>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation technology and the future of business. there are questions about whether these chinese companies will do enough to protect investors. sales 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 netflix. it is the first full-year decline in tv customers on record. autonomy founder michael lynch is accusing management of misleading shareholders. he called on hp ceo meg whitman to deliver details on 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. our editor-at-large cory johnson here. they 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. some of the coming ones like reverse mergers that happened last year. >> that sounds great. >> the corporate structure is enormously different.

they have rules about who can own companies and it is not people who do not live in that country. the owners of these companies are not the owners. they made it clear in their filing, it is an f1 filing. you are buying a holding company in the cayman islands or at 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 twitter, the google of the u.s., 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 strict censorship guidelines. >> there is the business

practices 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 surveillance, 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 what foreigners did in the telecom sector which was also off limits to foreign investors. in the 1990's, the chinese government took the foreign investors out of chinese unicom by taking away their shareholders because that structure, like the vie 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 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. >> ali baba's 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. that competition is very 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. ali baba has a harder road to glory than tencent. you look at the competition at what will happen, tencent is a much better 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. >> weibo has hit a limit and the number of subscribers is declining. the chinese central government

has seen 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. because of the attack on them we have seen conversations become less a vibrant and less popular. when you look at what is happening people are migrating to wechat which is an instant 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. they 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. you can watch a streaming -- a streaming on your tablet or phone. ♪

>> pandora 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. it was built 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. do you member lang records? >> they are selling them at whole foods now. vinyl is having a resurgence. it is a small piece of the pie. good sound quality. i think the subscription services, 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 in 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. pirating of music is probably the declining. >> you have done work on the different streaming services between pandora and spotify and rdio. does one seem 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. that is why pandora thinks about the best way to integrate ads into the listening experience and to let you listen for free. their model is 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. can get to sign up. >> i am a lean back user. i am not good at building my library. >> the number of listeners is 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? i spoke with the ceo and asked what his company does. >> wellfront is the largest growing financial advisor. we believe that everyone deserves 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 they preferred. technology is one of those industries where it bring success to a lot of young people and these are young people who have an eye toward technology. >> it can be obligated because you are getting shares that are 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. our chief investment officer 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. it is hard to ignore a number 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 invest your 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? suddenly you have 100 million dollars. >> this is a great situation to be in. this is a great outcome and a 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 is a lockup and you're not getting the money necessarily right away. you have a choice about when to 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. >> some people who have become suddenly wealthy leading to greater income disparities, what 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 silicon valley, the lack of latinos and african-americans in the workforce. thanks for joining us. why are you there?

>> we are here not just because of our city, it is a matter of justice. when it comes to boards of directors, a number have no blacks or latinos on their boards and there is no shortage of people who qualify. [inaudible] >> you also called for more minority owned investment firms to be participating in ipo's and debt offerings. why is that such a focus? >> because the chance for economic development. there are several billion-dollar ipo's with no blacks or women or latinos involved.

verizon did the $60 billion offering. with no latino or women involved. you must fight for [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?

we fight for 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. >> i have the highest regard for 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 all-male board of directors in 2014.

i think about this week we were fighting 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. >> 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] making access to capital in 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 cannot get the trust or credit. we cannot grow and we want to grow. that is america's growth. >> 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. we 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. they cannot get the big best bang for the buck. we want young people to learn to do apps. or have a pipeline between palo alto and stanford. that should be 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 involving more people. whether it's a 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. there must be some marking of capital. not just the right to vote. >> you're talking about the big

employers. there are so many startups. 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, arab, indian, you use the whole marketplace. we have known that marginalization limits growth. it has not been right and it has not been helpful. >> reverend jesse jackson of the 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 and 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.

you have these people gentrifying communities and driving people out, driving homelessness. my 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. we must go another way. rex you 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 add to more employment.

i wonder if technology itself might be the problem. >> i do not think it is the problem. the biggest market for hp is india. 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 all this money and we cannot go much further that way. >> the tax evasion thing is interesting. why are you highlighting that? >> i highlight it because when 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? 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. we are talking about drones. a human does not have to be at the controls. >> you 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. you do not have to send the data out to the cloud. all this happens at it's autonomous ground station -- an autonomous ground station. you have to upload the data but not with our system. >> you have one. >> it will take off autonomously. >> you just -- here it goes up. >> what are the applications?

>> they use it for managing ground force. for surveilling stockpiles. safety, security. >> why is a drone better? what do they use currently? >> right now they use live people. >> imagine yourself you are on

the deck what to do surveilling. 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? >> you need to get the coordinates. you need to send it to a location. >> it 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 on broadband to parts of the earth. >> we are aligning in up lace -- it is just hovering there.

>> where focusing on data collection. there is a lot of data that you can extract its own -- having can extract its own -- having someone pilot it is really complex. we allow you to retrieve a lot of data. >> the fda is reviewing rules and trying to come up with best 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. we have some of the clients are the largest construction firms and they are buying these ground stations. >> what you mean within the legal limit, how can you use them commercially if they cannot be used commercially? >> you have a really big ones that fly in the airspace and you have the model aircraft. the model aircraft are within 400 feet and if you stay within 400 feet and line of sight the

-- you're good to go. >> this thing 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. this is many grams below that 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 tsunami. you can send this guy and find people that are survivors. you can find hotspots. you can go down and locate them. >> 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. gathering images.

we got a ton of images give you 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 crane that is moving. it is precise and in terms of attacking people you can do another set of learning. is the crane there, you can do 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 manufacturing will be cheaper and easier or do each one have to be assembled? >> in construction or mining, a 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? >> we have plans by q3 we will be able to fulfill a fleet of these. >> that will be a lot of ticked off seagulls. >> can you make it land? -- shall we bring it home? >> it will land now. >> you want to 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 you later. ♪

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