live from pier three in san francisco, welcome to "bloomberg west." i am emily chang. it's the deal that is rocking the tech world today and it's not even done yet. apple is in advanced talks to buy beat electronics started by fordre and jimmyiovine north of $3 billion. on the same day that netflix makes its price hike official,

we sit down with one of its biggest competitors,. first a check of your top headlines. we are divorcing before getting married, that's how publicis chairman is describing the breakup of a megamerger that would have created the world's largest advertising company. -- on the con had agreed to bring their companies together but the merger fell apart after the two sides were not able to agree on how to run a company. neither side will have to pay a termination fee. the yahoo! ceo marissa mayer and sam altman posted a fundraiser for president obama last night. the $1000 per cd that was held in mountain view. another fundraiser was hosted earlier in the day are up to 30 guests paid more than $32,000 each to attend. amazon sunday delivery services now available to 15 additional

cities. amazon prime chapter's -- amazon prime shoppers will be able to order something on friday and have the option of getting it delivered on sunday or no additional cost. this is part of an agreement between amazon and the u.s. postal service. apple could soon be dancing to a new beat. it is nearing a deal to buy eat electronics for $3.2 billion. people familiar with the matter say the two companies are in advanced talks. beat is known for its headphones and music streaming service which was started earlier this year. it was founded by music executive jimmy iovine and dr. dre in 2008. apple is under pressure to deliver another it product. the acquisition could help the company bolster its online music business and recharge its cool factor. if the discussions result in a deal, it would be the biggest purchase for apple to date. jon erlichman is in l a

it would be the biggest hurt just for apple by far ever. the last thing they bought that was anywhere near this was next computer for $400 million and does not compare. why this? >> you are right, apple does a lot of acquisitions but none that gets as much attention. you have to look at what is happening in the world of music. we already know that a lot of people are buying digital versions of songs, not physical versions of songs. it is about 39% of the global market. of it is9%, while 2/3 still people buying songs from services like itunes and downloading and purchasing songs, the huge growth is coming and these subtraction services, services like spotify and what pointis offering to the that as of last year, you had more than 28 million people paying for subtraction services,

a 250% increase from 2010. apple has itunes radio, they were hoping that would be a way to generate more revenue through itunes. maybe this takes us to the next step. it could be part of the story but not the full story. >> what about the headphones? goodman apple just sell those in apple stores? >> and they do. i was speaking to a formal apple executive today who said tim cook is a smart person a does not have to pay $3 billion to slap an apple logo on beats accessories. they are making money through that partnership already. that opens the door to what could come next. we talked about apple and its placement in the living room, the future of television, how it will play in that world. what if there are things they are working on we don't know about that would help to make this merger of hardware and

software and entertainment make more sense? you certainly get the sense from people that while there are bits of the story that seem obvious why they might go after beats, there is a lot we don't necessarily know and that's the way apple goes with these deals. >> hang on, i want to bring in apple and john irwin, the former president of rhapsody which was the first subtraction service to offer unlimited streaming service for a flat they. what does it mean for you guys? is this more competition? apple,s a signal that not surprisingly in some sense, has seen the writing on the wall that the future is in subscription and the future is in streaming. it's surprising in the sense that you have apple as a company were steve jobs traditionally and very strongly suggested that people will always want to own their music and they won't want

to rent their music. this is a sign of a turning of the tide. it's a turning of the tide driven by what john just mentioned, growth in the streaming subtraction businesses over the last three years and the flattening and a decline in the first quarter of almost 14% in the sales of downloads. alex, you say this smacks of desperation, why? >> it is a bit concerning that apple could not do something like this on its own. as john pointed out, it has a history of acquisitions but they are smaller that augment forces already in play for apple. one of the key criticisms of apple in recent years is that there has not been enough innovation. it has fallen behind the curve. everybody's waiting for a larger screen iphone this year but that is something that was done years ago by samsung. maybe they move into subscription music after years of other companies proving its successful. the other thing i don't like about this move is it is somewhat backward looking.

apple needs to look forward to new business drivers like subscription tv, some sort of new content deal or a new model, not letting amazon fire run away with the best hardware for tv in the market. >> the headphones are good. many people actually don't like them. the founder of gigaohm tweeted -- how do you respond to that? >> they don't need the hardware, that's for sure. you have to imagine apple being a smart company must be seeing something behind the scenes if in fact the speculation is true that that would pay north of $3 billion for what we know today that beats has. what they do with their music subscription service in terms of customizing it could be applied to other business models for

apple. that might make some sense. for the headphones by themselves, it makes no sense at all. audio airwin, is beats crappy service? music is the hot new service. they came out and did a super bowl ad. when you get down to the core of it and look at these services, a lot of them are very much alike. there are services like rhapsody spotify,er and like they all deliver essentially the same thing in a slightly different way. as try to capture the cultural relevance of it. what you need to look at with this deal is what apple is not only seeing as the trends in the market but their unique positioning in order to capitalize on it. one of the biggest challenges that these service providers like spotify and rhapsody have in acquiring subscribers is getting them to convert to paying accounts.

apple has 800 million itunes accounts, most of them are links to credit cards. the ability to purchase a subtraction through the itunes store, it could be a powerful combination, a way to drive a move into the future of streaming and subscription. >> what about bringing hardware and software together? you think about the rise of napster and apple coming into the picture with its own music player and then making a mint. you have services like spotify and pandora. they are not in the hardware business. worlds a sign that these actually have to come together in a bigger way? comment interesting because what you had back in 2001 when the ipod came out, they put out this marriage between hardware and software that was brilliant. it gave people a new way to not only consume music but listen to music and to purchase it.

, theforward to today landscape has changed again. the platforms are no longer the closed platform of the ipod integrated with the itunes software. it is android and their smart phones which has far surpassed the iphone sales. if you look at the speed of networks worldwide, very powerful. the need, the fact that subscription music can be embraced by consumers and music fans and be heard virtually anywhere by drawing on this catalog in the cloud is important to note. do you need to on that hardware piece? probably not. what can help with is subsidizing the cost of the content. apple has always made money on selling ipods come and not necessarily on selling the itunes music. >> john irwin of rhapsody and jon erlichman and alex gowan,

we will continue this conversation. apple may not be ready to confirm the talks but don't forget about dre. a video posted last night shows him alluding that the deal is real. >> it came out like two weeks ago. they need to update. >> the first billionaire in hip-hop right here from the west coast. ♪ >> that's next on "bloomberg west." ♪

>> i am emily chang and this is "bloomberg west." we are talking about apple in advanced talks to buy beats electronics for three point $2 billion. we have to listen to that byte

from dr. dre again. take a listen to what he posted online overnight. >> the forbes list just change. it came out like two weeks ago. they need to update the forbes list. >> the first billionaire in have popped right here from the west coast. . >> that video has since been taken down. it makes it sound like a done deal. it is not as far as we know. >> widow know exactly what he is talking about. let's remember there could be a lot of explanations for apple by maybeo beats licensing the technology the same way that hp did. they might be trying to get to understand exactly what beats is doing a get to know the technology so we will have to see if this actually goes through and if the billions being talked about are the right number. it seems there is a it of a

culture mismatch between apple and beats but apple has some issues right now with the branding, with fading itunes momentum and it needs to do something to reinvigorate the business model. >> what about a potential culture mismatch? ,> talking about the culture and never having worked at either of those companies, it's important to see that apple could be looking to take this hot new brand. beats came onto the scene in january with a hot super bowl ad with relevant and current advertising to promote it. it was the hot buzz of the if they were looking to make this move into subscription and streaming, even if it is a hedge, they can use that as a bellwether of this is where things are moving. i personally believe with the work i did at rhapsody through the end of last year and the other streaming services, that is the future. this is where things are headed.

for a company to ignore that, apple needs to make sure they do whatever they need to do so their view of downloads and downloads from the itunes store to not really become the same thing that cd's were for the music industry where the decline is very rapid and severe. >> i want to correct myself, that video was posted on tyrese gibson's facebook page. factdo you make of the that the video gets up and i gets taken down and we don't know what has happened. maybe there is a potential culture mismatch coming here. >> i think it makes it more fun to cover the story. side, i thinkl there are a lot of similarities between people like jimmy iovine and dr. dre and steve jobs. steve jobs wanted to great extremes for the consumer. the reason beats got started in the first place was because we lived in a world of digital

music and they are sound guys and want a better quality and started with those products and now they are looking for a better experience through subscription. >> i'm glad they posted it. it does make the story more fun to cover. l a, johnhman in irwin, the former president of rhapsody, and alex gowan here in the studio, thank you all. families around the world have ditched their devices for the past seven days in honor of screen free week. is this really beneficial for kids? that's next on "bloomberg west." ♪

>> welcome back. this week, thousands of children and parents give up their tech tools for screen free week in an annual event sponsored by the campaign for a commercial

re-childhood. the group says preschoolers spend an average of 32 hours per week in front of the screen. the number is even higher for older kids. is cutting kids off from technology the right approach? jim steyer joins us now in the studio. great to have you back. numbers,i see these kids spent 32 hours in front of a screen, that sounds like a lot. >> it does but it's real. think about it in the context of ipads and smart phones and all the digital devices plus remember the tv set? kids are in front of a screen way too much. the idea of a week where there is no screen time is a good idea. it's a wake-up call to parents and those kids who were -- who are glued to the screen. >> i saw some numbers that -year-olds,me -- 2-4 32% of them have televisions in the room. >> beaux media research stats

and they are ridiculous. use screens of all kinds as an electronic babysitter. you are a mom and i've got four kids and we all do that sometimes. the truth is, putting a tv set in your kids bedroom is insane but nearly 50% of its under the age of seven have one. thingss some very simple that you and i can do as parents and all parents can do. model good behavior yourself. the thing your parents used to say -- do as i say, not as i do. if you're constantly addicted to your phone or ipad, your kid will be. that's a big part of it. >> i have talked to parents who have had completely different views on this. some of them don't give any screens to the kids and some kids by their kids their own ipads. >> people are all over the map. we don't lecture you and say there is only one form of

parenting. you have people who abstain. of american academy pediatrics recommends no screen time for your kid under the age of two which would apply to you, emily. >> i know. >> but that's the thing, it's hard to do that. that's an aspiration. youcan set clear rules and can keep track and when kids are younger like under the age of seven or eight, you can set the rules and you can take the device away. it is harder when they get to be teenagers. >> i also worry that going to extremes and taking everything away could leave them behind. digital tools are so integrated into learning these days and some of the apps are actually interesting. >> i agree. common sense media has the only educational rating system. you do want to limit screen time. >> do you have a number? is underr kid kindergarten age, one hour per day max is fine. also choose wisely.

go to common sense.org and pick what you want. it is a healthy media diet. >> how do you come up with these ratings? >> we have 100 editors like you do at bloomberg. we have editors who review everything out there like movies and tv and video and apps and they spend all day looking at them and evaluating them for age appropriateness and for educational content. created -- why we created the consumer reports common sense guide. you have to set limits as a parent and timeouts are good. the idea of being without a screen for a week is a good idea. it's like going away with her husband and child for a week to the cabin where there is no cv. -- with no tv. it's good and everyone should do that. you will not do that every week of the year. what you need to do a set time limits. i think you have to pick a number and try to stick to it and make good choices. there is a big difference

between an educational app in a violent videogame. we should remember that. that's why you have common sense.org because it is easy. model your own behavior. if you and i are constantly at the dinner table with their kids looking down at our phone and looking at our phone -- >> i have never done that. >> to a bloomberg audience, who are often times addicted to es or whatever,ri you have to look at your own behavior because you are your best role model for your child. start with yourself by looking in the mirror at your behavior and set clear rules and stick to them. if your kids are older like mine, they will remind you of what a hypocrite you are if you want to limit their time. media ceo jime steyer, thanks for keeping us honest. bannedup, why china american tv shows like "the big bang erie." we will sit down with exclusive interview with the ceo of the

netflix of china. you can watch us on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

>> you are watching "bloomberg west." raising prices by one dollar per month for new customers. anyone signing up for the video subduction service starting today will pay nine dollars per month. it is currently giving u.s. subscribers a two-year break from these higher rates. this is the company's first price increase in nearly three years. to the netflix of china -- sohu is an online video platform that streams popular u.s. television shows in china. chinese regulators ordered them to remove "the big bang theory"

and for other shows after the government escalated a crackdown on content considered to offensive. stephen engle sat down with the next dose of interview with the ceo of sohu earlier today and asked about the challenges for chinese regulators as they try to write delayed video content online. >> i think they are quite new to the internet. they were very busy with the tv stations. is mainstream dominant and they started to take on this job and they have old habits of managing. after this incident, i think they are more careful and more sophisticated. i think it's a good thing. " the big bang theory" was sacrificed but it is a good thing for american tv companies. >> are you just being diplomatic? >> no, i'm telling the truth. it's less than one percent of the shows are taken down.

i think we are enjoying a new spring of american tv dramas and china. >> to date, have you gotten and asked clinician as to why these particular shows have been taken down? comment.ot of course i know but i cannot comment. >> is it an issue of being hijacked by the state broadcaster so they can broadcast it on regular television? >> it is not related. >> what is happening behind the scenes with the regulatory toddies? did they put out a note saying they need to reinforce monitoring of unacceptable erotic, political, or violent content online? that is not necessarily seem to fit into the "big bang theory" profile. chinese people need to enjoy some dirty jokes. is consideringnt

its erotic nature and it's not proper, they will take part of it down. i don't think "the big bang there he" is in that category. >> do you find it strange that "house of cards" has not been censored? there are so many china related issues. >> you can see there is a certain randomness. that's how hat it happens in china. there is a policy area and you tried first and then the government will watch and observe and they might say it does not cause problems and come to make itpolicy legal. >> are you in negotiations with the government to get it back up streaming, that particular show? >> i believe it will come back. the government is reviewing it. they told us it will be back.

we will let you show it in the future. >> how would you define what sohu is to an american audience? people liken it to netflix. would you agree with that model? >> no, there is no cable industry in china. all the networks are all free. owned.e all state has been seriously underdeveloped in china. u.s. is a the well-developed cable industry. they invented something new but in china, there is a huge amount of work that needs to be done with motion picture and tv and

the screen. the video site is the tv of china. >> do you fear the regulations that control movie rights and also free to air television that censorship issues all of a sudden suffocate what you are doing eventually? maybe this is the first step in further control of streaming content? >> i don't think so. probably, there will be a lot of stationts from the tv heads worrying if the new media is taking their lunch. >> are they? >> yes they are very paranoid. owns those state broadcasters. are they protecting them right now? > is this an example of that? they are not that in a strong position legally to

protect them. they probably have some connections. ago, they would get protected. >> what laws right now protect you when you go out and buy content from the united states? what protects you right now in china? what if you buy another hit show and you get one point for billion clicks on that show and then it is taken away? >> china is in transition and reform. policy in a few years will probably not be the policy in a few years. it is very hard to define exactly what is legal and what is not legal. >> you say this is a one-off episode but will there be major consequences of this? we havetell you that policy and suddenly the policy areges and television shows

taken down, that would be sad. i would be very upset. but we are not. we fight piracy. we get american tv shows into china when the policy is still very vague. the government still allows us to do it. we are still doing it. look at how far we came along. i am satisfied. sohu.t was the ceo of coming up, we speak to the tech executive famous for his peanut butter manifesto about the climate for ipos and why they may be waking -- waiting for better market conditions. you can watch us on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. ♪

i am emily chang and this is

"bloomberg west." the volatility in the market and concerns of overvaluation have x delayingnies like bo their ipos. joining me now to discuss this is the tech industry veteran, the guy who wrote the peanut butter manifesto in 2006 where he argued that yahoo! with spreading its resources too thin like peanut butter. career in technology, he has witnessed changing market conditions. thank you for being with us. you will never live down that peanut butter metaphor. >> i said a lot of interesting other things. >> let's start with box because they are one of your competitors and we are seeing signs may be that they are struggling to get to market. what is your take on why this is happening? are in a hand, they huge market that is growing fast. out some of the companies there that we have seen in the public markets, they are spending a lot to drive growth. >> and spending a time on marketing. >> they are burning about $17

million per month. for russ, they burn more in a few months than we have in our entire history over 10 years. it iss no way to tell of right or wrong but it is different. we see public companies that were spending a lot to drive growth get a little reset. we are in a mini correction. i don't think it is a massive correction. these companies are losing a lot of money to drive growth and are being reset. i think box is one of the companies that is growing quickly with lots of great customers and i think they will be able to raise capital but they prayed so much capital at such high prices to set the expectation mark hi. >> so it's a mini correction, not a bubble. >> i don't think it's a full bubble like the 1990's. there are companies in a bubble stage. companies trading at lofty expectations. when the height cycle of silicon

valley gets too high, that comes into a quill agreed. companies like her but on zynga, that happened in the public markets and that's painful. i think it's all happens today ype cycle rises and it happens with some companies today. down 30% year to date and employees are selling their shares. is that worse because it is insiders? >> there is all kinds of reasons why insiders sell. if you have not made money and your 29 years old, you want to get some liquidity. i think it goes back to the hype going past the reality. if someone joined twitter a few is a ago to today, that massive win. if in between, it went to $40 billion back that does not feel as good. >> how do you see this playing out?

how bad will it get? >> i don't think it will get that bad. i think you still have massive new markets. there is transformative things happening and how technology works by virtue of moving computing to the cloud and newage so we have great businesses being created. over time, i think that -- there some companies who have gotten had of themselves. you also see companies get bought for massive valuations. what do you think of that? p wasulus and whatsap currency valued very highly in facebook stock. they are making bets on what the future will hold. mark zuckerberg is where he making sure facebook rides the future waves and not just the way that is already written. --ridden. we can argue about the

valuations but there are some very high prices. what about apple buying beats? they say they are out of ideas. >> i don't know enough about apple. valley,ystem in silicon apple is a little insular and very confidential. it's an interesting bet and by virtue of the fact that their biggest acquisition ever given their balance sheet and their ability to make acquisitions, i think it's an interesting bet. i wouldn't be surprised to see more of that going forward. i don't think it's a sign that innovation is not happening internally. i think is an opportunity to add new businesses and will help the business. >> how is the peanut butter being spread at hightail. ? we have talked a lot about cloud storage.

what is your differentiator? >> we have tried not to spread the peanut butter and become focused about who we are going after. we are investing around controlling how you share content and the cloud. given the ability to track something or share something with emily, i can get a receipt. i can protect that. we had a spike of that tivoli around quickbooks and the tax day. around april 15, you see people who want to share lots of data with their unaccounted for they don't want to put that in dropped box. intoad, they put it accounting activity as an example. >> what is next? >> international is an important component. i just got back from australia and we opened our office down there and got 120 corporate customers already, almost one million active users. it's exciting that australia is adopting cloud-based technology.

we will differentiate around control and tracking. ceo, thank you for joining us. a space for your space exploration company? we will look at nasa where they are leasing out property for private use. ♪

>> welcome back to "bloomberg west." the kennedy space center was once a bustling campus but with the end of the space shuttle program, more than 7000 people were left without jobs. now nasa is passing the torch to private companies leasing space at the nation's launch hub in florida. rachel crane got a tour of the sprawling campus with the director and former astronaut robert cabana.

launch pad 39a - it's the place where we send humans to the moon. man,'s one small step for one giant leap for mankind. >> but now, this launchpad is on the market and spacex has won the lease. you want to get on dragon and go up into orbit? >> i think i probably will take a trip someday. >> kennedy space center is emblematic of the change and how americans explore space. >> a message to the team i got was that the shuttle program will end and we have to start repairing for the future. floridard county, depended on nasa for its economic survival. at the height of the shuttle

program in the early 1990's, 19,000 people worked at kennedy space center. when atlantis took its last flight in 2011, over 7000 employees were suddenly out of a job. today, 7800 people work at the once bustling campus. why are these commercial companies wanting to come here and wanting to utilize this building? >> it's cost-effective. here is the building, the space available and you don't have to build anything, just configure it for your rocket. it has more capacity than we need to rather than let it sit dormant, why not enable commercial space operations? >> the space shuttle program occupied 390 facilities on kennedy's campus. today, seven of those buildings are being handed over to private enterprise. one new tenant has already started moving in. has signed leases for several spaces on kennedy's campus. one is launchpad 41. an other is the nasaopf-3,

abandoned factory were boeing hopes to employee more than 300 people. >> this is orbiter processing facility number three or used to be. >> chris ferguson piloted the last shuttle and his new mission is to get boeing's commercial space program off the ground. >> and a couple of years when you come in here, it will not be so cavernous and empty. i think you will hear the clanking of work being done. >> neither nasa nor boeing would talk numbers yet a user agreement reveals a fair market 3 is about $13.5 million. the real cost for nasa is in the maintenance. currently costs nasa about $100,000 per month and upkeep. some people say that nasa's glory days are behind them, is that true? >> it could not be further from the truth. we are charging ahead into the

future. we have been going back and forth in orbit for fifth d years now and we know had to do that. it's time to transition to the commercial space. be sure to tune in to bloomberg tv tonight at 9:30 p.m. eastern and this weekend as we take a look at the next space race with an in-depth journey through the booming business of space exploration. b-west s time for the byte. jon erlichman as an ally and we have a special guest with us, jordan robertson. you actually have the byte for us today? >> $1 billion as the baseline amount of money that the u.s. secret service estimates is lost every year to atm skimming. it's a form of hacking. it's where they attach a piece of plastic to an atm machine and they capture your pin code as you enter them. it's a form of physical hacking is on the rise.

>> i'm completely naive. i always thought that the a-team was pretty much safe. i am the same way. i don't think about the internet connection. this anda piece about he could probably write a hollywood script about "oceans jobs and get the malware in there and get the cash. some really fascinating details about the legs criminals go to to get access to atms. it has gotten harder for them to act pin codes inside retailers. they are applying for and getting jobs as -- a technical service firms that service the atms. that's how they can pry open the machines and install tiny electronic circuitry so that they can steal pin codes. it's a very elaborate and evolved operation.

these are foreign groups and very sophisticated hacking groups. what was once considered a brutish form of hacking has now gotten very sophisticated and very advanced. you would never know. >> john, you are in hollywood. can you get this turned into a movie for us? >> [laughter] jordan, i will send your story around. crazier things have happened. we talked to jerry brock armor recently and they are doing a new csi show that a specifically tied to cyber crime. everybody understands this stuff now. >> fascinating stuff, thank you both. thank you all for watching this edition of "bloomberg west." you can get the latest headlines all the time on on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire. and wewonderful weekend

will see you on monday. ♪

>> from bloomberg world had orders in new york, i'm mark crumpton. this is "bottom line." we dissect the numbers from the latest global crop outlook. hunt's interview with jack lew. a roundtable discussion on the power players. ♪ >> to our viewers in the u.s. and those of us joining from around the world, welcome. we have full coverage of these stocks and stories making headlines today. alix steel with the economic power of flowers day a