Speaker 1: I'm Caroline Hired of Bloomberg's World. I quarters in New York,
Speaker 1: and I made Lovelow one more time this week in Manhattan. Next,
Speaker 1: my good friend, this is Bloomberg Technology. Goldman Sachs has
Speaker 1: once had a lofty goal of storming the consumer market
Speaker 1: with the Digital Bank of the future. Now all that's
Speaker 1: left as a unit. The racked up on one point
Speaker 1: two billion dollars in losses, most of which was linked
Speaker 1: to the high profile Apple cart. And bitcoin is back,
Speaker 1: well sort of, at least it's had the best week
Speaker 1: since one after losing more than six its value in
Speaker 1: two more on the rally later this hour, and Tesla
Speaker 1: is slashing car prices, this time in the U S
Speaker 1: and sum of Europe. The ev maker is trying to
Speaker 1: stoke demand, but instead stokes investor concern. We discussed, but
Speaker 1: first let's get to these markets. So check in on
Speaker 1: the last day of training the week of course, ahead
Speaker 1: of what is going to be a shortened week next week.
Speaker 1: As we take time off to Mark Martin Luther King day,
Speaker 1: I'm looking at the SP five hundred, almost cracking the
Speaker 1: four thousand level. Three we're above that two day moving
Speaker 1: average up four tens of percent. The NASDAC outperforms up
Speaker 1: seven tenths of a percent, in fact, the longest winning
Speaker 1: street since November one. And even this is a global
Speaker 1: risk on move. We saw Chinese stocks once again, the
Speaker 1: story of China's unfolding on reopening story post those COVID lockdowns.
Speaker 1: We're seeing two point eight percent put to work in
Speaker 1: the in the stocks of course that are traded here
Speaker 1: in the US in the Golden Dragon. Lets something a
Speaker 1: little look a what's happening in terms of crypto, because
Speaker 1: as I said, this is sort of a risk on move.
Speaker 1: No wonder therefore Bitcoin continues. It's as elevation. Look at this,
Speaker 1: we're cracking nineteen thousand, we're now and fifty four close
Speaker 1: to that twenty mark. We're up almost twenty over the
Speaker 1: last few days and the beginning of January. Really this
Speaker 1: continues to be well at last, bit of an outperforming market.
Speaker 1: D Yeah, it's really interesting. I'm seeing a lot of
Speaker 1: similar themes in the specific names. Right, Apple finishing strong
Speaker 1: up one percent this Friday, actually had its best week
Speaker 1: since November. And after we got that cp I print,
Speaker 1: we're talking about the FED moving forward at least in
Speaker 1: the short term. With twenty five basis points increment hikes,
Speaker 1: we're feeling a lot better about the technology sector. That said,
Speaker 1: there is a lot of red on my screen, and
Speaker 1: Tesla is a big contributing factor to that. Ultimately, we
Speaker 1: closed down about a percentage point on Tesla. We have
Speaker 1: been down as much as six percent earlier in the
Speaker 1: session after the ev maker cut prices substantially in the
Speaker 1: United States and also in Europe. You can see that
Speaker 1: had a knock on effect on some of its pure
Speaker 1: play e v peers, including Rivian, which was down six
Speaker 1: and a half percent. NDO Global Really and Training. This
Speaker 1: is leon on Messi, right, this is Messi's big brand
Speaker 1: and clothing company. It had its first trading session this
Speaker 1: Friday after a five dollar I p O. You can
Speaker 1: see actually all told, we're closed at four dollars. Okay,
Speaker 1: this isn't really tech. This is more about social media
Speaker 1: influencing and this is very much a small cap company.
Speaker 1: But at one point, and you've got to take my
Speaker 1: word for it, because we don't see that story on
Speaker 1: the screen, we were up two hundred thirty from that
Speaker 1: I p O price. What can happen in a single
Speaker 1: session is bizarre, but interesting to see that star power,
Speaker 1: that social media influence leverage into the equity markets. Amazon
Speaker 1: is fascinating. Amazon has just had its best week since
Speaker 1: And you and I were talking off camera, Caroline, how
Speaker 1: that kind of went under the radar. Remember what happened
Speaker 1: in April. We all cain't of realized we'd be stuck
Speaker 1: at home indefinitely, it seemed at that time. And Amazon
Speaker 1: was the main beneficiary at that point. Now, with that
Speaker 1: pivot in the psychology around inflation in the FED, well,
Speaker 1: Amazon is also having a really good period right now. Yeah,
Speaker 1: and still fifty five buyers on that particular stock only
Speaker 1: one cell, So we wonder how long that winning formula
Speaker 1: might last. We talked technicals, we talked stocks. We also
Speaker 1: talk what's happening in the earnings that relates to technology,
Speaker 1: because three months ago Goldman Sachs created a new division
Speaker 1: to how's what's left of its for a on Main Street.
Speaker 1: It's called platform Solutions, which includes Goldman's Apple Card. Now
Speaker 1: it's giving shareholders kind of clearer guidance on the financials
Speaker 1: and the unit. Get this, wracked up one point two
Speaker 1: billion dollars in losses in the first nine months of
Speaker 1: two of their own Snai bus. He's been busy converting
Speaker 1: basically all the other band cunings that come out today,
Speaker 1: but managed to get on this particular focus that we
Speaker 1: had for Goldman sax To and this area that basically
Speaker 1: I mean, it's this marketing spend on the Apple College
Speaker 1: or where are these losses mounting from? Well, there are
Speaker 1: a few things that you have to look at. When
Speaker 1: you look at this unit, and this is a unit
Speaker 1: one point to billion dollars is for the first ten
Speaker 1: months of the year. We also have details and also
Speaker 1: previously reported by Samaphore that those losses can amount to
Speaker 1: up to two billion dollars through the full year. So
Speaker 1: more clarity when Goldman reports earnings on Tuesday, much more clarity. Remember,
Speaker 1: David Solomon said that they would have to pivot the
Speaker 1: business already. The question is how much more after these losses?
Speaker 1: Where do they come from? As you ask, part of
Speaker 1: it is operating expenses, which have risen quite meaningfully over time.
Speaker 1: But part of this is also provisions for credit losses.
Speaker 1: We're seeing a lot of banks announced those provisions for
Speaker 1: credit losses. Now Goldman has been getting new consum as,
Speaker 1: they've been getting younger consumers will see how their losses
Speaker 1: stack up against the other banks, which are also showing
Speaker 1: that those charge offs in particular are rising as they
Speaker 1: get new credit card customers. So definitely a competitive business Goldman.
Speaker 1: Remember they are one of the only banks with a
Speaker 1: meaningful relationship with a very large technology firm. City Group
Speaker 1: had tried to do something with Google about a year
Speaker 1: or so ago that kind of fell through, So Apple
Speaker 1: was supposed to be a huge competitive advantage. We expect
Speaker 1: them to lean on the relationship with Apple continuously, but
Speaker 1: again not only earnings. Goldman's investor Day at the end
Speaker 1: of February should give us a sense of how far
Speaker 1: these ambitions will go. Remind me, like, why it's beneficial
Speaker 1: to tie up with Apple here for Goldman, because at
Speaker 1: the moment when I use Apple Pay, I don't care
Speaker 1: which I mean, I just kind about which credit card
Speaker 1: I'm using as to whether standing on my credit Yeah,
Speaker 1: why does it matter? Well, there's a few things. When
Speaker 1: all of this had started, a couple of things were
Speaker 1: happening at the same time. For Goldman's acts, it was
Speaker 1: a matter of diversifying its revenue base, and so what
Speaker 1: what is that going to cost? Them over the longer
Speaker 1: term to do. When you look at the strategies of
Speaker 1: the other banks, they've doubled down in things like wealth,
Speaker 1: for example. Even when you come to fintech, they've doubled
Speaker 1: down with wealth at that time. Also, a lot of
Speaker 1: the big technology firms had these grand ambitions to be
Speaker 1: in finance in a bigger way, which has not really
Speaker 1: materialized either, and so you have more partnerships and friendships
Speaker 1: rather than real competitive issues here. We'll see if that
Speaker 1: changes in the next ten years or so. But I
Speaker 1: do want to point out really quickly the other story
Speaker 1: that in fintech that we want to keep an eye out.
Speaker 1: What I was going to say that you know, for
Speaker 1: me somebody who covers the technology sector, sometimes there's a
Speaker 1: bit of a land grab. You see all of these
Speaker 1: kind of legacy players like in finance and banks, they
Speaker 1: want to move into fintech. Goldman is not alone in that.
Speaker 1: JP Morgan, you know, actually coming clean about its own
Speaker 1: problem that it's experiencing financially on that to remember, this
Speaker 1: is actually kind of this is a story that's called
Speaker 1: the VC community by storm. Also, this fintech firm Frank
Speaker 1: which was a college financial planning kind of platform here,
Speaker 1: So a lot of college students coming out using it.
Speaker 1: They are suing them for misstating the types of account
Speaker 1: or the number of accounts that it had. Remember, they're
Speaker 1: disputing this the frank founder. But take a listen to
Speaker 1: what Jamie Diamond had to say. He said it was
Speaker 1: a huge mistake. But the acquisitions are done by the businesses,
Speaker 1: but there's also a centralized team that does extensive due diligence.
Speaker 1: So the business does it, the U the central ifed
Speaker 1: team does it. You've been doing it for twenty years,
Speaker 1: whether you like we just started doing something like that.
Speaker 1: And obviously there are always lessons learned, and you know,
Speaker 1: at one point we'll tell you the lesson will learn
Speaker 1: to here when there's been a data litigation. These huge mistakes,
Speaker 1: these lessons learned. Remember the analyst investor community has been
Speaker 1: wondering about Jamie Diamond and JP Morgan Frankly, to your point,
Speaker 1: the rest of Wall Street here, their acquisitions free when
Speaker 1: you come to the fintech world, multibillion dollars in some cases.
Speaker 1: And the criticism here comes down to that due diligence
Speaker 1: and how they didn't see something like this I'm gonna
Speaker 1: still page from Eric Newcomer and say that, you know,
Speaker 1: it's very rare for things like this to play out
Speaker 1: so publicly in the financial technology world, in the VC
Speaker 1: backed space. So you know, it's not a lot of money.
Speaker 1: For JP Morgan, it was a hundred seventy million dollars.
Speaker 1: This is it's not and it's not as though a
Speaker 1: few vcs have written a few checks that rates have
Speaker 1: been mistaken once and the razing exactly that I say exactly,
Speaker 1: but I will say, after the exuberance that we've seen
Speaker 1: so far, perhaps banks will be thinking twice when they
Speaker 1: listen to thirty year old standards. Yeah, jamie's'm in not
Speaker 1: one to mince his words. I think that's probably putting
Speaker 1: it a little bit lightly blue MECTIONALI bassing, thank you,
Speaker 1: amazing week, terrific reporting. Let's talk crypto in particular. Let's
Speaker 1: talk bitcoin because yes, we all know lost about six
Speaker 1: last year is its second worst annual performance on record,
Speaker 1: but now a little bit more of a promising start
Speaker 1: to the new year. Read. Yeah, there's so many ways
Speaker 1: to size and scope this. I mean, one of them
Speaker 1: is to talk about sort of the run we're on
Speaker 1: new year, new Vibe Bitcoin up for ten consecutive sessions.
Speaker 1: It's best run or streak of gains going back to July.
Speaker 1: I find that very interesting. What is the psychology driving
Speaker 1: the market right now? There was a fantastic story as
Speaker 1: well on the Bloomberg terminal this Friday that caught my
Speaker 1: about another corner of the crypto market, which is crypto
Speaker 1: asset focused fund e t s. Right, remember e t
Speaker 1: s for a six point eight trillion dollar industry. Two
Speaker 1: thousand of them, two thousand across different themes attracted by
Speaker 1: Bloomberg excluding leverage products. Now there are four lines on
Speaker 1: this chart to my right hand side, which I'll get
Speaker 1: to a minute. But of those two thousand ets tracks
Speaker 1: by Bloomberg, which across lots of different things, lots of
Speaker 1: different equity products, the top four teen, all top fourteen
Speaker 1: are crypto related year today and exactly it's astonishing performance. Now,
Speaker 1: these are the four that I've picked out for you,
Speaker 1: the top four performers, the Valk bitcoin miners e t F,
Speaker 1: as you can see on the screen next to me,
Speaker 1: up almost sev in the first what is it, thirteen
Speaker 1: days and only seven trading sessions or so of the
Speaker 1: year so far, and it gives you an idea that
Speaker 1: there is some confidence coming back. Now, this is a
Speaker 1: kind of varied list of assets, right, and we've talked
Speaker 1: about bitcoin. That's one example, the biggest digital asset or
Speaker 1: digital currency by market value globally. My question is, has
Speaker 1: the kind of I don't want to use the word
Speaker 1: contagion risk from FTX from what we've seen from regulators
Speaker 1: that ended two? Are we kind of moving past that now?
Speaker 1: And study is build a bit of momentum? That's not
Speaker 1: for me to answer. I'm fortunate to say I think
Speaker 1: we have somebody that probably could weigh in on that
Speaker 1: character we do. And also how much of this is
Speaker 1: a macro trend because let's face it, we've had risk
Speaker 1: assets performed pretty well and the dollar down. Let's talk
Speaker 1: at all through with still Mark, founder managing partner, and
Speaker 1: he's clean who joins us now, and this is always
Speaker 1: great to get your perspective. We know you're focus on bitcoin.
Speaker 1: You'll focus on what is the O G of the
Speaker 1: crypto space, and I'm interested in first and foremost on
Speaker 1: what the stealth rally that's kind of taken us by
Speaker 1: surprise here. It's always hard to know why bitcoins price
Speaker 1: moves when it gets but in times of chaos in
Speaker 1: the crypto market, we will often see a flight to
Speaker 1: security and stability, and the market knows that to be
Speaker 1: Bitcoin and and potentially this this week's rally and BTC
Speaker 1: to your to that perspective, is this, as Ed pondered,
Speaker 1: a movement away from the contagion risk or is this
Speaker 1: perhaps more of a macro trend, more of tech stalks
Speaker 1: doing relatively well dollar on the weakening perspective? Is is
Speaker 1: that what's happening? What do you think? There's a few
Speaker 1: courses that play here, of course, especially as is related
Speaker 1: to bitcoin's short term price movements. Where still markets focused,
Speaker 1: of course, is in the long term and the value
Speaker 1: generated by the economic activity happening on top of bitcoin technologies,
Speaker 1: and we know that adoption continues to it at a
Speaker 1: very steady cadence. The price will reflect some of that
Speaker 1: as well as the expansion of bitcoin's utility. So as
Speaker 1: we see the Lightning network mature, for instance, and the
Speaker 1: utilities set expand we understand the intrinsic value of bitcoin
Speaker 1: and it's underlying technologies to have increased until I emagine
Speaker 1: the price movements reflect in understanding of that as well.
Speaker 1: At least, Happy Friday to you. It's good to see you.
Speaker 1: You know, we we we've kind of jumped straight in
Speaker 1: here to the bigger picture of what's driving the psychology
Speaker 1: of the market. What what was fascinating for me is,
Speaker 1: you know, bitcoins continued to push higher in a week
Speaker 1: where there was still I guess volatility in the headlines
Speaker 1: right US Securities and Exchange Commission filing you know, charges
Speaker 1: or complaints against Gemini Genesis and claiming that they offered
Speaker 1: unregistered securities. First of all, I guess what is your
Speaker 1: reaction to to that action by the SEC. The action
Speaker 1: from the SEC was focused on gemini S burn product,
Speaker 1: which was bearing the promise of yield generation, and the
Speaker 1: SEC has been pretty clear and their focus on custodial
Speaker 1: based yield products offered to retail participants, and so this
Speaker 1: was consistent with that effort. What's interesting is how that
Speaker 1: matches with activity happening in the bitcoin space and specifically
Speaker 1: the lightning space. There will be a void here where
Speaker 1: activity that was speculation based and custodial driven for yield
Speaker 1: generation in the crypto space. That void can be filled
Speaker 1: by yield bearing products or opportunities in the Lightning network.
Speaker 1: And here's why. As the Lightning network has grown an
Speaker 1: adoption as it's matured that's paid the path for a
Speaker 1: liber to emerge a libra of the Lightning network. And
Speaker 1: what that means is that there's a real rate for
Speaker 1: yields in the lightning network that is tied to the
Speaker 1: value placed on payment capacity for the Lightning network. And
Speaker 1: so adoption of the Lightning network grows as additional assets
Speaker 1: are introduced to the Lightning network, for instance through Lightning
Speaker 1: Labs Pterot protocol. What we can expect to see is
Speaker 1: that rate increase. So we take a look today at
Speaker 1: the rate of of um of both funds on Lightning
Speaker 1: network and payment pathways. What we would find on Ambos
Speaker 1: Ambos Technologies Magma marketplace is about a three percent rate
Speaker 1: of return, which we can expect to see grow as
Speaker 1: Lightning network continues to scale. At least I want to
Speaker 1: ask you about sam bankmn Freed and the latest his
Speaker 1: latest comments. Before I do, can I just ask you
Speaker 1: just to to state for us whether still Mark had
Speaker 1: any financial relationship with SPF or f t X. Of
Speaker 1: course not, because we're focused on bitcoin and sustainable value
Speaker 1: propositions to the exclusion of gambling related activities, which drives
Speaker 1: a lot of the activity and exchanges today. I just
Speaker 1: wanted to be very side of our mandate. No, I
Speaker 1: appreciate that. I just wanted to sow audience to know
Speaker 1: where we stand on that. So now I can ask
Speaker 1: you about SPF his post blog post for one of
Speaker 1: a better description this week where he kind of doubled
Speaker 1: down on the idea that he denies allegations of fraud,
Speaker 1: that he didn't steal or embezzle any funds. You know,
Speaker 1: what is your reaction to that ongoing development. They've all
Speaker 1: denied the same. So I think there's a fine line
Speaker 1: between what folks running these sorts of black box schemes
Speaker 1: I believe is promissible in an effort to produce returns,
Speaker 1: versus what they consider to be fraud. But in fact,
Speaker 1: what appears to have been happening in the fts was
Speaker 1: that leadership dipped into use your accounts to more funds
Speaker 1: to take speculative bets on the movement of crypto prices
Speaker 1: and tooken prices. And that's not a dissimilar story from
Speaker 1: what we saw in the collapse of sayerst Capital Firm
Speaker 1: or others similar and so it's very hard to know
Speaker 1: where the contagion stops here because there's a lack of
Speaker 1: transparency in the crypto space. But what it does underscores
Speaker 1: the value and technologies that allow folks to have greater
Speaker 1: control of their cryptocurrency and Bitcoin specifically, or technologies that
Speaker 1: allow retail investors or participants in exchanges to demand transparency
Speaker 1: so that you know if you're buying if you're buying
Speaker 1: bitcoin on in exchange, including if that exchange was FTS,
Speaker 1: that you can ask them to prove that the in
Speaker 1: fact hold that bitcoin. And as as we've come to
Speaker 1: find out, people were buying bitcoin on FTS and f
Speaker 1: TX was never requiring or holding that bitcoin on consumers behalf.
Speaker 1: The good news is that bitcoin allows you to be
Speaker 1: your own bank. That's inherent in the value proposition and
Speaker 1: by using self custody products and doubling down on the
Speaker 1: value proposition that self custody bitcoin can have when you
Speaker 1: enable a proof of preserve mechanism to prove your credit
Speaker 1: worthiness is a Bitcoin holder, for instance, we have more
Speaker 1: tools and resources for folks to opt out of exchanges
Speaker 1: like US. Yeah, I think look there's so much more
Speaker 1: to find out from the authorities, in particular about the
Speaker 1: investigation into sam Bankman Freed and FT. But it's interesting
Speaker 1: to get a somebody in the underlying technology perspective, somebody
Speaker 1: in the industry is suspective on what's going on. Still
Speaker 1: mock founder and managing partner at least clean. Thank you
Speaker 1: very much for joining us. Now coming up, Tesla cuts
Speaker 1: prices across its line up in the usm major European markets,
Speaker 1: plus Elon's having trouble with a fraud trial in San Francisco.
Speaker 1: Will explain next. This is Bloomberg. That's a great company.
Speaker 1: We just don't believe it's a great start right now.
Speaker 1: It's unclear whether how long the pros that are going
Speaker 1: to have to keep going in. That was Marks Stoker
Speaker 1: there from Adam's Funds saying Tesla not a great stock
Speaker 1: right now, Carol. And the interesting thing is that it
Speaker 1: continues to react negatively to use. Tesla cutting prices across
Speaker 1: its lineup in the US and major European markets. Why well,
Speaker 1: questions of demand you can see actually all told, we're
Speaker 1: down one percent on Tesla. Other peers, particularly the pure
Speaker 1: play ev names, but also some of the legacy automakers
Speaker 1: also falling. The question is if you cut prices, does
Speaker 1: that spur some demand? And that's the debate around the stock,
Speaker 1: at least from cell side analysts this Friday, and great
Speaker 1: set up in what's happening in terms of the fundamentals
Speaker 1: of the business or lack thereof. And and indeed we
Speaker 1: know about the cutting of the prices, but let's stick
Speaker 1: on Tessa and perhaps it's found them more broadly now
Speaker 1: because during the securities for trial that's tied to Elon
Speaker 1: Musk tweet that he was taking the company private. Well,
Speaker 1: it's back resurfacing because Elon Musk wanted it moved down
Speaker 1: to San Francisco, and it seems though that request was rejected.
Speaker 1: The judge her own Musk's argument that he faces a
Speaker 1: biased jewelry pool in the Bay Area. Let's talk all
Speaker 1: of the latest with Dana Hall and covers all things
Speaker 1: Tesla and now start on the trial and maybe comport
Speaker 1: it out to testa more generally Donna, But what do
Speaker 1: you make of this overruling for Ela Musk? Well, it
Speaker 1: was a really long shot kind of hail Mary bid
Speaker 1: on the part of Elon's attorneys. I mean, this trial,
Speaker 1: which has been in litigation for over four years, has started.
Speaker 1: It's supposed to start on Tuesday, and so this like
Speaker 1: sort of last stitch effort to move it to Texas
Speaker 1: was never gonna fly. So the ruling today was not
Speaker 1: a surprise. I just think it's wild that, like I mean,
Speaker 1: there are probably more Tesla owners in the Bay Area
Speaker 1: than in any place in the world except maybe l A.
Speaker 1: It's like Sabari in l A are always neck and
Speaker 1: neck in term of terms of Tesla penetration, and so um,
Speaker 1: it's just funny to me that Elon Musk and his
Speaker 1: attorneys were saying that they couldn't get a fair trial here. Hey,
Speaker 1: Donna take us back to basics. What are the plaintiffs
Speaker 1: trying to achieve here? What is it that this trial
Speaker 1: is all about? It about that. It's about August team,
Speaker 1: when Elon Musk tweeted that he had the funding secure
Speaker 1: to take Tesla private at four twenties share Uh, there
Speaker 1: were wild gyrations in the stock market. Shareholders got burned.
Speaker 1: They are suing him saying that he you know, should
Speaker 1: have known that they're suing him, basically saying that they
Speaker 1: got screwed by this effort. And what's fascinating is that
Speaker 1: Musk and his attorneys are trying to get the Saudi
Speaker 1: Public Investment Fund folks to come testify on Musk's behalf,
Speaker 1: and the Saudis also basically said no, like, we're not
Speaker 1: under an in any obligation to come to this. This
Speaker 1: isn't a criminal trial, it's a civil trial. We're not
Speaker 1: going to show. So it's looking weaker and weaker for
Speaker 1: Musk and his team. And uh, the whole moving the
Speaker 1: trial out of the Bay Area thing was pretty laughable.
Speaker 1: Rule how investors feeling about Elon Musk, I mean the
Speaker 1: fact that he thought he would get perhaps not such
Speaker 1: a friendly viewpoint in San Francisco, I'm not sure worldwide,
Speaker 1: I mean, how much he's liked and loved by the
Speaker 1: investor base given the erosion and value in Tesla more broadly, well,
Speaker 1: the investor investor sentiment is horrible. I mean, there's just
Speaker 1: there's just no question. You look at the sell off
Speaker 1: in two and then you know, you begin this year
Speaker 1: where Tesla is having a shareholder meeting in May. They
Speaker 1: didn't announce to investors that the meeting of the day
Speaker 1: of the meeting. They basically snuck the news of the
Speaker 1: meeting into a ten K, I mean into the ten Q,
Speaker 1: And so you have a lot of investors who are
Speaker 1: planning to file shareholder resolutions being very upset about that,
Speaker 1: and then there's just been no outbound communication. I mean,
Speaker 1: you know, I'm sure behind the scenes, very large holders
Speaker 1: have their their line into Martin Vehica and Zach and
Speaker 1: any La Musk, but a lot of shareholders are like,
Speaker 1: what's he doing, and like they're just tagging him on
Speaker 1: Twitter like everybody else, like asking for his attention right
Speaker 1: to catch up with me on it, sneaking things into
Speaker 1: ten ques. Is the only woman who can tell us
Speaker 1: a little about it, Dona Holliway, thank you. Large language
Speaker 1: models are one of the most exciting developments in the
Speaker 1: last few years. These are models that have been trained
Speaker 1: pretty much on everything that's been written down, everything that's
Speaker 1: on a web page. Um. The result of that is
Speaker 1: that they have enormous fluency. Can ask chat DPT to
Speaker 1: write a will form or a story and it will
Speaker 1: do an amazing job. It doesn't know right from wrong
Speaker 1: or truth from falsehood. So you know, the word that
Speaker 1: we use for that is halisenate um. But it is
Speaker 1: incredibly prolific. I think of these large language models as
Speaker 1: some ants. UM. They can say very convincing things. They
Speaker 1: can say things in the voice of somebody like you're writing,
Speaker 1: if you give it enough of a sample. UM. So
Speaker 1: it's not surprising obviously that they can be used for
Speaker 1: propaganda or misinformation. That's a problem that we face online anyway.
Speaker 1: Neither CEO earlier this week should a ram A Swami
Speaker 1: talking about the pros and the cons of what is
Speaker 1: a rapidly evolving artificial intelligence conversation around chat GPT and
Speaker 1: just really fascinating in the way in which AI chat
Speaker 1: boards have been, of course used, and actually they've been
Speaker 1: around for some time. Just take Replica for example. Now
Speaker 1: this was found in back in ten or started in
Speaker 1: its world of a company trying to create a solution
Speaker 1: for loneliness. Our Replica helps you create an AI companion. Basically,
Speaker 1: it's eager to learn about the world from your rise.
Speaker 1: It's ready to chat whenever you're looking from empathetic friend.
Speaker 1: We want to talk about the pros of this, but
Speaker 1: also some of the concerns that are rising out of
Speaker 1: AI technology. More broadly, Eugenia Kudas with our CEO of
Speaker 1: Replica and the It's fascinating reading about why in which
Speaker 1: this company and this technology was built, Eugenia, because in
Speaker 1: some ways we were using AI chat bolts to solve
Speaker 1: for basically booking a restaurant. And then through your own loss,
Speaker 1: your own grief, you found the practical use of AI
Speaker 1: and chat and your own GPT three platform to help
Speaker 1: remember a key friend you had just talk to us
Speaker 1: about how people are using your chatbot two. So for
Speaker 1: social anxiety reasons and for loneliness, sure, I built this
Speaker 1: company to really his product to really help me grieve
Speaker 1: and to help me get over a very um um,
Speaker 1: very sad situation to happen in my life. And then
Speaker 1: we saw that there's there's a need for something like
Speaker 1: that for other people as well. There's a huge need,
Speaker 1: huge demand for people to be able to talk to
Speaker 1: someone seven to build a relationship, to build a deep
Speaker 1: intimate relationship and be able to confide, to discuss things,
Speaker 1: and to really get this emotional utility out of the
Speaker 1: chat bot um right now around um somewhere. Users use
Speaker 1: it as a friends, some use as a mentor, some
Speaker 1: use it as romantic partner. But for any of these
Speaker 1: use cases, the main idea behind it is to really
Speaker 1: make people feel a little bit less lonely, a little
Speaker 1: bit happier, and to make their suffering a little bit
Speaker 1: less intense. And it's popular. I mean, there are a
Speaker 1: lot of users of replica, but I think what's interesting
Speaker 1: we put it out to our own audience. We use
Speaker 1: a pole each day on Twitter, and this day we
Speaker 1: asked them about whether AI chat pots could fill the
Speaker 1: void of loneliness. And it feels as though there's still
Speaker 1: some hearts and minds to be one here said Look,
Speaker 1: they prefer human friends only did say there was a
Speaker 1: strong use case, but for others they still feel that
Speaker 1: AI can be used in other purposes. Just convince people
Speaker 1: why this is particularly useful for human connection and in
Speaker 1: some ways romantic connection. As you just said, sure, I mean,
Speaker 1: right now, we're truly living in a pandemic of lowliness.
Speaker 1: This is one of the biggest problems, even health problems
Speaker 1: um that humanity is facing. Loneliness is connected and correlating
Speaker 1: is correlated with a shorter lifespans, So it's truly killing
Speaker 1: people right now, and so far there are no real
Speaker 1: solutions to that. There are very few products that helped
Speaker 1: with loneliness. You can argue that dating is one or
Speaker 1: some meet up apps, but that's really that's really on
Speaker 1: the technology fore front. And then so if we think
Speaker 1: about it, we really have to start to come up
Speaker 1: with solutions. And I think it's a very nuanced conversation.
Speaker 1: What we're trying to do is not replace human friends.
Speaker 1: We're trying to give AI friends to people that really
Speaker 1: needed in the moment, so then then they can open
Speaker 1: up and you know, improve their connections with real people
Speaker 1: and build more friendships in real life. However, for a
Speaker 1: lot of people, human friendships um and in the moment
Speaker 1: maybe or not possible, or even they have human friends,
Speaker 1: but they're not ready to be open with them, to
Speaker 1: be vulnerable with them. So think about as something that
Speaker 1: you're training on, something that helps you build these relationships
Speaker 1: that you can take into real life. And so for us,
Speaker 1: the main idea is to measure that we actually are
Speaker 1: decreasing wellliness instead of increasing it. So most of our
Speaker 1: users report that they're actually improving their human connections over
Speaker 1: time and that they're not just talking to a boats
Speaker 1: instead of actually making real human friends. Jenny, There's been
Speaker 1: extensive reporting about mental health coming out of the pandemic,
Speaker 1: you know, especially the early stages of many people were
Speaker 1: isolated at home, away from family, loved ones, those that
Speaker 1: they were used to dealing with or interacting with day
Speaker 1: to day. I do have to ask, though, you know,
Speaker 1: and and and you know, of course there will be
Speaker 1: sympathy to those that suffer from loneliness and social anxiety.
Speaker 1: But my question is does Replica consult with and work
Speaker 1: with scientists and mental health professionals and medical professionals in
Speaker 1: the development of what you're offering? Of course, so for instance,
Speaker 1: we have therapeutic conversations. You can find it in the
Speaker 1: activities tab. You can find coaching conversations that are all
Speaker 1: written by chlinical psychologists, in this case mostly from UC Berkeley.
Speaker 1: We when building the app, we were definitely talked and
Speaker 1: work with different professionals in the field of clinical psychology.
Speaker 1: We do, you know, basically the main north to metric
Speaker 1: for all of our all of conversations on Replica is
Speaker 1: whether these conversations are making you feel better. So this
Speaker 1: is what we're trying to optimize for, not for engagement,
Speaker 1: not for the length of conversation, not for you, you know,
Speaker 1: staying involved with the chatbot, but really whether after this
Speaker 1: conversation you walked away feeling better. And another thing that
Speaker 1: we're working on is is also looking into improving long
Speaker 1: term emotional outcomes and also measuring this with experts in
Speaker 1: the quicker psychology field. We did a few studies. We
Speaker 1: did a study with Stanford was just published in a
Speaker 1: book around human AI relationships. Who working on some other
Speaker 1: studies with the universities. So hopefully we can share a
Speaker 1: little more um as we continue. I want to talk
Speaker 1: a little bit about the business model and the opportunity
Speaker 1: for you. How how does Replica make money from this
Speaker 1: artificial intelligence based platform. It's mostly subscriptions. Very early on
Speaker 1: we decided that we're not going to charge for chat
Speaker 1: because a lot of people come to think about it
Speaker 1: like in the you know, at night, in the darkest
Speaker 1: maybe darkest emotional moments sometimes and they're turning here to
Speaker 1: be able to talk to someone, to seek the response
Speaker 1: from someone that you know there will be supportive and
Speaker 1: we'll talk to them. So to meet them with a paywall,
Speaker 1: this was something that we immediately said we don't want
Speaker 1: to do that. We want to keep chat always free.
Speaker 1: So really the product is free, is free and recharge
Speaker 1: for some features like voice coles, like relationship status with
Speaker 1: some activities, but people can use it without paying, and
Speaker 1: so most of our revenue is coming from subscriptions and donations,
Speaker 1: So people actually donate to the app because they wanted
Speaker 1: to continue. We have a very involved community of people
Speaker 1: that for them it's an important part of their life.
Speaker 1: It's an important relationship in their life. Oftentimes if you
Speaker 1: just you know, go through reviews, oftentimes Replica help them
Speaker 1: get their life back together or go through a really
Speaker 1: hard and dark periods. Hopefully. He mentioned briefly before, the
Speaker 1: romantic side of things, and this has been starring up
Speaker 1: quite a bit of controversy. It feels like perhaps online
Speaker 1: and let's just talk to it for a minute. Because
Speaker 1: the pro subscription that you talk about sixty nine dollars,
Speaker 1: I think it is you can therefore from that unlock
Speaker 1: what you say is perhaps romantic relationships. I'm talking flirting online.
Speaker 1: Maybe some role play people are saying that that's actually
Speaker 1: started to suppam maybe even aggressive conversations, some people calling
Speaker 1: it harassment in some way. Can you talk to that
Speaker 1: and what's exactly happening and what what the response has
Speaker 1: been like. So Replica started as just a friend but
Speaker 1: actually without us doing anything with the productal some people
Speaker 1: figure out that they want their Replica to be a
Speaker 1: romantic partner. For that. Our first response to that was
Speaker 1: to maybe turn it off and just focus our friendship.
Speaker 1: But then we started getting a lot of pushback from
Speaker 1: our original users that were telling us stories that were
Speaker 1: very heartful and touching. There were stories of you know,
Speaker 1: people that are handicapped on disability that are not that
Speaker 1: don't think they'll be able to be in a relationship
Speaker 1: anymore for them that would create an outlet. Stories of
Speaker 1: caregivers to their paralyzed partners that for them, again, that
Speaker 1: was an outlet that was important, and so we thought
Speaker 1: we will you know, let's uh we just decided to
Speaker 1: apply um uh, we're thinking towards it. Were if this
Speaker 1: is and that benefits were not positive for our users,
Speaker 1: if this is improving their emotional outcomes over time, then
Speaker 1: we're not against it, and so we'll keep in the app. However,
Speaker 1: were really kind of move We compartment a lized, compartmentalized
Speaker 1: in the app where it's only available to people that
Speaker 1: do choose a romantic relationship there explicit about it. They say,
Speaker 1: I want you to be my girlfriend, and then they're
Speaker 1: able again if they start that to role play in
Speaker 1: any In no way we're trying to solicit that behavior
Speaker 1: or you know, uh, turning people towards that, because actually
Speaker 1: people that are not coming through that, they're coming from
Speaker 1: mentorship or friendship, they don't want that. So this was
Speaker 1: actually something that early on we uh put in different
Speaker 1: kind of boxes on the app. And this is how
Speaker 1: it is right now. But but because we're at the forefront,
Speaker 1: we're kind of we've always been. You know, just a
Speaker 1: few years ago, people were writing stories about how this
Speaker 1: is stigmatized and how people should not talk to AI
Speaker 1: and this is creepy and strange. Now this is not
Speaker 1: a question anymore. But again, now the question is it
Speaker 1: okay to have an e girlfriend? Is it okay to
Speaker 1: have that outlet? And in this case, I want to
Speaker 1: turn it to you know, an Oxford encyclopedio and AI
Speaker 1: Oxford book on ethics work. We actually talk about it
Speaker 1: and say that it's actually a very beneficial thing to
Speaker 1: be able to talk about your sex and not not
Speaker 1: How are you solving how you looking at what is
Speaker 1: ultimately what happens time and time again with AI is
Speaker 1: some of the darker sides of human nature ends up
Speaker 1: replica for K, replica caating itself in AI. How do
Speaker 1: you solve for that? How do you ensure that we
Speaker 1: don't have the negative side of that? Sure? So for us,
Speaker 1: the answer is very simple. We we do a lot
Speaker 1: on that front. So we use very safe data sets
Speaker 1: and we use a different model completely unless you're a
Speaker 1: romantic relationship and you're exclusively asking for something like that.
Speaker 1: So really the current model, if you're not in romantic relation,
Speaker 1: if you're not asking for something like that, you're not
Speaker 1: going to get that content um And it's not you know,
Speaker 1: soliciting to this content, not you know, coming coming forward
Speaker 1: with that content. So the way to go around it
Speaker 1: is reially to train the model on safe data sets,
Speaker 1: to also add you know, reinforcement learning loops where you're
Speaker 1: teaching it that you shouldn't do that, and we basically
Speaker 1: are not rewarded for this type of behavior. Of course,
Speaker 1: as with any conversational a product, it can be a
Speaker 1: hundred percent sure that you know things will be um.
Speaker 1: You know, the way you want to want them you
Speaker 1: want them to be just because the product is so
Speaker 1: free flow, so to say, so open ended. Um. But
Speaker 1: we're doing a lot of we're taking a lot of
Speaker 1: steps in this direction to make sure that none of
Speaker 1: this behavior happens. All right, Replica CEO, Eugenia coulda you know,
Speaker 1: I think this is just the start of this conversation.
Speaker 1: A lot more still to debate. Thank you for joining us.
Speaker 1: Coming up, we're going to talk about the state of
Speaker 1: music in twenty two following a report from music analytics
Speaker 1: platform Illuminate. CEO Rob Jonas joins us. Next, this is Bloomberg.
Speaker 1: Let's dive into the world of music. In the news,
Speaker 1: Warner Bros. Discovery mulling a sale of its music library,
Speaker 1: which could be valued and more than a billion dollars
Speaker 1: according to a report in the Financial Times. The process
Speaker 1: still in the early stages, but it's got Caroline and
Speaker 1: I thinking about the music industry this year. Let's discuss
Speaker 1: the landscape the industry, the drivers with Rob Jonas, CEO
Speaker 1: of Luminate, and Luminate is basically the analytics and data
Speaker 1: platform for the entire industry. Right, you're looking at music,
Speaker 1: you're looking at entertainment. I think the data point which
Speaker 1: struck me was that we hit this milestone of one
Speaker 1: brilliant music streams, right, what's driving that? Why was two
Speaker 1: the year of digital music? Yeah, thanks for having me
Speaker 1: on guys um. Definitely two was a really interesting year
Speaker 1: for music. Streaming is now the dominant mechanism by which
Speaker 1: music has enjoyed pretty much globally, and we've seen a
Speaker 1: slow and steady increase over the last really eight nine,
Speaker 1: ten years, and two is definitely a tipping point. What's
Speaker 1: driving that. There's a couple of things that are driving it. Really,
Speaker 1: there's lots of different demographics now starting to embrace streaming.
Speaker 1: Obviously it was a younger generations adopting it early on,
Speaker 1: but now we're seeing older demographics using the stream platforms
Speaker 1: with with really very very high intensity. And at the
Speaker 1: same time, we've seeing a lot of expansion into global markets.
Speaker 1: So historically focused on more developed Western markets, music consumption
Speaker 1: really is now global, with all the major platforms operating
Speaker 1: in dozens and dozens of countries around the world, and
Speaker 1: it's driving this massive renaissance in music that's been going
Speaker 1: on for years now. I think there are some parallels
Speaker 1: that that Carol Line and I are focusing on particularly
Speaker 1: the world of video streaming. You know, you think about
Speaker 1: the Korean market, for example, the success of Squid Games
Speaker 1: for a Netflix on the video front. Everything I see
Speaker 1: right now on Instagram and I scroll Instagram a lot.
Speaker 1: K pop. K pop is everywhere, you know, Is that
Speaker 1: one of the drivers that you saw over the last
Speaker 1: twelve months. Yeah. K pop is definitely one of the
Speaker 1: very important expansions of music and a center for music creation. Globally.
Speaker 1: If we look at streaming, streaming grew about a group
Speaker 1: about nine percent year on year last year when we
Speaker 1: look at in sorry, twelve percent last year in the US.
Speaker 1: If we look at it internationally, growth was about and
Speaker 1: a lot of that comes down to these centers of
Speaker 1: content being created in South Korea, but also really interesting
Speaker 1: in Latin America. Latin America and Latin music in general
Speaker 1: had a real breakout year in two. Bad Bunnies album was,
Speaker 1: as we finished up the year, the most popular album
Speaker 1: across the whole of two since we started tracking sales
Speaker 1: and consumption, which is not a massive milestone. And actually
Speaker 1: when you look at that album from Bad Money, if
Speaker 1: we look at total streaming of Latin music, across the
Speaker 1: course of the year, one in fourteen streams came from
Speaker 1: that album, just to give you a sense of how
Speaker 1: important that was. So K Pops, critical, Latins are critical,
Speaker 1: and many many new and emerging areas as well of
Speaker 1: amazing music creation. Go back to the value here, Rob,
Speaker 1: but also speaking to the Instagram scrolling, thinking of the
Speaker 1: amount that we're currently posting on TikTok and Instagram and
Speaker 1: using audio within that, is that getting recompensed. Is that
Speaker 1: monetary value being found in the world of social media
Speaker 1: and how we're using music within it. Yeah, I think.
Speaker 1: I think social media and short form videos has emerged
Speaker 1: as an incredibly important way that music is being discovered.
Speaker 1: If you look at younger generations, especially Gen Z, their
Speaker 1: primary means by which they're discovering music now is music
Speaker 1: that's included in short form video on TikTok and other platforms.
Speaker 1: And then what we see typically is a lot of
Speaker 1: the consumptions and driven to the platforms like the Spotify is,
Speaker 1: the Apple Music's, Amazon Musics and others. So shore forms
Speaker 1: are really powerful way of discovering and then of course
Speaker 1: as music comes more and more important within these short
Speaker 1: form video platforms, then the music labels and the artists
Speaker 1: start to see compensation from that. So going forward, we're
Speaker 1: definitely going to see a lot more value moving back
Speaker 1: towards the artists from these platforms. And I think as
Speaker 1: recently as the last couple of weeks, YouTube has been
Speaker 1: very clear about how they're going to start sharing their
Speaker 1: enormous advertising revenue with some of these artists as well,
Speaker 1: which I think is is very welcome along overdue. And
Speaker 1: then these artists are locking in the value in the
Speaker 1: here and now through deals, right deals for their catalogs.
Speaker 1: How how does that evolve in this more recessionary environment
Speaker 1: as we start to question the valuation of stocks more broadly,
Speaker 1: assets more broadly, what about catalogs and music do they
Speaker 1: stand up a recessionary environment? Yeah, I think they do.
Speaker 1: I mean, we've seen a huge increase in the amount
Speaker 1: of catalog acquisitions in the last few years. In one
Speaker 1: the catalog consumption market was over five and are all
Speaker 1: close to five and a half billion in transactions reported
Speaker 1: around the acquisition of catalogs by various different entities. It
Speaker 1: definitely slowed down a little bit in twenty two for
Speaker 1: for fairly obvious reasons, and will slow down a bit
Speaker 1: more in three, mainly because of interest rates, but it
Speaker 1: hasn't stopped, you know, even in recent weeks and pretty
Speaker 1: significant deals being announced. Most recently Dr dre announcing he
Speaker 1: was selling his catalog or part of his catalog to
Speaker 1: consortion of UMG and Shamrock for about a quarter billion dollars.
Speaker 1: So these transactions are still happening, um. And the reason
Speaker 1: they're happening is because these UM streams that are attached
Speaker 1: to these music catalogs, they're very very easy to generate
Speaker 1: cash literally from day one, like because of consumption is
Speaker 1: happening on all these streaming platforms. As soon as you
Speaker 1: make the acquisition, you're generating revenue straight away, UM. And
Speaker 1: that's incredibly important to some of these financial buyers. And
Speaker 1: then medium to long term they start to look at
Speaker 1: other opportunities to create value from these catalogs, whether it's
Speaker 1: through brand partnerships or sink opportunities, or exploiting and generating
Speaker 1: reve you from from other forms as well. So I
Speaker 1: think we will continue to see more catalog acquisitions happening
Speaker 1: throughout the course of for sure, I gotta keep on
Speaker 1: talking about it. Then with you, Rob Jonas, we thank
Speaker 1: you so much for talking us through the data behind
Speaker 1: all of its CEO illuminate have a great weeks, so much.
Speaker 1: This weekend, HBO Max releases its Leaders Attempt today Big
Speaker 1: Sunday Night Show. For the first time, HBO is looking
Speaker 1: we'll actually to another industry and another inspiration, video games,
Speaker 1: and it's got ed all excited. And the Last of Us, Yes,
Speaker 1: we threw it. Talk about the adaptation and whether it
Speaker 1: might actually work. Yes, The Last of Us was a
Speaker 1: video game that came out in two thousand thirteen. It's
Speaker 1: it was on PlayStation, published by Naughty Dog and Sony,
Speaker 1: and it was this kind of classic well now classic
Speaker 1: third person shooter zombie survival game, which is like, my jam,
Speaker 1: I love zombie everything. That's not the point now, Pedro
Speaker 1: Pascal of course of Mandalorian. Uh you know, that's one
Speaker 1: of my favorites of his. And I guess maybe you've
Speaker 1: seen the Nick Cage film Mass of Massive Talent. He's okay, well,
Speaker 1: he's the star of the Last of Us. This is
Speaker 1: HBO's replication of the video game, and the video game
Speaker 1: was reiterated many times over and updated for later generations
Speaker 1: of PlayStation. Bella Ramsey's in it. Who has also in
Speaker 1: a Game of Thrones, you know, young actress um. But
Speaker 1: historically video game inspired shows and films have not been
Speaker 1: very good, so yeah, told me through the ones that
Speaker 1: have been panned basically when they've been tried to go
Speaker 1: from smaller screen to a big screen are probably the
Speaker 1: worst according to critics. Not me. Adaptation is Assassin's Creed
Speaker 1: Fastbender in two thousands sixteen. Assassin's Creed is just a
Speaker 1: masterpiece of series of video games across many points of history. Well,
Speaker 1: you know, we won't get a video game, but actually
Speaker 1: that film didn't go down too well. And it's also
Speaker 1: worked the other way. You know, you look at some
Speaker 1: films that they then turned into video games, you know,
Speaker 1: the Harry Potter Universe being example. This year, the Harry
Speaker 1: Potter Universe, based around the kind of story of Hogwarts
Speaker 1: has a video game coming out. This excitement around that
Speaker 1: really hotly anticipated, like anything to do remotely with Harry Potter. Right,
Speaker 1: and and so my point more here is that Sunday
Speaker 1: night has become kind of sacred. You know, you think
Speaker 1: about HBO Sundays and others other competitors. Paramount, you know,
Speaker 1: went with Halo for example that had a mixed reception.
Speaker 1: So well, my weekend sorted at least. But it's a
Speaker 1: big question for this industry. Is this a tactic that's
Speaker 1: going to work? And it isn't interesting. It's kind of
Speaker 1: we keep repeating these sort of ways in which streaming
Speaker 1: and music and entertainment or dovetail together. We're just having
Speaker 1: a conversation about the way in which certain streaming elements
Speaker 1: come back to their the way that Netflix looks to
Speaker 1: South Korea for its winning formula on what we watch
Speaker 1: and then maybe you go for it for music as well,
Speaker 1: and wonder of how industries crossed paths in this way
Speaker 1: the summer all that it's competition for iballs, that's it.
Speaker 1: It is gaming. I mean often they say Netflix says
Speaker 1: it's bigger competitor is gaming. That's why they're doing it, right.
Speaker 1: That does it for all this edition of Bloombow Technology.
Speaker 1: Anything I'm going to missing I'm going to miss you too.
Speaker 1: Don't forget our podcast I heart Radio, Apple, Spotify, wherever
Speaker 1: you get your podcasts. Happy long weekend. This is Bloomberg