♪ caroline: i am caroline hyde. this is the "best of bloomberg technology". netflix's groundrules, a huge beat this week. down the case against qualcomm as the fight over licensing heads to court. decided not to

arrest some signs heir apparent. netflix reports the biggest quarter ever this week. netflix added 7 million subscribers to finish the year with 94 million members, beating analysts estimates. thecompany credits popularity of newcomer original content. but the cost of this additional investors' is one of chief concerns. cory johnson joined us to break down the numbers. cory: it was dvds, then movies with a little original content. most of their spending is going towards original content. in their ownow avengers, which they were called the defenders.

they will build a mountain of original content. they have spent a fortune on marketing, the biggest spend they have ever had. the marketing spend was greater than ever before, showing an increase. 11 point 5% of revenue, and the number seemed to be coming down. what they are doing with a lot of that money is plowing it into marketing. buyingy great success in subscribers, also buying subscribers domestically. the number pickup in of domestic subscribers, which looked like that market was completely saturated. ats last quarter, they grew 4%, which i found positive for the company, but that is merely a function of how much you spend. what we really want to see is how long subscribers stick around. bangine: sales up 36%,

in line. it looks as though the market is liking it from a share reaction point of view, but the cost of this, six billion dollars on original content year. is this going to ring alarm bells in the long term? where toss margins is see the cost of content. netflix said in the press , gross margins does not show you what the cost of the movies are. it shows you the costs they want to show. they said in the press release content recognition of costs, not the actual content costs. there was one number, and you , a see the stock trading up friend of the show just tweeted

out and was doing some math, they spent $100 for every new subscriber this quarter, which means they will have to keep those subscribers on a profit basis for 35 years to break even. that is not feasible. content costs have to come down, the cost of subscribers have to come down. caroline: if you look at the , the percent of broadband homes, that is less and the 90 kingdom. there is room to grow here. any: that 4% increase, increase in a saturated market is interesting. you can sell a dollar for $.50 are only so long, so when will be free cash flow show up for this company? the free cash flow numbers were stunningly bad. they've got to have a go up in order to pay for this content.

look at this number, $618 million in 13 weeks, $7 million a day. how do you do that? and all thisent marketing, they can't do this forever. forget the prophet, there is cash flowing out the door. outlast hoping they can their competitors, amazon prime, hbo, i don't know what the plan is there, but as marketing costs go up and content costs, it could be a real problem. eventually the piper will have to be paid. caroline: we will see how shares trade up tomorrow. great to get your perspective. staying with netflix, it has been 10 years since the company made its most important strategic shift away from dvds

into streaming. in january 2 thousand seven, netflix announced the departure from its dvd rental business. watch instantly allowed netflix users to stream a library of 1000 movies and tv shows over the internet. back then, reed hastings explain the move saying mainstream consumer adoption of online movie adoption will take a number of years. the time is right for netflix to take the first step. analysts were skeptical, just as many holds as buy ratings, but consumers saw something different and signed on in droves. subscribers group from 6 million to 20 million. at the same time, blockbuster filed for bankruptcy. xt set its sights on original content,

becoming an arms race among rivals. original hits do not come cheap. by 2016, netflix had produced more than 600 hours of original content at a cost of over 500 million dollars. posted positive flow in two years and is on the hook for $14 billion, but cash flow concerns aside, it does appear reed hastings bet on streaming video is paying off. netflix now has over 90 million global subscribers and makes 94% of its revenue on streaming video. another story we are watching, mark zuckerberg takes

a stand in a dallas courtroom to defend his company against claims that its virtual-reality doing it stole the technology. a company alleges that oculus poached one of its star designers. it also said facebook completed its acquisition of oculus with full awareness that it's tech was misappropriated. if the company wins, it could rewrite the story of how facebook has emerged at the forefront of virtual-reality. still too calm, davos, switzerland, qualcomm chairman talks about the trumpet ministration. this is bloomberg. ♪

caroline: now to a bloomberg

scoop. u.s. regulators have filed a lawsuit against qualcomm for allegedly using unfair practices to license its technology. the ftc said qualcomm force apple to use its processors in return for lowering royalties it charges. in 2014, it was disclosed that its licensing methods were under investigation and the major fine was responsible. qualcomm said it never threatened to withhold or chips.d shares tumbled on the news. ian king broke the story and joined us with cory johnson. the bombshell today. we have had general accusations against obscure legalistic accusations, but this is specifically saying no, qualcomm, you used your position

to basically force apple to take your chips and that hurt competition. caroline: we are seeing a share price reaction, but this is ongoing. south korea last month seem to fined to the tune of $1 billion. what money is at stake here? cory: the model for qualcomm is to license those chips. they gained influence by having a standard specifically written for qualcomm chips, so this gets to the heart of their model, the relationships they have with the company that make the phone, and there's no one bigger than apple. caroline: qualcomm has developed something here, and how much can they fight this in the courts? the record is almost flawless. they almost never lose.

and you look at all the trouble they've had, they have only really lost one case against broadcom. everything eventually gets turned on appeal and they do a deal, and eventually they are successful. what they license are the fundamentals that go into mobile phone technology. they've tried to establish as a link between this two things, and that is the biggest threat to the business so far. caroline: if we are thinking of losers and winners, the fact they do end up being guilty, rather it might seem to occur, who does this win out for? do smartphones get cheaper? shop if phone makers could around for chips, one of the most expensive components in the phone, then they might end up with lower pricing, and that is what fundamentally that gets down to it was a vendor able to

go out and find the cheapest and best chips for connecting the phones to the networks, or were they compelled to go to qualcomm because qualcomm has the marketplace. caroline: what is fascinating here is who is doing the talking? is it apple? anybody interested, if you read page 25 of the filing, there is a lot of specifics about agreements between the two companies, deals that were signed, renegotiated, hard to imagine that came to the ftc and a tree man they did not get that information from somewhere. and apple has everything to gain. apple would like to play the providers against each other. they've been unable to do that. caroline: the providers who could be winning, do we see share reaction? el has managed to take

some of those orders away from qualcomm for the first time. cory: in the apple phones. >> in the apple phones, right. a lot of other companies have tried to go against qualcomm and faded away. a time frame here. is this something we will be talking for weeks, months, years. >> years, i think. first of all, it is a court case. it's not going to a judge and saying, give me a judgment. what thatll of entails, and qualcomm cannot afford to let this go. they will have to appeal this as far as they can. news brokeefore the about that u.s. antitrust suit, erik schatzker caught up with the qualcomm chairman paul jacobs at the world economic forum in davos, switzerland, and asked him how he's reconciling

with the views of the incoming administration. are democrats and republicans, but we are all americans and want to see the administration succeed. in democracy, you have different points of view, but we want more jobs. we want great trade agreements. we were really happened when the president tweeted about our satellite system, so there are areas where we see alignment, and where there is alignment, we will work hard together. disagreement, we will also express our points of view. >> where do you disagree right now? >> immigration is one where we worry about it here at . i think the american dream has caused the best and brightest to , andto the united states that is a competitive advantage for the country. >> anything else the president-elect has said that concerns you professionally or personally? >> nobody wants a trade war, so

we want to make sure that in china, where we have gotten through our difficulties there, we are trying to be a liaison and add to helping the situation out, helping to promote understanding, so that is an opportunity for us. you reach out to specifically in the incoming giveistration to help, to qualcomm a voice where you think you can be helpful? >> there is a broad range. >> wilbur ross? ofno, it is a broad range people within the transition team and new administration, but us as democrats, but we have plenty of republicans in qualcomm as well. and so there are relationships that have been there. we have been working with organizations for a long time, and are happy to see the focus on innovation and on intellectual property. >> is silicon valley well

represented with peter thiel? >> we are from san diego, so we are not a silicon valley company. tech is represented, i think there were concerns in the beginning of many people in the tech community as to whether they were represented. i personally don't have a relationship with peter thiel am a but it is good to have somebody on the inside that understands tech. >> he says there is no room left for innovation and smartphones. what do you say? >> i completely disagree with that. we just showed off a new chipset that has great processing capabilities. they do virtual reality and you don't have to have extra stuff. you can walk around and expense virtual reality right away. himhat might have motivated to say that if you are so confident that we will be able to do more with that magical

computer in our pockets? thingsle have seen slowed down in certain companies, whether they are innovating as fast or not, people like to handicap that. what is really going on behind the scenes is a lot of new technologies being created, and 5g is a great example of it. technologies that but readyst faster, for mission-critical applications like health care or automotive, internet of things applications, industrial uses, agricultural, can we make a tag that is cheap enough that in the developing world can they have tags on all of their cattle? some of theed to regulatory heat qualcomm has been facing. how smooth of an approval process can you expect for in nxp with the regulatory

pressure you are under? >> we think that is a complementary thing. obvously people get concerned when they see synergies from a regulatory standpoint and get concerned to see if you are getting too vertical are having a too big of a stake in a market. in this case, it is very complementary. spin offed, would you the manufacturing facilities? our first thought. not sure why somebody would ask us to do that, but we will listen to what the regulators have to say for sure. caroline: coming up, a south korean court rejected the arrest warrant for some songs heir apparent, so does that mean jay foree is off the hook bribery. we will discuss the implications. this is bloomberg. ♪

ofoline: after months investigation by prosecutors, a

south korean court rejected a request to issue an arrest warrant for jay y. lee, but is the investigation over? we spoke with the senior director of the korean economic institute and jeffrey caine. for south koreans, this would not be out of line. many south korean business leaders in the past have been convicted of white-collar crimes. the samsung chairman was convicted twice of white-collar crime, and because of his economic benefit for the nation, he was given two separate pardons. he continues his chairmanship throughout his life. is preparing to take that chairmanship must likely. he is now the vice-chairman, so technically the second in command of the empire. ifoline: elaborate, even

this is not that much of a surprise to those in south korea, how much should international consumers and investors braced themselves on the back of this investigation? muchitially, you won't see change at samsung. this is accompanied the family has controlled for a long time. even if he were to face continued legal issues, the family would continue. broadly the question for investors will be are the samsungors able to tie to the national pension fund, and that will be the key for investors going forward. caroline: how do you react to that if that is the key question? how more broadly does this affect conglomerates within south korea? will we see a changing of the relationship tween the government and conglomerates? in southtraditional

korea for businesses to give donations and even bribes to government officials. this is something that goes back decades into the country's .uthoritarianism in the past that is how the south korean nation was held originally with the nexus of business and politics. with these allegations, we are seeing this question of whether samsung was coerced into giving a donation or whether samsung went into this trying to get benefits for this merger that was going to happen, trying to get the national pension service to vote for that merger that got jay y. lee more power. caroline: having read through your notes, you feel that perhaps this isn't the particular leader to the bashing right now, because as it goes jay y. lee is relatively progressive compared to many within the conglomerates and south korea. what will change if he is

ousted? the interesting thing about this story. if you look at samsung and what de its done, he has makin more progressive. he asked his own guards do not bow to him. he is trying to loosen the company up and move it towards international standards. there is more to do, but it is something he has pushed for. if he were to be brought down by something that is an all school korean-type scandal, it would be very detrimental because the question becomes how would these reforms be at samsung, and because of sam suns importance to the economy, so with that then take and hold back reforms? caroline: how much do you think

this will change? be as important to the economy going forward? make up a huge slice of the south korean economy and exports. even without jay y. lee, the company has a reputation for making great hardware, being reliable. need to putpple and in an order for parts for displays, samsung is often one of the first choices because they can make it faster than other companies and make it at very high quality. in hardware, they are often at the leading edge. coming up, one of yahoos earliest executives opens up about the country's future and the $4.8 billion verizon

deal. that is next. episodes ofhat all bloomberg technology are live streaming on twitter. check us out weekdays at 5:00 p.m. in new york. this is bloomberg. ♪

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only xfinity gives you more to stream to any screen. download the xfinity tv app today. welcome back to the "best of bloomberg technology". i'm caroline hyde. sworn in friday as the 45th president of the united states. we have been asking about the key issues impacting washington's relationship with silicon valley. we got started by asking about president trump's approach to technology and the changes that will come with this new administration. >> the relationship between silicon valley and washington is a very good question, and one

that i think was due for some conversation this year regardless of whether hillary had one or trump had one, and i think that is true because there are some broader economic factors out there. we are a generation today where our children at the age of 30, fewer than half of them are likely to be making more than their parents in income, which is a reversal of many years, where each set of parents felt like they wanted their kids to have it better than them. that,are many reasons for but tech does play a role in a sense that a lot of the great and of nations that have added so much to this economy in the bay area and other economies have not been necessarily shared by all of america. i think the anxiety around that has been bubbling for some time. regardless of who is sitting in the white house, it is an issue,

and an important issue how those tensions get resolved in the next year. andink silicon valley washington need each other in many and portend ways, and it is important that silicon valley not find itself two years from now with a public perception that wall street has with washington, and i think that is a risk if there isn't some olive branches extended in both directions. how potentially can silicon valley step up to the responsibility to ensure globalization works for the many and not just a few? is it about skills they can provide? how can they make sure they are more inclusive? good one.is a really ultimately, there has to be some transfer of some of the wealth that is created here and displaces workers elsewhere to those families. now how that transfer happens is not necessarily the

responsibility of silicon valley, but they can certainly do things like try to find, educate people in certain , jobs and coding, and they might find themselves in a more regulated position or taxed in certain ways that transfers some of that wealth. if nothing and washington restricts the free flow of capital and labor that is -- i think that a visio would be a bad outcome. if we could keep free capital and labor and innovation going benefits then with the

of that figure out how to help the people that are displaced from self driving cars, trucks drivers, i think that would be important and silicon valley needs to step up and look for ways they can help. caroline: many people feel that ald trump air will bring in less regulation. we have to ask you about the yahoo!-verizon deal. do you think this is the right way yahoo! is going in terms of communications that it would sell to? >> based on where yahoo! was in the last year, it was an inevitable outcome that it was to be sold. the fact that it was sold to verizon in some ways is very logical. isy own aol and there probably a good consolidation opportunity to look at the properties that aol has in the

ones yahoo! has, which ones overlapped, cut some costs, so i can see the business logic behind it. caroline: why was it inevitable? atbecause the core issue yahoo! that no administration that has been running it, including when we were in place, have been able to solve, is what the core distinction is in the consumer's mind and what makes yahoo! great. in my mind, it was all about content. today they are still struggling about their core identity is because they did not get really great in the thing they had a core identity in and got mediocre and everything because they were spread so broadly. by the time the last year came along, it needed to be sold. i sort of wish it had been sold to a company that was, i don't know what verizon will do. i hope they revitalize that key spirit and make it unique again .

either way, it needed to be private or semiprivate. by being in verizon, even though verizon is a public company, it is a small part so they will be able to take the steps that are hard and long term in nature that could not have been taken when it was a public company because of all the media scrutiny. whether a private buyer or a subsidiary, this is a good home in the sense that i think they can probably make some tough decisions and try to revitalize it. caroline: was some of the media scrutiny unfair on marissa mayer? she was dealt a tough hand. i would say really that some of the seeds of the challenges add yahoo! were very early in its years, so you and you inherit a company that is operating in certain ways, it is not easy to change it. i think there are things that she probably wish he did

differently, just like all of us, but i think she did the best she could and unfortunately it wasn't enough. ,aroline: what about the hacks the disclosures, coming much later in the day than they occurred, how much do you think that might affect the price point for verizon, how much should marissa mayer and others have taken responsibility for that? how it willnow affect the price, if at all. i think it is possible there could be some renegotiation. i don't think it will stop the deal from going through, and sure, the leadership of the company should always take responsibility when something goes wrong on their watch, even if what ever happened began in a previous administration. i don't know anything about the background of that, but it's the right thing to do when you are leading a company. onoline: when you look back where yahoo! went, do think it ,as correct to get into alibaba

a chinese company, looking for value a broad? >> i do. if you look at the original stake in alibaba, 2005, that would be worth $70 a yahoo! share today. it was sold over the years in pieces, so today it is worth considerably less than that, but still, it was the single biggest value creator in yahoo!'s history, so i feel like it is a sad sunset for this company. it makes me, we all had a great love for yahoo! and bled purple and wish it were different, but it did innovate many ways and created some great value and there are some wonderful leaders all over the valley now that got to cut her chops there. there any other companies out there that are excelling or that you worry about, looking at their strategy here in the valley?

in an unusualare situation here for silicon valley. we touched on it earlier, but you have copies like apple, google, facebook, amazon, microsoft in the top 10 in market capitalization in the world, so when you think about top companies in the s&p 500, silicon valley and north to seattle are a big part of at so it is very important that this relationship with washington gets resolved in an effective way. caroline: i'm man who has spoken about the way the pie is divided is warren buffett. it seems to be sitting on quite e-cig dividend cash flow at the moment. is this something you see being returned to investors at any point? >> i would say it is possible. i don't think there is any

pressure in the next several years to be returning that cash. i think one of the things that is so remarkable about berkshire hathaway is that it is a collection of businesses that generate a lot of cash, and many of them generate more than they need, and others are quite capital intensive like the railroad businesses. you have other consumer businesses that generate cash and attacks free way to reallocate that cash, and that's been a wonderful model, but not year.l that is even every a major acquisition could, bandit is good to have the resources on the balance sheet to be ready for that type of acquisition coming up. core allocation proposition is working for investors, taking capital that itnot productive and put into highly productive uses in a value creating way, i think investors will beat on rent time where the cash builds up. up, we speak to

facebook's head of european operation and dive into the key he is targeting in 2017. marc benioff joins us from the world economic forum in davos on rising competition and why he is not worried. this is bloomberg. ♪

caroline: facebook has just revealed a massive survey the social media giant unveiled an partnership with the world bank and oecd. we caught up with nicola mendelsohn and asked her about the major takeaways from the survey. take a listen. we are feelingd pretty confident about where the businesses are right now, but the outlook for six months, and that is when we are feeling much more confident. go into the survey

and have a look at different countries and how they are feeling. one of the things that stuck out to me was that the uk's small businesses work on the whole feeling more confident than the rest of europe about the outlook for their businesses. when you look further into the survey, you can see businesses that are embracing online tools are businesses more likely to be working internationally and be selling around the world. that is something different we have seen as a result of mobile technology. when i was growing up and my parents had a small business, they could only sell in their geographical vicinity, in the area they were in, but now if you understand your customers come in you can sell anywhere in the world, and the survey also shows the challenges businesses are facing in that respect. caroline: could you see any of the nuances coming up post-brexit, post the election of donald trump in the nine states, could you see that

coming to the four from u.s. and u.k. businesses? >> we certainly saw post-brexit that there was a dip in confidence. one of the things that stuck out to me in the research was how women, female business owners are feeling at the moment when it comes to their businesses and outlooks as well. actually on a lot of that is contrary to what we might think conventional wisdom might say at the moment. when we think about businesses that market online, we might not think they are being run by women, but women are actually using online tools to market and grow their business more so than men, and why that is important is because they are the businesses more likely to betraying internationally, and crucially the businesses that are looking to expand in the not-too-distant future, so we are seeing a strong correlation between jobs growth as a result

of the digital economy. role of: what is the facebook within the role of business going forward, the future of business survey, where do you see your self because you launched recently that facebook for work program, is it because you want to be enterprise focused? inwe take our responsibility the way we work with our partners around the world very seriously, and the facebook work differentt came from organizations coming to us and saying to us, tell us how you run facebook as a business. the way we run facebook as a business is through workplace, facebook, groups, messenger to connect around the world and work in an efficient way together. it came from our partner saying, tell us how you do it. to we have expanded it out thousands of companies around the world using workplace as a way of bridging the gap from the

ceo to the person on the factory floor. we are seeing business is really in brace it because it allows them to be closer to the people who work with them and allow great efficiencies between the ceo and the different people within the organization. caroline: it has been a challenging few months for salesforce.com some legacy vendors have slowed growth, but the company has seen a strong start to 2017, shares up 7%, and that company is forecasting sales will job in 2018. ceo marc benioff discuss the company's growth and the competition. do what we were doing right from the beginning, which was connect with our customers and help them connect with their customers and a whole new way, and that is what is so exciting about what salesforce does today. that's why so me companies here

at davos used salesforce, because there is a sea change going on as companies are working hard to develop customer intimacy. you have a lot of competition. how do you compete with the other pretenders? great customer of ours. amazon uses salesforce to connect to its customers in sales, service, and marketing, but we also work with an amazing retailers. know -- feeling you yeah, and here is the thing, gen retailers need salesforce to connect with their customers, so these are exciting times. times,ey are exciting and i guess everybody is making money, but you have your critics. how will you position sales

within the new technology? you are one of the few technology guys here. how will you reposition not for the next 12 months, but for the next five years. i can't imagine where my iphone 7 is in five years. crm,e amazing thing with it was nascent, a small market, but it will be the largest segment of enterprise software by 2020, and today we are number one in that segment, really continuing to innovate and up for ways that we can help our customers become more successful. in your world, we are going to go through a phone. how does salesforce.com and your competitors handle the cloud through whichever phone we have in our hands, business or personal? how youis fascinating think about computing today. you just made a huge shift in your mind from where we started with personal computers into the

most popular computer today, the mobile phone, and now they are making them for $20 so that everybody can have a computer far more powerful than the most , that ismacintosh something now in your pocket that is way beyond that capability, but now computers will disappear because we see voice, things like alexa from amazon, google home and others, where we are just talking to our computers, talking to our watch, and that is incredible next-generation computing. up, how willing snapchat's parent company transition its ultra secret of culture into a public company? we look at the road ahead for snap and its highly anticipated ipo. this is bloomberg. ♪

we reported last week, snap has chosen london for

its european headquarters despite brexit concerns. snap started gearing up for an ipo, and snapchat's secretive culture was now coming into focus. the ceo is tested as he convinces investors of the company's potential. bloomberg's with ipo reporter and sarah frier. take a listen. secretive company, and really young, so you would need to see some visibility into the future. they are on file confidentially, so there is some information that people have been able to get your hands on, but until we see the actual s-1 we won't have income statement, balance sheets, and things like that. it all plays into this culture that evan spiegel has maintained, and look, when you think about this offering, it is

a social media company. the last one to go out was twitter, and there is kind of an overhang because twitter did not necessary layout a huge strategy when it became public, and that came back to bite them later. when investors are considering whether to buy an ipo and hold onto the stock, they will need more strategy wise than what evan is typically willing to give out. caroline: this is something you have been running against for several years. he doesn't even divulge much to his own team. >> not really. being an employee for snapchat is like being outside of snapchat in terms of what you get to know. aployees there don't get heads-up on what products people are working on. a don't get to use their phones at the new year's party. not in someare corporate campus. they are scattered across

venice, california on the beach and various office buildings. there are no all hands meetings that are a staple of silicon valley startup culture, and so are a lot of people are in the dark within snapchat about where the company is headed. evan spiegel will have to tell investors on a road not just about where the company has then, but where it is headed. this is the time to explain the long term vision for what snap is and can be. and certainly, investors will need some soothing if they're not going to gain much control over the company. snap, maybe evan spiegel is copying mark zuckerberg here. >> that's right. a lot of trust will have to be put into evan spiegel. pitching, evan as this visionary ceo, trust him.

he can figure out what is going on in the future, and they won't have to. with this striated employee base, no all hands meetings, evan is the guy in control, the one who sees the full picture of what is going on, and it is a big ask, and he will be the one they have to ask to control the information flow. in thelready seen that ipo process, this coming-out party for the company, scolding bankers, threatening to cut fees if they keep leaking, so a lot , andus will be put on evan after twitter has gone out and some of these missteps with other big founder-led companies, it is a big ask a to do. it is the first tech company in a long time, but the long-term investors you want to buy into these public offerings, they will be the ones you need to convince that this is the company to buy into, not for the

ipo, not for the next year, but for the next 5-10 years, and to do that it will be evan spiegel. caroline: what do you hear about how well the culture change will regress with evan spiegel? do think he understands how much disclosure he will have to give us a public company? will probably give as little information as he can come up because he thinks what is it worth it to him to expound more on what snapchat will plan to do given like you mentioned earlier, the threats from facebook. facebook has copied snapchat over and over. caroline: that does it for this edition of "best of bloomberg technology". we will bring you the latest in tech at throughout the week. tune in on thursday for full coverage of a slew of earnings from alphabet to microsoft.

remember all episodes of bloomberg technology are live streaming on twitter. check us out weekdays. that is all for now. this is bloomberg. ♪

carol: welcome to "bloomberg businessweek". i am carol massar. issue, the d.c. lobbyists selling access to the white house. oliver: the hacker that promises to deliver technology to third world countries, crashing down. carol: deception at europe's most important bank. oliver: all that ahead on "bloomberg businessweek". ♪ carol: we are with the assistant managing editor tim allen. you talk about walter sha