>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover the global -- innovation technology and the future of business. there are questions about whether these chinese companies will do enough to protect investors. broke $1 billion in sales last year. can digital do enough to save the otherwise sluggish music business? we will get to those in a moment.

first a check of the top tech headlines. the number of americans who pay for cable or satellite services fell by 250,000 as more turn to streaming services like next week's -- netflix. it is the first full-year decline in tv customers on record. autonomy founder michael lynch management of misleading shareholders. he called on hp ceo meg -- meg details ondeliver the alleged accounting problems. google wins a victory as it fights claims it scanned private gmail messages. they rejected the plaintiff's request.

she wrote that central to the case is whether they gave their consent and must be litigated on an individual basis. first, to the lead. editor at large cory johnson here. there seem to be concerned about these tech companies that have gone public. alibaba has said they will go public but lots of questions about the corporate governance structure. you have been digging in. what worries you? >> there is -- it is interesting it is getting attention. a lot of these were overlooked. coming ones like reverse mergers that happened last year. >> that sounds great. >> the corporate structure is enormously different. people -- they have rules about who can own companies and it is

not people who do not live in that country. the owners of these country -- company are not the owners. they made it clear in their filing.it is an f1 you are buying a holding company atthe cayman islands or another company owns the company. as a shareholder what you would be buying is a holding company that does not contain the same shareholder rights that other listings, the twitter of u.s.,r, the google of the those have different ownership structures. >> how does the chinese government fit in? especially when it comes to the company that could be dealing with more script -- strict censorship guidelines. >> there is the business actresses and the accounting issues. we have rules about accounting

-- accountants have to be inspected by the public company. they cannot look at these chinese auditors. that is one of the risks cited. i will read this from the filing itself where they say other independently registered firms are not permitted to the subject to inspection by the public accounting oversight or it. investors may be deprived of the benefits of such an inspection. i am not saying anything about the accounting, i do not know if it is good or bad or anything but neither does the account themselves. the accounting board cannot look at the accounting work that goes in like they would any other listed company. >> the u.s. does not have a good investor protection as they do in hong kong. can you explain how that fits into all this? >> it is amazing that hong kong insisted on if ali baba were to list in hong kong, that would

generate over a billion dollars in fees in the u.s.. in the u.s. they are allowed to take away the right of an individual shareholder to have a single vote to determine corporate governance. the shareholders cannot change the board in the way they can other companies as they would have been required to in hong kong. >> many tech companies have gone public in the u.s. too much success like baidu. what makes that any different, why can't ali baba feel like baidu? >> they may very well be. history is told by the victors but the chinese security and there is a long list of failed companies that did not live up to their promises where there were questions. u.s. listed chinese companies that went to zero or near zero because they were questions about their accounting process and the same structures are extant here and likely in the -- ali baba filing.

our guests are joining us now. first of all what concerns you most about ali baba? >> to look at the risk, these companies have what is known as a variable interest entity structure which was just described. we have to remember that the structure is the successor to the foreigners did in telecom sector which was also off limits to foreign investors. in the 19 90's, the chinese government took the foreign investors out of chinese unicom by taking away their shareholders because that etructure, like the vi structure that ali baba will use is illegal. you have a situation where the chinese government is permitting the situation to continue but

could change its mind at any time. >> you have a long list of reasons why the audit -- ipo could be disastrous and another one of the reasons that you put forward is the condition of the economy and china. the fact that gdp is growing more slowly than it has been. how much growth do you see in the future for ali baba? they have more transactions than amazon and ebay combined. that sounds great. proportion of the online payment sector is declining. it has 50% or 60% already. clearly it isn't a point where it is ad saturation. the most important thing is that ali baba has competition. verycompetition is capable. this is the social media genius in china. it can be easier monetized. it is social media based than for ali baba to develop a base

in celtic. road to has a harder glory the intention -- than t enzin. the competition at is awill happen, tenzin much better deal and not overhyped. much betters a deal and not overhyped. >> the expanded that to talk about the 24 or two dozen tier two cities. they suggest they have difficulty growing and one wonders if the market is not as big, if it is the market and that handful of 28 cities. theeibo has hit a limit and number of subscribers is declining. the chinese central government

weibo, and the chinese government does not like a lot of what is said. it has started to attack those posters who have big followings. them weof the attack on have seen habitations become less a vibrant and less popular. when you look at what is happening people are migrating an instanthich is messaging system. they are not exactly the same but we can see a migration of conversations from weibo to wechat and that is not good for ali baba. were purchased last april at an inflated price. >> all these issues will continue -- we will continue to

examine as they follow the road to ipo. we will talk about music streaming. technology is still a huge threat to the music industry. we will it blaine. -- aan watch a streaming streaming on your tablet or phone. ♪

>> pindar is raising the price of its ad free pandora one service. users will have to pay $48 year when they renew. new subscribers will be charged $60 year. in an opinion released today a judge said pandora will have to pay 1.85% of its annual revenue to one of the largest performance rights organizations. songwriters had been pushing for pandora to pay more. cory johnson back with me now. pandora has led to a rise of other streaming music services but the bottom line seems to be they are not charging consumers as much as the music industry is

charging them. they have a higher fixed cost just to the rights of the song. they are at a disadvantage and that is one of the reasons you see them raising prices because it is the only way to get to profitability. >> music revenue dropped last year but revenue from internet streaming services rose 51% crossing the $1 billion mark in the u.s. for the first time. >> you continue to see the music industry as we know it. around distribution not just around content creation. when the model changed to see the fall of cd sales like you saw the fall of record sales. they were printed on vinyl. >> i think i remember those. i am not sure if i ever heard a real record which is sad. >> really? >> i do not remember.

member lang records? >> they are selling them at whole foods now. vinyl is having a resurgence. of the pie.l piece good sound quality. i think the subscription , a lot of players getting to that business. there is still a big question for the music industry as to whether or not the rise of those services means more revenue for the industry. are there enough people around the globe that are willing to pay whatever it is, 10 bucks a month consistently? it does not look like if these new numbers like downloads have suffered as a result of the rise of these services. are we anywhere close to having hundreds of millions of people who are willing to sign up for the services and pay for them? i do not think we are there. >> 26% still listen to pirated music. >> i found those numbers

shockingly high. because services are taking off. parting of music is probably the declining. >> you have done work on the different streaming services between pandora and spotify and audio -- rdio. more likely for success? >> i will go from one to the next as fast as i can whenever i run out of the limit on how many songs you can listen to before they do not let you skip anymore. thinks aboutandora the best way to integrate ads into the listening experience and to let you listen for free. different than spotify. spotify want you to pay that monthly amount whereas pandora wants you to maximize advertising revenue knowing that people will be listening and using the services more. maybe advertising does have a bigger potential than the number

of people that can based -- they can get to sign up. >> i am a lean back user. i am not good at building my library. isthe number of listeners slowing down and engagement is increasing. the company is facing a different challenge. initially the challenge was to get people to use the service. they are reaching some limit and the question is how they can get listeners to listen more. >> we will be back talking about facebook's $19 billion purchase of whatsapp. what that means for the employees. that is next. ♪

>> welcome back. facebook's $19 billion purchase of whatsapp shook the technology world but what about price tag for employees? issa -- i spoke with the ceo and asked what his company does. >> wellfront is the largest growing financial advisor. we believe that everyone deserves this -- sophisticated advice. we charge only a fraction of what traditional advisors charge above that. 1/4 of 1%.

>> is there something different or special? >> we appeal to young people. 50% are under 35 and 88% are under 50. we are talking about a generation that grew up with software. they are comfortable with the idea of software managing their money and the preferred. technology is one of those industries where it bring success to a lot of young people and these are young people who have a eye as toward technology. >> it can be obligated because areare getting shares that not worth anything on paper. >> that is right. technology employees have the good fortune that most tech companies share their wealth so they have to make financial decisions earlier in life than in other types of industries. >> what kind of advice do you give employees in terms of managing finances and planning for the future, how do you advise them on how to view those

shares down the line? >> the truth is some of the oldest advice is the best. officerf investment wrote a book and says markets go up and down. you cannot control that but what you can control is keeping fees low and diversify your portfolio and being smart about taxes. that is what we do and because we do it in software you can have a service that is watching your money 24-7 everyday. doing things like rebalancing your portfolio or harvesting tax losses. >> everybody is talking about the whatsapp employees and founders who have become very rich. you have been doing some calculations in terms of how much these people are actually bringing home. what can you tell us, i have read that on average employees may take home 160 million dollars apiece. >> i do not think the detailed numbers are out there. numberard to ignore a

like $19 billion. that gets everyone's juices flowing. the reality is joining a startup is not like joining a normal company. the amount of equity you get varies with when you join the company. founders get the biggest piece in the first engineer gets more than the 50th. most people ignore that you investor equity over time. when you get acquired it is not like winning the lottery. you have time to work through and your new acquired company to earn those shares. >> a lot of people are a lot richer because of this. what do you advise in these kinds of situations? have 100 million dollars. >> this is a great situation to be in. and as a great outcome great outcome for facebook. the advice is two things. you do not have to make any urgent decisions. you have time to figure this out area the good news is they have over 50 people who are in a similar situation. you see that with companies like

facebook and google and linkedin where we get a lot of our clients. there is a lot of sharing of information and knowledge some people can make these decisions together and we recommend they talk about these issues. >> i do not feel sorry for them but i get your point. what about when you're company is public, with how does that change things when maybe there you're not and getting the money necessarily right away. you have a choice about when to serial -- sell your shares. how do you advise employees when it comes to that? >> what we would advise his research shows the more often you look at a stock price the worse your investing decisions are. become people who have suddenly wealthy leading to whater income disparities, is your take on the discussion? that is a tough one.

>> i am hardly an expert in the issues but i think the technology industry has created a new set of challenges. it is a great fact about the technology industry that instead of all the wealth going to a select few technology companies share 10% or 15% of their value broadly with their employee base. there are tens of thousands of employees were making good money. young people and we know there is problems with youth unemployment. a lot of young people are finding great opportunities in technology. it creates a problem for a city like san francisco when you do not have just a few people coming into money at once but tens of thousands, maybe even hundreds of thousands of people. that is a lot. ♪ >> you're watching bloomberg

west where we focus on technology and the future of business. he is protesting the lack of diversity in silica and alley, the lack of latinos and african-americans in the workforce. thanks for joining us. why are you there? here not just because of her city, it is a matter of

justice. when it comes to boards of number have no blacks or latinos on their boards and there is no shortage of people who qualify. [inaudible] for moreso called minority owned investment firms ande participating in ipo's debt offerings. why is that such a focus? >> because the chance for economic element. billion-dollaral ipo's with no blacks or women or latinos involved. verizon did the $6 billion -- $60 billion offering. with no latino or women involved. formust fight

[indiscernible] we did not know how good baseball could be until everybody could play. the white kid comes to silicon valley and the black kid goes home. that is not fair. we must do better. >> when you go it is kind of shocking to see how wide it can be but hewlett-packard has got a female ceo and the female cfo. i want to read a statement. they said -- why hp? >> what does it have to do with racial justice?

genuine racial justice all the while. we want blacks and latinos and asians and women so we can buy the product together and use together and it is a net gain. >> it is a fairly shocking statistic. >> the highest regard to meg whitman. we will meet in just a minute. they cannot even deny that something is wrong when they look at an all-white and in-male board of directors 2014. i think about this week we are -- we were arching for the right to vote 49 years ago. we could not sit on jurors. you could not vote on campuses and we are a better nation than that now. these companies should reflect that better america.

click silicon valley does not reflect that. we looked at statistics that show enter backed companies them only one percent had a black founder. 83% of the teams are white. within silicon valley the jobs cap is substantial. 9.2% of tech industry workers. a lot of those computer science degrees are not resulting in a lot of lack and latino workers. even our government [indiscernible] capital inss to technology and growth. that is why blacks remain locked in the economy. decision is built on capital and trust and credit. we can i get the capital and we credit.et the trust or

we cannot grow and we want to grow. that is america's growth. >> you are -- you said something about meg whitman paving the way for melissa and cheryl. what did you mean by that? >> there are some black women who have benefited from the growth of meg whitman and that is a good thing. our quest for black and latino and women plus gross, fighting marginalization is consistent. here we are today and you think about the markets of 300,000 employees at hp. the board does not look like the marketplace and the marketplace has talent and money and growth and they should look like the marketplace. demand justice and fairness. >> do you think the reason is racism? >> or cultural, however you put it.

the result is exclusion. exclusion represents a limitation. big bestot get the best bang for the buck. we want young people to learn to do apps. or join the pipeline between palo alto and stanford. that should be all about -- all of our goals. >> it is interesting with computing. the big changes right now, going to cell phones and smart phones. that is some of the most powerful computers invented. that is putting computers in all race in creeds and religions. >> the suggestion that you cannot find qualified blacks or latinos is simply not true.

more market and more money and more talent, everybody wins. >> have you done much in silicon valley in the past with other companies and if so, what? >> we have done so in the past. we have challenged them on involvement -- involving more people. whether growing gap, more happened [indiscernible] and the milk last second. it is creating havoc in the middle. too many at the bottom with too little. some marking of capital. not just the right to vote. >> you're talking about the big employees.

startups.so many what would you say to a startup executive, someone who is starting with a small handful of people? if you are on a good team and some of them are male or female, white, black, jewish, it there, indian, you use the whole marketplace. we have known that marginalization limits growth. it has not been right and it has not been helpful. jackson of these push coalition. we will talk more about these issues of income a quality which is a big discussion going on in silicon valley and in all of technology. that is coming up when "bloomberg west" into news. -- continues. ♪

>> welcome back. i am cory johnson. we have been speaking with reverend jesse jackson who is at hp's annual meeting. highlighting the lack of diversity in the technology workforce throughout silicon valley. i want to do about this issue that is getting a lot of attention certainly in the san francisco and silicon valley area but throughout technology. this notion of the way that technology is changing cities demonstrating- income inequality. what is technology doing in that regard? >> the fact is you would think they would devise ways to have a greater sense of economic justice. it has become a matter of a rich race to the top.

peoplee these gentrifying communities and driving people out, diving homelessness. appeal to meg whitman and the board and the people we met with at facebook and google, let's use this technology to figure out how to lift the boats at the bottom. with food insecurity and people on food stamps and the problems of guns and drugs. youust go another way. rex wonder about technology itself. i have this theory that one of the things that technology does is take out the middleman whether it is in ebay or amazon. they use technology to find ways to get rid of the jobs and the expenses of the middle but that does not tend to have -- add to more employment.

i wonder if technology itself might be the problem. it is thet think problem. india.gest market is because of higher skills and cheap labor. we globalize capital and technology. we did not globalize human rights. workers and children, women's rights and [indiscernible] maybe 33 and all. people have the right to make cannot gooney and we much further that way. >> the tax evasion thing is interesting. why are you highlighting that? whenhighlight it because they're closing schools and

hospitals, we are bankrupting cities like detroit and birmingham. [indiscernible] and where are the rich to go, behind gated walls question mark we have some of the patient to make room for all americans. we must make room for the poor. >> thank you very much for your time. the reverend jesse jackson of operation push. more after this. ♪

>> welcome back. we are outside on a beautiful day in san francisco. . aare talking about drones town mr. owens which means a human does not have to be at the controls. do not need an individual.

the whole point of this future of business. >> the ceo of skycatch is here. how are your drones different? >> they are autonomous. not have to send the data out to the cloud. all this happens at it and a ton a miss ground station -- an at n utonomous ground station. you have to upload the data but not with our system. >> you have one. >> it will take off autonomously. -- here it goes up. pre-or ground.

>> what are the applications? quick some our -- they use it for managing ground force. for surveilling stockpiles. safety, security. >> why is a drone better? what do they use currently? >> right now the use life people. -- they use life people. -- live people. >> imagine yourself you are on the deck and do our stock i'll surveilling. it -- you push a button and it goes off. >> can your kind of drones find a missing plane? >> it does but not that one. >> why not? to get thed coordinates. you need to send it to a location.

exit is not good for surveilling mass amounts of territory. >> not this one. >> it also seems to irritate the seagulls. >> they are not happy. >> how does what you're working on fit into what amazon is doing and facebook, they are buying a drone company to help them connect the world and be an broadband to parts of the earth. >> we are aligning in up lace -- it is just covering their. -- hovering there. where focusing on data collection. there is a lot of data that you can extract its own -- having someone pilot it is really complex. retrieve a lot

of data. >> the fda is reviewing rules and trying to come up with a s practices. what is the biggest thing you want to say that will help your business grow? >> we agree of not allowing for commercial use because it will create a gold rush. if everyone knows that you can make money off of drones. they let people -- they need to establish a framework. >> are you making money now? >> we are within the boundaries. >> how much are you making? >> i cannot say. -- some of the clients are the largest construction firms and they are buying these ground stations. >> what you mean within the you usemit, how can them commercially if they cannot be used commercially question are >> you have a really big ones that fly in the airspace and you have the model aircraft. the model aircraft are within and if you stay within

400 feet and line of sight the year -- you're good to go. is under the official rules of a model airplane. not under a drone itself. is that the size of the device? >> that is classified as a model aircraft. >> what is the maximum size? >> there is a precise limit. there -- it is debatable. thatis many grams below size limit. >> how mainstream do you imagine drones are going to be, are they going to be part of our daily lives? >> i think absolutely. search-and-rescue is one of them. having drones follow you on ski resorts and get some good footage or motocross, there is a lot of areas. >> we need more to distract us when we are snowboarding. >> this technology, you

mentioned this drone could not find the malaysian 370. could this technology be helpful in a search like that? >> yes. you have an earthquake or a massive earthquake or so not me. you can send this guy and find people that are survivors. you can find hotspots. them.n go down and locate >> given the wealth of opportunity i would imagine it is hard to focus on what your best business is going to be. how do you do that and what have you identified as places where you want to focus. as you develop the technology you want to focus on the best possible use. >> since we started last year we got a huge amount of interest from different companies wanting us to do all search of different things. we stayed focused on enterprise. images.g we got a ton of images and top-down and 3-d models. >> how sensitive is imaging

technology, does it make mistakes or can it say that is a person and that is a rhinoceros? >> our imaging is very precise. in terms of capturing the location am a whether you want to track a train that is -- a crane that is moving. it is precise and in terms of attacking people you can do another set of learning. dothe crane there, you can pattern recognition. these are the things that we are getting into. >> how many are operational? >> we have a fleet of 15 already. do you see a point where the manufacturer -- manufacturing will be cheaper and easier or do each one have to be assembled? or mining, action lot of the issues is people not having answers for the things that are happening on the ground and making decisions quickly. when you add this ability things

change completely. that is why we have so many different clients. >> how fast can you scale this given the legal issues and everything else question are >> q3 we will beby able to fulfill a fleet of these. >> that will be a lot of ticked off seagulls. >> can you make it land? shelby bring it home? rex it will land now. home?ll we bring it >> it wiill land now. stay away from them. you do not want to fly them in populated areas. that is part of what the faa regulates. you do not want to fly this in the area. >> thank you so much. great to have you here. thank you for watching this

edition of "bloomberg west." we will see later. -- see you later. ♪

>> welcome to lunch money. take a look at the menu today. toyota pays up. the bill $1.2 billion. wemedia, on the red carpet. brought you the cast and creators. arounds and speculation malaysia airlines. in design, using form and function