaker 1: Penny was, they probably would shake their heads, squint their 505 00:28:14,200 --> 00:28:17,720 Speaker 1: eyes and thank or I'll say, what is J C. Penny? 506 00:28:18,160 --> 00:28:21,080 Speaker 1: Uh So, so why hasn't he been successful? You know? 507 00:28:21,160 --> 00:28:24,280 Speaker 1: And I guess it's not that he hasn't been successful. 508 00:28:24,359 --> 00:28:26,320 Speaker 1: He stopped the bleeding at G C. Penny. Right, If 509 00:28:26,320 --> 00:28:28,560 Speaker 1: you look prior to two thous fourteen, seems your sales 510 00:28:28,600 --> 00:28:31,240 Speaker 1: were declining in the high single digits a double digit range. 511 00:28:31,640 --> 00:28:35,520 Speaker 1: He um turned them positive in the following two years, 512 00:28:35,800 --> 00:28:39,200 Speaker 1: but that was because of easy comparisons. In seventeen, really 513 00:28:39,200 --> 00:28:42,680 Speaker 1: sales were just unchanged, so he didn't grow sames to sales, 514 00:28:42,680 --> 00:28:45,480 Speaker 1: and that's really where the issue is, and and part 515 00:28:45,480 --> 00:28:48,040 Speaker 1: of that comes from just not being able to turn 516 00:28:48,080 --> 00:28:50,960 Speaker 1: apparel um. Fifty percent of j C. Penny sales are 517 00:28:51,000 --> 00:28:53,240 Speaker 1: more come from apparel. He's done a great job at 518 00:28:53,280 --> 00:28:56,000 Speaker 1: home in Sephora and Salon and so forth, but at 519 00:28:56,040 --> 00:28:58,320 Speaker 1: the end of the day, it's really apparel. It comes 520 00:28:58,360 --> 00:29:01,480 Speaker 1: down to apparel, and that's where he's been slow to 521 00:29:01,560 --> 00:29:05,120 Speaker 1: make good progress. Well, would the progress that he had 522 00:29:05,160 --> 00:29:10,400 Speaker 1: made involved downsizing j C. Penny even more? I think so. 523 00:29:10,520 --> 00:29:12,600 Speaker 1: I mean, my view has been that j C. Penny 524 00:29:12,640 --> 00:29:15,840 Speaker 1: needs to trim more stories. We had that announcement of 525 00:29:15,840 --> 00:29:18,320 Speaker 1: of a little over a hundred doors um prior to 526 00:29:18,440 --> 00:29:21,320 Speaker 1: last year, and you know, since then they only announced 527 00:29:21,320 --> 00:29:24,200 Speaker 1: eight story closings for this year and the sleep still 528 00:29:24,200 --> 00:29:26,600 Speaker 1: over a hundred stories is too big in my view, 529 00:29:27,800 --> 00:29:30,160 Speaker 1: is j C. Penney going to finally go under? Ever? 530 00:29:31,640 --> 00:29:33,320 Speaker 1: I don't know. You know, your guest is as good 531 00:29:33,320 --> 00:29:36,840 Speaker 1: as mine on that. I mean, like, honestly, this just 532 00:29:36,880 --> 00:29:39,720 Speaker 1: to view this from from the credit market standpoint for 533 00:29:39,760 --> 00:29:43,480 Speaker 1: a second, because uh, that's my my home turf. I mean, 534 00:29:43,920 --> 00:29:47,080 Speaker 1: people have been trying to short j C. Penny forever 535 00:29:47,360 --> 00:29:49,480 Speaker 1: and you go to the derivatives traders. I mean J C. 536 00:29:49,600 --> 00:29:52,760 Speaker 1: Penny is the risk trade. If you think the world's 537 00:29:52,760 --> 00:29:55,080 Speaker 1: going to fall apart, but bet against j C. Penny. 538 00:29:55,120 --> 00:29:59,160 Speaker 1: It will be the first shoe to drop. It has failed. Somehow, 539 00:29:59,200 --> 00:30:01,840 Speaker 1: this thing crawled along and yet it has you know, 540 00:30:01,840 --> 00:30:05,400 Speaker 1: at this point from a brand recognition standpoint, I don't know. 541 00:30:05,600 --> 00:30:07,960 Speaker 1: I don't know, but but I've been hearing that about 542 00:30:08,000 --> 00:30:11,280 Speaker 1: Spears for a decade and that's right, so so so 543 00:30:11,360 --> 00:30:12,959 Speaker 1: I don't have an answer for that. But you know, 544 00:30:13,200 --> 00:30:16,400 Speaker 1: to his credit, I mean, yes, as long as they 545 00:30:16,440 --> 00:30:19,800 Speaker 1: can keep re cash fold positive. You know, I'd ask 546 00:30:19,800 --> 00:30:22,160 Speaker 1: your credit the animals stock question. But I think I 547 00:30:22,200 --> 00:30:25,440 Speaker 1: think the key is really if sales declined from here, 548 00:30:25,880 --> 00:30:27,760 Speaker 1: then I think they're in a little bit of more trouble. 549 00:30:27,800 --> 00:30:31,440 Speaker 1: But if they can hold study, close more doors, improve 550 00:30:31,520 --> 00:30:34,880 Speaker 1: the apparel pad, I think that's really the opportunity here. 551 00:30:35,000 --> 00:30:37,200 Speaker 1: I guess what I'm trying to get at here is, 552 00:30:37,280 --> 00:30:39,440 Speaker 1: let's say they close more stores than they have to 553 00:30:39,440 --> 00:30:42,640 Speaker 1: beef up their presence online. What do they offer at 554 00:30:42,680 --> 00:30:46,960 Speaker 1: this point, uh that Amazon can't or that any other 555 00:30:47,200 --> 00:30:52,400 Speaker 1: retailer really cannot offer, with possibly even better, better computer 556 00:30:52,480 --> 00:30:55,600 Speaker 1: programming and a better display and a fresher start and 557 00:30:55,680 --> 00:30:58,960 Speaker 1: less overhead. I mean, the the the advantage they have 558 00:30:59,040 --> 00:31:02,200 Speaker 1: as their private brand right and if um, you're a 559 00:31:02,240 --> 00:31:04,960 Speaker 1: shopper of St. John's Bay, you can't get that on Amazon. 560 00:31:05,320 --> 00:31:08,320 Speaker 1: So as long as they continue to drive traction and 561 00:31:08,360 --> 00:31:11,440 Speaker 1: their private brands, there's a place for those brands, and 562 00:31:11,520 --> 00:31:13,920 Speaker 1: someone will be looking for them and shopping their stories. 563 00:31:14,200 --> 00:31:16,960 Speaker 1: They just need to really amplify that more. And I 564 00:31:17,000 --> 00:31:20,040 Speaker 1: think that's what struggle has been. UM. We think the 565 00:31:20,080 --> 00:31:23,200 Speaker 1: apparel reset could provide them some opportunity there, but with 566 00:31:23,320 --> 00:31:25,680 Speaker 1: this shake up and Marvin Ellison leaving, they're just a 567 00:31:25,760 --> 00:31:28,520 Speaker 1: huge distraction in front of them, and and that gets 568 00:31:28,520 --> 00:31:31,720 Speaker 1: me concerned. Well, can you turn your attention now to 569 00:31:31,800 --> 00:31:34,600 Speaker 1: what's going on at Lows? What are the issues there? 570 00:31:34,640 --> 00:31:36,320 Speaker 1: I mean, are they going to have to offer a 571 00:31:36,360 --> 00:31:39,600 Speaker 1: greater variety of window blinds or maybe they're going to 572 00:31:39,720 --> 00:31:42,120 Speaker 1: have to beef up their selection of frigid air or 573 00:31:42,240 --> 00:31:46,880 Speaker 1: whirlpool appliances. What is the issue at Lows? So um 574 00:31:47,080 --> 00:31:49,560 Speaker 1: Lows whose team a shock covers you know, talking to her, 575 00:31:49,640 --> 00:31:53,120 Speaker 1: it's it's more a competitive issue, right the home depot 576 00:31:53,120 --> 00:31:55,200 Speaker 1: is a pretty big competitor of theirs, and they're doing 577 00:31:55,240 --> 00:31:58,800 Speaker 1: really well, and cutting prices isn't necessarily always the answer. 578 00:31:59,120 --> 00:32:02,680 Speaker 1: So Marvin, I don't think he needs to diversify the 579 00:32:02,720 --> 00:32:05,040 Speaker 1: product base. Really is what he did in J. C. Penny, 580 00:32:05,040 --> 00:32:07,600 Speaker 1: which is bringing new categories. I think there's going to 581 00:32:07,640 --> 00:32:11,280 Speaker 1: be execution UM issues that he'll need to work through there, 582 00:32:11,960 --> 00:32:14,600 Speaker 1: like what I mean, what are the specifics of those? 583 00:32:15,320 --> 00:32:17,560 Speaker 1: Maybe price? You know, UM, A lot of it comes 584 00:32:17,560 --> 00:32:22,760 Speaker 1: down to price and promotions. Alright, I want to I 585 00:32:22,760 --> 00:32:25,520 Speaker 1: want to shift gears a little bit because while we 586 00:32:25,560 --> 00:32:27,640 Speaker 1: are sort of ragging on J C. Penny and I'm 587 00:32:27,640 --> 00:32:30,120 Speaker 1: being a little unfair, but I just feel like people 588 00:32:30,160 --> 00:32:31,640 Speaker 1: have been waiting for this thing to die for a 589 00:32:31,680 --> 00:32:34,000 Speaker 1: long time and it really hasn't. UM. I want to 590 00:32:34,000 --> 00:32:38,360 Speaker 1: shift to Coals because they reported earnings and they demonstrated 591 00:32:38,400 --> 00:32:41,360 Speaker 1: that the turnaround is gaining some steam, shares rising as 592 00:32:41,440 --> 00:32:44,320 Speaker 1: much as six percent and early trading. So what are 593 00:32:44,320 --> 00:32:48,280 Speaker 1: they doing right that J C. Penny is doing wrong? Sure? 594 00:32:48,360 --> 00:32:51,880 Speaker 1: So Coles Um Coles induced many two completely different stories 595 00:32:51,960 --> 00:32:54,680 Speaker 1: right here, we have UM Saintster sales were up by 596 00:32:54,760 --> 00:32:58,600 Speaker 1: three point six percent earlier this morning, and that was encouraging, 597 00:32:58,720 --> 00:33:01,160 Speaker 1: and that's why the shears probably traded up pre market. 598 00:33:01,240 --> 00:33:03,040 Speaker 1: But as you're listening to the call which I was 599 00:33:03,080 --> 00:33:05,560 Speaker 1: on earlier m prior to talking to you, you know, 600 00:33:05,600 --> 00:33:07,920 Speaker 1: a lot of that three point six percent came from 601 00:33:07,920 --> 00:33:10,800 Speaker 1: a shift in the friends and family event. And that's 602 00:33:10,800 --> 00:33:12,680 Speaker 1: where the question is, So how much of it was 603 00:33:12,720 --> 00:33:17,840 Speaker 1: the friends and family versus structural growth in the comp number? Yes, 604 00:33:17,880 --> 00:33:19,400 Speaker 1: so I should point out that now the shares are 605 00:33:19,400 --> 00:33:22,720 Speaker 1: down more than five percent after that that call. But 606 00:33:22,760 --> 00:33:24,800 Speaker 1: so that are we basically just seeing a time when 607 00:33:24,800 --> 00:33:28,400 Speaker 1: discounting is everything. Still discounting is still everything. But it 608 00:33:28,440 --> 00:33:31,680 Speaker 1: really comes down to execution and having the right products 609 00:33:31,680 --> 00:33:33,760 Speaker 1: and driving traffic to the stories. You know, with the 610 00:33:33,800 --> 00:33:36,360 Speaker 1: shift to online with Amazon and everything else that's going 611 00:33:36,360 --> 00:33:38,680 Speaker 1: on in retail, the struggle is really to get the 612 00:33:38,720 --> 00:33:41,680 Speaker 1: traffic in and then to improve conversion by having the 613 00:33:41,760 --> 00:33:44,640 Speaker 1: right product. And for apparel, you really need to have 614 00:33:44,720 --> 00:33:47,719 Speaker 1: something exciting, something different, and you need to provide some 615 00:33:47,800 --> 00:33:50,520 Speaker 1: sort of experience to get that consumer to stay engaged 616 00:33:50,600 --> 00:33:53,760 Speaker 1: with you. Putnam is It also worth noting that if 617 00:33:53,760 --> 00:33:56,719 Speaker 1: you go to calls, you see a huge number of 618 00:33:56,760 --> 00:34:00,640 Speaker 1: third party brands, whether it's Doctors or Glory of Underbuilt 619 00:34:00,800 --> 00:34:05,280 Speaker 1: or even Adidas Plus. You find them doing a lot 620 00:34:05,400 --> 00:34:10,600 Speaker 1: with third party offerings. For example, Carnival the cruise line 621 00:34:10,800 --> 00:34:13,920 Speaker 1: offers their cruises through Coals, whereas if you go to 622 00:34:14,040 --> 00:34:17,160 Speaker 1: j C Penny, it's trying to promote a lot of 623 00:34:17,239 --> 00:34:20,920 Speaker 1: j C Penny brands, although there are some ads for Sephora, 624 00:34:20,960 --> 00:34:24,959 Speaker 1: but by and large it's j C Penny exclusives. Yeah. 625 00:34:25,000 --> 00:34:28,880 Speaker 1: I mean, all department stores have high private label penetration, 626 00:34:28,920 --> 00:34:31,680 Speaker 1: which is their own brand. So for Coals and j 627 00:34:31,800 --> 00:34:34,280 Speaker 1: C Penny it's still a large percentage of their sales. 628 00:34:34,360 --> 00:34:37,200 Speaker 1: And UM j C Penny probably a little more than Coals, 629 00:34:37,200 --> 00:34:39,600 Speaker 1: but UM Coals, as you know, just launched under our 630 00:34:39,680 --> 00:34:42,279 Speaker 1: Marina partnership, so they're they're trying to beef up their 631 00:34:42,360 --> 00:34:46,160 Speaker 1: national brand presence, which helps them get more traffic into 632 00:34:46,160 --> 00:34:48,440 Speaker 1: the doors. Um for j C Penny to focus on 633 00:34:48,480 --> 00:34:51,280 Speaker 1: the national label side has been more with big ticket items, 634 00:34:51,320 --> 00:34:56,120 Speaker 1: whether it's home furniture or stuff like Salon and Sephora. Alright, well, 635 00:34:56,160 --> 00:34:57,560 Speaker 1: I guess we're gonna leave it there. I want to 636 00:34:57,600 --> 00:35:01,560 Speaker 1: thank you very much. Punam Goyle our Bloomberg retail analysts 637 00:35:01,560 --> 00:35:13,480 Speaker 1: for Bloomberg Intelligence. Thanks for listening to the Bloomberg Surveillance podcast. 638 00:35:13,840 --> 00:35:18,759 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 639 00:35:18,920 --> 00:35:23,240 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 640 00:35:23,360 --> 00:35:27,239 Speaker 1: Keane before the podcast. You can always catch us worldwide. 641 00:35:27,680 --> 00:35:28,760 Speaker 1: I'm Bloomberg Radio