>> live from pier 3 in san francisco, welcome to the late edition of "bloomberg west," where we cover the global technology and media companies that are reshaping our world. i'm emily chang. our focus is on innovation, technology, and the future of business. let's get straight to the rundown. derek schmidt, marissa mayer, and other execs sit down with barack obama to discuss surveillance and what wrong with healthcare.gov. facebook is rolling out video ads in some newsfeeds as part of an effort to convince advertisers that the social network can be more effective

than television. and uber faces some angry customers after prices surge during a snowstorm. some of the biggest names in technology were at the white house today, telling president obama about their views on hot button issues full among those in attendance, apple ceo tim cook, yahoo! ceo marissa mayer, sheryl sandberg, reed hastings and dick costolo. they sent a letter to the white house and congress, urging them to reform surveillance practices. and a day after a judge says that the nsa collection of phone records is probably unconstitutional. phil mattingly joins us from washington. i am dying to know what happened at this meeting.

what happened? >> it was almost all about surveillance. about two hours long. these executives met with the president. the key points were what came out in a joint statement last week. one of the key point to those principles, they do not believe that bulk collection should be allowed anymore. that is at the core of what the nsa has been allowed to do. they are worried not only about international push back, but the business implications of this. they are talking about billions of dollars lost for these companies because of mistrust that consumers are running away. the president plans to make some changes and they wanted to be real, not just something that happens on the surface. >> we were told that president obama wanted to meet these executives to talk about healthcare.gov. they said they would come, but only if they can talk about the nsa as well.

yesterday a federal judge ruled that the collection of phone records was probably unconstitutional. how do companies like google, facebook, fit into what is going through the legal system? >> it is an interesting thing. there are a couple ways of looking at it. these companies have their own legal cases is going on right now against the government. they are looking at what the fisa court is doing. they are trying to disclose more information and the justice department is saying no. this is the first case to question what has been a cornerstone of the surveillance program. it does not violate the fourth amendment. as these companies push for more information to be released and for the u.s. government to put more curbs on it, looking at this case and breaking down the barrier here on the cornerstone of these programs, i think these

companies can focus on this and use it to plead their cases going forward. >> phil mattingly in washington, thanks so much. what exactly was behind the healthcare.gov troubles? compuware which provides management to companies like amazon and facebook conducted an independent study of what went wrong with the launch of the government health exchange. for more on that story and what they found, i am joined by michael smith, the vice president of engineering at compuware. you guys have done some of your own performance surveys. you found it is not working out that well. what exactly are you testing? >> we are running tests from different computers around the united states. we are measuring the response time that those computers are experiencing. we are seeing that there are still quite a few locations where the response time is unacceptable.

>> where are you seeing this? what particular geographical location? >> it seems to be varying. it depends on perhaps the time of day or other factors. one of the things to note is that when we are testing these computers, these are real computers over a wi-fi connection. they may be on a hard wire connection. the performance can actually change over the course of time. >> when you are looking at these problems, why are they happening? >> we did an initial analysis and we observed that there were some inefficiencies in the way the website was designed. there were also some components that come from outside sources. a typical website today encompasses content and components from not just the main website, but third parties as we call them, such as a facebook "like" button.

there were some third-party components in the healthcare.gov website that had some trouble early on, especially with performance response time. >> what sites are you talking about? >> i cannot name specific sites. but there were several of them involved. >> so the government has tried to fix the problem, but how much progress has the government made so far? >> from what i can tell, the focus has been heavily on certain systems where the integration to the states' exchanges has occurred. maybe with other federal databases. we are still seeing slower performance at the end-user computer because although some improvements have been made in terms of optimization, there is still room for improvement.

>> what should the white house do to improve this? what are some specific things they can do? >> we should be testing from the end-user computers so they can get an understanding of what is the response time under different conditions and with different kinds of operating systems or browsers. then they can observe how some of the website design behaves under those conditions. they can optimize or reduce the number of objects that are transferred out to those end- users. more importantly, they can work with those third parties to ensure that they can scale and handle the website. >> a former microsoft executive, who has been on this show during his time at microsoft, and will now be in charge of this

website, also president obama was meeting with those tech ceos in washington, how much do you think better leadership is going to help in this kind of situation? >> certainly leadership with experience and in implementing large e-commerce site is important. it is a different world when you are dealing with the consumer. they expect a quick response time, and we call it the google effect, where we expect pages to load in less than two seconds. it is important that we see with those end-users are experiencing and measure from this point of utilization. >> michael smith, compuware vice president of engineering. thank you for sharing your findings here on "bloomberg west." what is facebook doing to appeal to marketers and keep

advertisers happy? that is next on "bloomberg west." ♪

>> welcome back, i'm emily chang. facebook is about to start testing video ads. they will be 15 seconds long and they will play automatically in the newsfeed. they will play without sound, just like videos from friends play now. the sound comes on if you click on the ad. cory johnson is in new york with more on why facebook is making this move. cory, this is a long-awaited move. we have been talking about this for months, why now? >> there are 44 billion reasons facebook is doing that. they want that video

advertising. if you look at everything that has gone on with facebook over the last year, with a stock chart really reflects is optimism that they will figure out new ways to gain revenue at their user growth slows down. fundamentally, the way these video ads will work, i think they will sell them as a high ticket item. one day possible so that will garner as much as $1 million-$2 million in revenue for faith. it is a 15 second ad. we will get a much more measured response than television ads typically received. they will know who is looking at the ads and they will know something about that user. >> let's take a look at how facebook's ad revenue has grown since its ipo. mobile has become a bigger piece of the pie. how does this change things? >> facebook ad revenue was $1.8 million in the last quarter.

that is an incredibly big number. there has been aggressive growth in revenue over the adoption of mobile. that has happened in the last year. the notion that they will further their growth -- they are already growing at 60% year- over-year. they have to do it in a way that the users will not get alienated or turned off by using it on a mobile device because they get annoyed by the feature. >> the television ad market is more than $66 billion, so how much of that could facebook's night? our advertisers going to consider it the same thing? >> in the early days, it will be a tiny piece of that $44 billion. it will help facebook get to its ultimate goal which is higher revenue per user. as facebook starts to re-sync and reach the outer boundaries of how many people they could have on the internet, the only way they can grow is by charging more for the ads.

they need to get more revenue opportunities for their users. now they want additional things like payments or games and video ads could be a way to jumpstart growth once again. >> cory johnson, our editor-at- large, thank you. people familiar with the matter told bloomberg that mark zuckerberg pushed back the start of video ads twice. facebook says it will continue to refine this new wave of brands to tell stories about facebook to ensure the best experience. i want to bring in a ceo of a platform for advertisers to bid on digital advertising in real time. it is used by sony pictures and mlb.com. we also have a facebook exchange partner who helps advertisers reach potential customers on the social network. let's talk about the user experience.

it sounds like they're trying to make it as smooth as possible. it has to be absolutely perfect for this to not be annoying. mark, you deal with live video online every day, can they do that? >> they can do that. we are trying to figure with the right format is. the team works incredibly hard to get it right. they will be able to find that over time. they will be distracted by it, and it will be used to it, and they will get it right. >> if you look at what twitter just did, they did a fundamental change to all of twitter. they added photos to the feed. >> i'm still getting used to it. >> people got used to it very quickly. it made it more interesting and exciting. change is good false facebook playing videos in their feed is something comparable. they will make a lot of money. >> how does the video as compared to other ads on facebook? will it be gold for them? >> the idea of motion to tell a

story, to communicate an emotional component, narrative, it is so powerful. if you add sound to that when you click on it, you can build amazing brands. >> how much of the ad pie is facebook going to steal from other video advertisers? >> most of our clients are major broadcasters. they have true video content and their ads are video in video. it is a tv-like experience. with facebook, it is video ads within text. i think what separates them is the display of the advertising. banner advertising will continue. advertisers will move to this new environment. >> do you expect to see this kind of pressure? >> advertisers can target video advertising to exactly who they want to reach. i was watching monday night football last night and watching

ads for pickup trucks. i am not looking to buy a pickup truck. why was i shown ads for a pickup truck? >> are they going to watch them? they can just scroll past. on television, it is more difficult. >> we will wait and see. >> one of the first video ads that they're going to show is for the film "divergent." is this a sign of things to come? >> i think it will be relevant to their users. they want content that will be geared towards their users. it may skew a little younger. the movie trailer environment is mixing the line between content and advertising. trailers have always done that. people watch them for length. >> why are there video ads on instagram yet? >> instagram is growing incredibly fast. if you are facebook, you want to let them keep growing.

>> but they started video ads. >> slowly. they are not in a rush. they are taking their time. >> how does facebook now compared to the other options out there? >> facebook and twitter are the future. everyone recognizes that. 20 years ago, we all watched the same tv show at the same time and saw the same commercial. in the future, we consume content when we want to watch it on whatever device we have. the ad should be the same. they should be delivered on a personal level. >> i think what is interesting is that advertisers are seeing the value of video advertising to tell rich stories. >> didn't they know that already? >> you get that targeting on top. they have not had that combination. >> is it worth it? it is expensive. >> i don't think so. compared to television advertising, it is a good value.

for one day, it is very hard to ach that many people. one billion users, you cannot reach that many people. you cannot reach 70 users in one day. >> we will be watching to see how it plays out. thank you both for weighing in having this conversation with us today. still ahead, the breaking bad is spin-off "better call saul," is coming to amc, but first we catch up with that sleazy lawyer himself. he will tell us alive all about it coming up on this hour. ♪ >> who can i do? ♪

>> welcome back. i'm emily chang. now to a major deal in hollywood. silver lake management has agreed to pay $2.3 billion to acquire talent agency img. they are doing the deal on behalf of william morris endeavor entertainment. why are william morris and silver lake making this deal? >> i have some exciting news.

this has a lot to do with professional sports. this is a business that represents top music talent. you just awesome images of taylor swift. but you are also seeing images of peyton manning, an img client. there is a real battle to being big in sports in hollywood. caa, one of the rival agencies, already has a big sports arm. they were in bidding for the img business. relativity also has a big sports arm. sports stars are one of the biggest names on television. that is why people keep watching television. it has a lot to do with wme expanding its empire. >> ari emanuel runs william morris endeavor, what can you tell us about him?

>> fans of a show like entourage know the character of ari gold. it is based in part on emanuel. he sees the opportunity to expand the reach of what william morris endeavor is. there is a little bit of crossover between these two worlds already. the price tag has been a little rich for some. here is a firm that has financial backing from an influential name and private equity, silver lake. >> all right, jon erlichman in los angeles. thank you. some riders were made very angry this weekend. we have an uber investor next. ♪

>> welcome back to "bloomberg west." uber is catching some heat from riders. some on the east coast paid more than 3-4 times the normal rate when a storm battered east coast. riders pay more when the weather is bad. this pricing helps get more cars on the road when demand outstrips supply, helping to guarantee the uber reliability. for more on the pricing surge,

cory johnson is joining us here in san francisco. menlo ventures is an investor in uber. it may become a little feisty. the pricing was so high, at one point it was $35 a mile, is that fair? >> fair is not the right question. it is more important to make sure you have a car to take you home, then what it cost. uber pricing is to make sure that the car is on the road. not getting home in a snowstorm is worse. >> i am asking is $35 a mile fair? >> i think the question is that demand for drivers is to get on the road. if you need someone to tell and drive, it puts them and their car at risk. you have to give people an incentive to be out there. the drivers are out there so you can get home safe.

>> cory, is it fair to ask if it is fair when it comes to a small business? should we be talking about the ethics of it? >> your questions are so unfair, emily. i was a taxi driver a long time ago in new york. i was in the back of an uber car. i left the house in a snowstorm and took a cab to my taxi. the cab got out on fifth avenue and did a 360, spinning out onto the snow. i said, you know what, i am not driving in this. it is a reasonable question. capitalism is fair, and it is whatever your customers will pay for. there's a bigger question here about what a developing brand chooses to do. if a developing brand says that he will take however much money

you have, and that is what this cost, that creates a different relationship with the brand. luber is making a calculated decision that they will not alienate people with these things. we saw the people up and down the eastern seaboard who were dedicated uber users were really brought up about this. i am sure that they permanently lost some customers because of this pricing. >> it is one thing to make sure that there are enough cars on the road, but it is another thing to make sure that your customers trust you. how important is trust, and does surge pricing as high as $35 a mile undermine trust in the company? >> anyone who has ever been in an uber car knows how great it is. you have a question of fairness, but let me ask you, there is $200,000 a year going towards drugs. is that fair?

you do not think about how much it costs, you think about the fact the you can live the next are your. the extra year. when i think about the $35, i think about the fact that i can be home with my kids, not what it costs. >> i had the ceo of luber on the show recently. let's listen to that interview. >> it depends on the particular product. generally, it is like 20%. >> you take about a 20% cut? >> it depends on the product. that is essentially the margin. >> uber takes about a 20% cut. what about capping search pricing? going two-three times higher than usual, rather than 4, 5, 7? >> i don't know about pricing. that is a decision that management makes.

they're trying to make sure that enough drivers are available the whole idea of capping could limit the number of drivers. the point is, when there is a snowstorm going on, you want to get as many cars on the roads so that people can go home. the surge pricing allows drivers to get back on the road. >> why can't uber pay drivers more? why don't they take a smaller cut? >> why doesn't the rates charged me less for new year's eve on december 31? >> they are not charging seven times more. >> then why are they charging $200,000 for a drug? they should give it away for free. the point of a capitalist system is that we need some mechanism to drive behavior. we want to get drivers on the road. >> cory johnson, jump in here. i think drivers and passengers should be completely safe and not going out on the road and putting their lives at risk.

is there a better way than this? >> this is what everyone is saying off the air, i do not care about people, i only care about businesses. i am always saying that on air. but i think this is an interesting choice for the business to make. let me bring an example of someone who could afford on uber right. jessica seinfeld, the wife of jerry seinfeld, she paid $415 in an uber fare to take her kids to a bar mitzvah and drop her caps off. her kids were saying things like, oh my god, these people are crooks. it is a calculated risk that the business is taking. they are presenting a fixed price, and you know what this is is. a mcdonald's value meal is $.99 and you know you are getting. we will not change the price if you are more hungry. that is one enjoys a business can make. the use of this technology

allows uber to scale production instantly in a time like a big snowstorm. there is a risk on the backend. uber may incur some wrath. >> obviously, that is the choice that uber made last weekend. is that the right choice? >> i do not want to comment on a specific situation, because i do not know. >> that is not the only person who was upset. there were many people. >> there were people who took their journey and did not realize what the surge pricing was. they were not comfortable to pricing. i am sorry they did not have a good experience. but am i glad that someone can get a driver out there? the alternative is that nobody is out there to get you home. >> you don't think there is an upper limit to how much it should cost? >> i think the upper limit is decided. every time you go to the app you have a choice.

you can say, not for me today. >> people cannot do the math in their head like that. it does not say from point a to point b, it is a certain number of miles. >> if you put in the address where you want to go, it will tell you how much it cost. i want to have everything cheap. i think the government shod have a law that says everyone should be rich, but that is not how the capitalistic system works. >> i have taken uber many times and i use it for work and other things. yesterday i was going from san francisco to the valley, which is a longer ride than usual. what they do not tell you, and this is not advertised anywhere, is that if you use uber taxi to go more than 50 miles outside of san francisco, it is 1.5% more expensive. that is not advertised anywhere. is that fair? >> it is not fair for someone to be charged for something they do

not know the charge for. a lot of times, there is user error and people do not realize it. the company is trying to do a better job of making sure. are there mistakes? sure. am i sorry you did not have a good experience? yes. but i'm trying to make sure that in situations where there are no cabs available, and there've been plenty of times in new york or san francisco were there no option to get me home, i can use this as an option to get me home. >> uber has made my life easier in a lot of ways. but there have been times when i have run into problems. >> i am a big uber user as well. it has made my wallet thinner. these are the kind of problems that weren't possible even a couple of years ago when production of physical things, or the supply of physical things was greatly changed on a real- time basis.

businesses are struging like this in trying to figure out how to provide the consumer -- if there are a lot of buyers for the stock price, it goes up. i think this reaction people had to these prices in some way shows how much their affection for uber is. >> cory johnson, our editor at large. thank you for coming in and defending your company. happy to hear your side of the story. we will be right back with more of "bloomberg west." ♪

>> welcome back. i'm emily chang. microsoft updated us on in search for a replacement for steve ballmer. the company identified 100 people and focused intently on 20. they have narrowed the group down even more. they said they are moving ahead well and they will complete their work in the early part of 2014.

cory johnson, our editor at large, has been following this story very closely. do we know how far they have narrowed this down? >> 100 is a lot of people. >> i nominate you. >> sources say that i was nominated. sources of knowledge of the matter have been an important part of the story. steve ballmer's tenure at the company has been so lengthy, he has put his stamp on things over his course of the time there. the stock price has not been that high. he had the misfortune of taking the job under a big asset bubble in 2000. the stock performance of his tenure never looks that good because of where he started off with his job. they have really gone through a number of different things.

initially, what we heard from the source with knowledge of the situation, it has given us an indication that it was going fast, but it has slowed down a bit. the deadline was going to be on august 23, 2014. a year from the time steve ballmer first announced it. then we heard they were trying to get a deal done before the calendar year. today's information gives them some wiggle room. early 2014 could be june 2014. we will see what they actually come with. this gives them some wiggle room. they have not been able to get a decision out and get everyone on board. >> a couple of weeks ago, a board ceo seemed to be the front runner. matt miller talked to him and we got this nondenial denial which made it seem like he would be

more likely. what happened? >> he was under consideration. there was a conversation with him. he said, hell no, i won't go. but some members of the board of looked at his experience and said that while he has a polished resume, what he doesn't have is experience in technology. that could be holding him back. we will see what can in the board of directors had to say. >> we will be watching in early 2014, all six months of it. now to today's new hollywood. if you have been missing "breaking bad" get ready for the return of attorney-at-law, saul goodman. they are bringing him back to the small screen next year for a spinoff show, "better call saul." >> bob odenkirk has had a pretty

cool career. if you are a fan of "breaking bad," you probably know him as saul goodman. >> i have actually written the show that i am on. i have channeled some of that negative energy. it has been a whole new career for me and really exciting. just to show up and get this character, who is not me at all. >> did you think the world was going to fall in love with a sleazy lawyer? >> i did not think that everyone would love the sleazeball with a comb-over. but they love him because he is inside the tv. >> once a plate on netflix and you could really be watching it, and you could see it from one

moment to the next, it snowballed in such a big way. >> we are done, when i say we are done. >> so you are coming back as "better call saul." >> 2014? >> that is when it is slated to run on amc. we will shoot in may. what you will find with the saul goodman show is that it will not be "breaking bad 2.0." >> we wanted to ask three things we wanted to know about saul goodman. >> he sleeps with a teddy bear. i would not be surprised if there is money in there. he has never seen the inside of

a court room, which is pretty good for a lawyer. he writes all his own commercials. >> so john, if it is not going to be "breaking bad" 2.0, so what is it going to be? >> i am not going to give any spoilers here, but it is a fresh start for the lawyer. this is a show that has had a lot of success because of new media, because of platforms like netflix, because in the early days, the audience was not that strong and then people started binge watching it. that got people excited about the show. that is one reason why netflix announced that they would have this show available right after it airs on amc. >> thank you. looking forward to it. speaking of "breaking bad," be amc hit was one of the most

tweeted-about show of the fall 2013 season. amc's "the walking dead" was in second place. the super bowl was the overall most tweeted tv event, generating 24 million tweets. how are artists using technology to get fans to concert arenas? that is next on "bloomberg west." ♪

>> welcome back. i'm emily chang. the music industry is going through tremendous change, deemphasizing the sale of recorded music, and relying more on live performances. they are using technology to draw large crowds to concert arenas. cory johnson has a look at the musical arms race. >> 1, 2, 3, 4.

>> the concert business is setting up for dramatic technological change. the best show often means the best stage. it is an arms race, and the leading arms dealer is a company called take towers. they are based in the heart of amish country in rural pennsylvania. >> you build your relationship with your customers in the live experience. >> all of these artists have turned to tait to construct this experience. >> we have architects, engineers, people who went to trade school for cabinetry design. >> the process starts with 3-d modeling on software. these pieces are shipped from all over the world and slapped together for a day, then

disassembled just as quickly and off to the next gig. the man behind it all is james "winky" ferrell. tait now dominates the concert industry. >> we have to do it financially responsibly. everyone has champagne wishes and caviar dreams, but they do not have the budget. >> putting on a big show is necessary, often more so than recorded music. michael buble turned to tait towers for his biggest worry yet. >> if you are asking people to spend $100 on a ticket and a see you in a 16,000 seat arena. they fit a football field away from you. this is something that is necessary. >> performance magic is a modern necessity. >> ♪ [applause]

>> it is time for the bwest byte. we focus on one number to tell a whole lot. cory johnson, would you have for it? >> i have the average take of michael buble's concert tour stops. that is the seventh most successful concert of all the concerts touring this fall. >> it certainly goes to show way artists are going to her these days? >> cory johnson keeps ending the show with these music users. i hope we get one little lake before the end of the show. >> maybe i am the music teaser? >> you guys could talk more about this off the air and what michael buble is like. thank you for joining us on this

episode of "bloomberg west." we will see you tomorrow. ♪ live from pier 3 in san

francisco, welcome to the late edition of "bloomberg west," where we cover the global technology and media companies that are reshaping our world. i'm emily chang. our focus is on innovation, technology, and the future of business. let's get straight to the rundown. derek schmidt, marissa mayer, and other execs sit down with barack obama to discuss surveillance and what wrong with healthcare.gov. facebook is rolling out video ads in some newsfeeds as part of an effort to convince advertisers that the social