♪ carol: welcome to "bloomberg businessweek." i am carol massar. jason: and i'm jason kelly. we are joining you from bloomberg headquarters. carol: a businessweek exclusive on an army of 16,000 and no, this is not a subversive sci-fi movie, it is the state of politics in the united states. jason: it turns out women are not the play it safe investors that they have always been presumed to be.

carol: let's get to our cover story, the big hack. "bloomberg businessweek" has uncovered the most significant known supply chain attack on u.s. companies. including apple and amazon.com. jason: the stunning discoveries are the subject of an investigation affecting 30 companies including government contractors. carol: and china is behind it. it marks a new front in the cyber war. let us get to jordan robertson from washington. jordan: in 2014 and 2015, a specialized unit of the chinese people's liberation army implanted malicious microchip. what does it do? think about it as a permanent infection in the hardware of a computer. this is the ultimate hack. -- the ideal hack. every time the servers boot up, the hardware, the malware loaded in this malicious chip injects itself into the operating system

and infects the computer every time the computer is turned on. it is the ultimate attack. it was found inside computers used by amazon and apple as well as dozens of other companies. jason: once they are in a computer like that, what can happen? jordan: our first tip came during the obama administration. both the obama and trump administration have been deeply concerned about this issue of supply chain security. what happens is, once you get inside a computer, we thought it must be about theft of consumer data. apple was hit. the siri division was hit. china must want siri user data. we were quickly corrected. by several sources said, that is not what this is about. the reason china would go through the trouble, the expense, the cost, the time of engineering these motherboards in this way is for long-term access to sensitive networks. it is about theft of corporate intellectual property, the theft of military secrets. and long-term stealth access to sensitive networks. carol: one thing that struck me in your reporting is that it is

the scale and ambition of these news that make it unlike any other chinese hacking that has gone on before. jordan: this is super complicated tech. i have covered cyber security for over a decade, as has mike riley who co-authored the report. we have never seen anything like this. this is the cutting edge of the cutting edge. to manipulate computer hardware in this way is so much harder then doing a software-based attack. you can teach yourself how to be a software hacker at home. you can teach yourself how to be a hardware hacker as well, but it is so much more difficult. the level of sophistication, the level of ingenuity, and resources that these attackers had and were willing to deploy to get inside apple and government contractors was extraordinary. it is like science fiction. jason: as you say, this has opened up a whole new front in a lot of ways. talk to us about the broader vulnerability that it exposes here.

jordan: one of our assumptions was, certainly large companies like apple or amazon, banks, government contractors, certainly they must be looking at their hardware in the same way that they look at their software. they must have security tools. we found that they do not exist. the cyber security industry is a $100 billion industry. almost none of that goes toward hardware security. if you let that sink in, that is really incredible. you have this massive industry has built up around software security and network security, all kinds of security, but hardware security is the thing that has been overlooked. the reason is that it is hard to do. it is hard to inspect hardware. it is expensive and time-consuming and people have not thought about it in realistic ways as a threat to their networks. as a result, commercial tools have not been developed to look for this stuff, and companies do not look at their hardware in the same way that they do other parts of their computer

infrastructure. we are hoping organizations will take hardware as seriously as security risks to the rest of the network. carol: speaking of the organizations or companies cited, what did apple or amazon say? what did the chinese government say? what did the company at the heart of this, the supplier in china, say? jordan: this is a really important point. i'm glad you asked. in our story and on the website, we include full denials from amazon, apple, and supermicro, which is the server supplier. these are full, robust and unambiguous denials. we have gotten the question, why would you run the story? there are a lot of reasons to deny a story like this. we will not go into that. the calculus we had to undertake was as we say in the story, we had 17 different sources with direct knowledge of these incidents. these are senior people inside apple, inside amazon and across branches of government. when you take a look at the story and the constellation of sources, their seniority and

access to information and the reason they would have access to this information and the reason they would know this stuff, weigh that against the company's denials and what you're left with is a powerful picture of an attack that happened but the companies are denying that. that influenced our decision to publish. the preponderance of evidence we believe proves this happened. carol: for more on the big hack, let's get to joel webber. this is an amazing cover story. we just heard the details from jordan. tell us about where do we go next? joel: it is important to start with the framing. this is not the usual kind of sony software hack, or equifax. we are talking about hardware. that is what makes the story that much more fascinating and troubling. it exposes this hardware supply chain that we have, this great conveyor belt from china. our sources say this has been

compromised because of this. these events happened in 2014 and 2015 but the investigation remains ongoing because it is such a great concern. jason: as editor of the magazine, your job is to be looking around the corner. where do you take this from here? joel: this is not something that affects every company that has used supermicro before. in 2015, they had 900 customers. we are saying that according to our sources, almost 30 companies were impacted. that is a small fraction of the bigger number. but it does expose this vulnerability that can affect so many different industries in a place that no one has been looking before. the question becomes -- what can we do about this? as the story explains, there are not a lot of great commercial options for doing this. x-ray machines where you're looking for a chip the size of a grain of rice, most companies are not going to be able to do that. it turns to, is there a

networking solution that can monitor it. i imagine that bloomberg and other outlets will continue to monitor this story. carol: this comes at an interesting time. we are starting to talk about u.s.-china trade negotiations going to the next level, and i am curious about security and ip protection. joel: the trump administration has talked a lot about china and the tariffs have been directed toward computers and networking that is the subject of our story. once you appreciate what the big you hack is about, it explains a hack is about, it explains some of the you bigger backdrop. it has not been disclosed to the public. and that is why we decided to publish. it was in the public's best interest. jason: while we have you, we have to talk about the other blockbuster piece. josh green on a secret resistance. volunteers doing research. joel: you have to love josh green, right? if that was not going to be our

cover, this was going to be our cover. the story about john burton who most recently has been working for jp morgan but before that he did opposition research for the obama presidency. what does he do now? he has galvanized a network of grassroots supporters. they are crowdsourcing the resistance and that is what the story is about. carol: they are gathering tons of information. now we will see the fruits of their efforts seeping out. joel: they're looking to target very specific winnable races with opposition research. carol: this is like must read, this whole magazine. joel webber, thank you. jason: we will hear more about the quiet army building in the united states, 16,000 liberal resistance volunteers secretly recruited to fight for the democrats in the upcoming november elections. carol: plus, president trump booted foreign startup country does companies. we follow the brain drain. jason: we want to bring you a quick peek on how this week's cover -- how do you illustrate the big hack?

>> the image we gravitated toward was this tiny chip and trying to show the scale. we played with a lot of different things to make the comparison, a pencil tip, a penny. this image of the finger worked and had the momentous quality. once we had the image, we figured out how to do the type in a way that was brief and hit you right away. i think the final result is impactful and clean and concise. ♪ carol: welcome back to

"bloomberg businessweek." i am carol massar. jason: i am jason kelly. join us for "bloomberg businessweek" on the radio every day from 2:00 to 5:00 p.m. carol: you can also find us online at bloombergbusinessweek.com.

jason: a few things going on may and play a big role in the in play a big role in the upcoming midterm elections. about a month away. carol: we spotlight the creation of a quiet army of 16,000 liberal resistance volunteers. you heard that right -- 16,000. they have been secretly recruited into a democratic dirt digging operation run by a smart former hatchet man for president obama. jason: we caught up with the author of devil for details. reporter: he is a dork underbelly. basically what these people do is dig for dirt on political opponents and then surreptitiously try to get that into the press as a way of shaping a negative story line that will impugn a political candidate. s' support.voter we have this enormous and secretive dark money group being funded by mysterious democratic donors that has

marshaled a huge army of thousands of volunteers to dig into the background of dozens and dozens of republican incumbents in hopes of unleashing this negative information over the next couple of weeks and trying to get them to lose their elections. carol: you talk about the resistance and how it is led by a former jp morgan banker, john burton. tell us about him and his role. >> he worked on barack obama's campaign in the opposition research department. as a young, college graduate in the 2008 campaign. he worked briefly in the treasury but he left and went into a career in banking, was not planning to politics. -- on doing politics. but like a lot of democrats, his life was more or less turned upside down by the trump election. he decided to quit banking and start a resistance group. we have seen these resistance groups at marches, doorknocking or fundraising. many resistance people run for office.

what burton recognized, though, is that this kind of volunteer energy we have seen crop up all across the country could at least in theory be harnessed to do what he used to do which is investigate the background of a lot of republicans. so he set up this group to try to marshal this army of amateur investigators to look through everything from republicans' social media posts, old newspaper clippings, to arrest records and property records to try to unearth negative information that could be weaponized against these candidates for their races in november. carol: it sounds so cold war when you talk about resistance movements. when you mention john burton, you are right. he did it for the obama administration. this is kind of normal politics -- digging for dirt on your opponent. >> it is. this is part of the ordinary tradecraft of politics that the public does not often get a glimpse at or know much about

, but there are paid researchers in both republican and democratic campaigns. there are sophisticated outside groups. probably the most famous oppo researcher who has ever lived is christopher steele, the former mi-6 spy that produced the so-called steele dossier date -- paid for by democrats -- paid for by democrats to investigate donald trump's ties to russia. all of this tends to happen away from public view and below the radar. in order for these attacks to be effective, it is better for the campaigns if it does not look as if they are partisan attacks. if you can take some of this information, give it to a reporter and say -- hey, i have a story about so-and-so's drunk driving arrest, for instance, or messy divorce, and get a reporter to agree that it is legitimately newsworthy and write their own story, then you

have effectively laundered this attack through the mainstream media. that is something both sides try very hard to do. jason: another major factor in the november elections? carol: women. according to a new book, there has been an aggregation of rage over the past two years from the 2016 election to the me too movement, and happening right now with brett kavanaugh. jason: here is bloomberg's rebecca greenfield with another misconception when it comes to women. rebecca: she makes the point that women should be proud of their anger and society and men should be proud of women's anger. i thought i would come out on top and say -- i am angry about a lot of things going on. jason: in addition to being angry, you are also prolific. you have another piece in the magazine is very bloomberg-y because it talks about gender stereotypes when it comes to investing. we have these perceptions of how

women invest versus men, women being more risk averse and the men more bold when it comes to investing. the numbers say otherwise. rebecca: we think women are risk averse, and women think they are risk-averse. there are other data however. using 5 million people's data, a company found that women fell really evenly along the risk spectrum. there are the same number of women who are high risk low risk our -- are takers as are medium risk takers. the data found that men do fall a little more on the high risk side. but another piece of data from this app found their behavior is exactly the same. men and women are just as risky on that investing app. jason: even the perception, even women's perceptions of themselves does not match up

with their actual actions, right? rebecca: women perceive themselves as risk-averse. we internalize this thinking that we do not like to take risks and we are conservative. i have a couple in the story where the woman comes in, she says she is conservative and her husband is the maverick. it turned out to be the opposite. carol: if a woman comes in and says, i think i am risk-averse. she works with a financial planner. we will put her in safe and stodgy investments. she might impact herself financially, her wealth over the long-term, if she is not put in more aggressive investments which she really could deal with. rebecca: there is a big investing gap. like there is all sorts of gaps for women. it finds that when fewer women have invested, and those that have invested invest less money. it could be because of these myths being pushed on women.

or you say to your self you do not want to invest at all. you do not want that to happen. carol: still ahead, a main headline from the week -- the north american trade deal done, finally. jason: where does the u.s., the administration, and the world stand on trade now? we take a look at that next on "bloomberg businessweek." ♪ ♪

jason: welcome back to "bloomberg businessweek." i am jason kelly. carol: i am carol massar. you can also listen to us in new york and boston. 99.1 fm in washington, d.c. jason: in the bay area and in london and on the bloomberg business app. after months of dramatic negotiations, president trump and the leaders of canada and mexico marked a new free trade agreement meant to pull the three economies together. carol: it finally got done and

it was quickly recognized as a win for the white house. investors liked it and the deal also served as a bit of a warning for china. jason: president trump's economic advisor larry kudlow spoke with alix steel in washington, d.c. larry: regarding china, we have made it clear, the president has made it clear that china has got to change its ways. unfair trade practices. high tariff barriers, high nontariff barriers are not acceptable. american firms cannot own their own operations. you have to go through joint ventures with the chinese where they own the majority. that is where the technology is stolen and transferred right there. that puts us at a big disadvantage. they are stealing our family jewels, if you will. we are the greatest technology producer and applicant in the world. that has got to change. the president has been tough on

this. alix: on a scale of one to 10 -- zero is no communication. a three? two? larry: i will not go there. we like to talk. talking is better than not talking. we like to talk. we have made our asks. they know perfectly well. as the president has said, their responses have not been satisfactory but that does not mean that they always will be unsatisfactory. the president has a good relationship with president xi and perhaps they will meet at the g20. perhaps, and we will see how it goes. jason: moving to technology and shocker, it is about politics. not long ago, entrepreneurs around the world thought of america first as a place to build their businesses but then the trump administration cracked down on immigration, shut down a visa program designed for startup founders.

carol: now, we see foreign entrepreneurs who may have chosen to base their companies in the united states are being pursued big-time by other countries. olivia: it is very much a little-known program called the international entrepreneur role. this was set up to allow tech immigrants, particularly foreign entrepreneurs, to enter the u.s. and launch their own companies here. it was specifically targeting those that would come here to silicon valley or boston or chicago, wherever, to launch their own companies and hire american people. the obama administration had created the program and it was set to go live in june of last year. a week before the trump administration rescinded it claimed the entrepreneur role was bad for u.s. workers and u.s. investors. under this kind of buy american, hire american program, they effectively eliminated the start

up visa program which was born out of a desire to streamline the process for immigrants and entrepreneurs from founding their companies here. jason: what is fascinating about this story as you write it, the rest of the world looked up and said ok, we will get in there. carol: what? jason: and the response has been incredibly fast from countries, neighboring and others around the world including new zealand where you are from. olivia: exactly. the most interesting part for me was as this internal domestic dispute rages in the u.s., the industry is saying this will be bad for the u.s. economy by eliminating this program, and the trump administration pushing back and tightening immigration, you have seen a really swift response internationally from at least a dozen industrialized countries saying, hold on, this is the opportunity for us to jump in.

attract the brightest minds in the world that might have looked at the u.s. to launch a company and now they are going elsewhere. we have seen canada, estonia, japan, israel, the u.k., germany, france, new zealand, australia. everyone jumping on the bandwagon saying, now is the chance for us to be the next big tech location. jason: in terms of what they are offering, what they are providing, what are the perks? olivia: israel has one of the most interesting programs. they are offering $20,000 relocation bonuses, free hebrew classes, accountants, free cell phones, and a six-day visa processing system. so you apply for your visa and in less than a week later, you have it. jason: can cadillac make a comeback? carol: with a new chief and a lower price suv, the once dominant automaker rolls the dice again

about bringing back the brand. this is "bloomberg businessweek." ♪ ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelly. carol: i'm carol massar. still ahead in this week's issue, the tyranny of the u.s. dollar. d supremeined -- reigne as the world's reserve currency for more than a decade, but is it time for regime change? jason: speaking of regime change, how amazon and netflix are raising the stakes against traditional studios in the talent wars.

carol: but first, general motors and honda are teaming up to develop self driving cars. the japanese carmaker will spend $750 million to take a 6% stake in g.m.'s self driving unit, cruise, then spend another $2 billion on jointly developing and deploying autonomous vehicles with g.m.. jason: g.m.'s president dan ammann spoke with bloomberg's david westin. dan: our mission is to deploy this technology safely on a massive scale and having another partner on board that brings tremendous resources to the equation is another big step in that direction. softbank invested $2.25 billion, honda is bringing $2.75 billion to the table and a huge amount of engineering resources, and we are full speed ahead. david: when we talked after the softbank investment, you said your goal was to have a real autonomous vehicle deployed in calendar year 2019. what does this deal do to that date? does it move it up at all? dan: that remains the goal. we are working as fast as we can to get to that point.

the main item to deployment will be whether we are operating at the right level of safety and as soon as we are at the right level of safety, we will be ready to deploy. this partnership with honda really accelerates some of the effort that will come after that and in particular, we are going to work together on a jointly developed purposeful autonomous vehicle which will roll out in the next stage of scaling after initial deployment. david: you talked about the purpose built. when you say "purpose," what is the purpose for autonomous driving? we won't have a steering wheel? dan: one of the things, one of the constraints we are able to release is we won't have a driver in the car, we won't have driver controls. that allows us to set aside decades and decades of automotive design, completely reimagine what a car can look like, how the car can be used and how efficient it can be. this is the first time anyone will be doing that. a vehicle ready to be deployed on a massive scale. carol: we will stick with general motors.

here is the trait bureau chief david welt on the deal with honda. jason: and its latest push for another cadillac reboot. david: general motors has talked about its self driving car has a big advantage over other automakers in a real competitive edge for them. and what did they do this week? they decided to sell a nearly 6% stake in its cruise llc unit to honda, a rival for $2.75 billion. what it means is that the companies will jointly develop a self driving car and deploy it for different uses, robotech, you name it, all around the globe. they didn't really tell us when, but they are basically sharing their prized technology with a direct competitor. carol: what does this say about general motors? it feels like general motors is all of a sudden putting the pedal to the floor at this point in terms of moving forward on self driving vehicles. this is the second major investment they have done in about a month or so.

jason: is that a car pun? david: be careful, there might not be pedals in cars anymore. jason: nice one. david: it might not have a steering wheel. g.m. bought cruise automation about two years ago for about $1.5 billion and softbank invested $2.25 billion in may, and that valued the company at $11.5 billion and this puts it at $14.5 billion. g.m. has been developing fast and they are planning to deploy a robo service in san francisco next year. they will be among the first to do it. maybe alphabet or google will beat them to market. these will be small test fleets. you will see robo taxis from those cities in the next year. jason: let's talk about a well-known brand in the car business, and a car that for the moment still has a steering wheel and gas pedal and brake.

cadillac. you have a story in the magazine this week that really tracks the history of this brand and gets to the point that this is another shot cadillac is taking to try and stay cool. tell us about it. david: i started the story with the sentence "here we go again," and for good reason. honestly, cadillac has been a hobby horse of mine over the years. this started really 20 years ago. cadillac had a president named john smith who later ran g.m. europe, he was a high level executive, but john showed off this art and science design at pebble beach in 1998. it was that edgy, squared off geometric design that was meant to really bring cadillac back, make it look modern, give it a new look and get some attention. that was in 1998. in 2003, i did a cover for "business week" and the cover language was "can g.m. save an icon?"

they were trying to bring it back back then and it had its fits and starts. in the early 2000's, the escalade was new, a huge hit, they had the ct sedan that was , it caught on, and then they got into financial trouble and went bankrupt. now, g.m. only has one crossover suv -- two, just going on sale. you see what has happened here. cadillac was always kind of a low priority, even though you make a lot of money in luxury, because when the company was in financial trouble they needed to generate cash and the way to do that was to sell pickup trucks and suvs under the chevy name. that is high-volume. now they are putting real money into cadillac. carol: still ahead, a busy week of fed appearances. we hear from charles evans and also patrick harker. jason: plus, the u.s. dollar has been the international currency for decades. time for a change? carol: this is "bloomberg businessweek." ♪ ♪

carol: welcome back to "bloomberg businessweek." i am carol massar. jason: i am jason kelly. you can join us every day for "bloomberg businessweek" on the radio, 2:00 to 5:00 p.m. eastern. carol: you can also find us online at businessweek.com. jason: we had a busy week of fed appearances as jay powell spoke in boston and washington, and bloomberg sat down with chicago fed president charles evans and philadelphia fed chief patrick harker. carol: they agreed a stronger u.s. economy warrants further rate hikes, but different needs

-- but differed on the needs on further rate increases this year. >> the median dot was four rate hikes this year and that within a high likelihood of one more. i am quite comfortable with the expected path embedded in the median sep's. >> my forecast right now, three this year, two next year, two the year after. some have accelerated that pace. for me, i haven't seen acceleration of inflation. we still see good job numbers so i do not think there is a rush. i don't think we have to rush the normalization process going back to neutral. i am open-minded. chairman powell: this historically rare pairing of steady low inflation and low unemployment is the testament to the fact that we remain in extraordinary times. our ongoing policy of gradual interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times. jason: chairman powell went on to reiterate plans to keep

raising rates at a gradual pace. markets are responding to that rosy economic outlook, but some are issuing a warning. carol: this week in the economic section, mohamed el-erian, the chief economic advisor at allianz and bloomberg's opinion columnist, he wrote about the fed's plans for interest-rate hikes. mohamed: should be concerned about excessive promises given about liquidity, especially in liquid asset classes. they should be concerned about where high-yield bonds are trading and what that tells you about risk-taking, and the question is, is it enough to rely just on macro and micro potential policies? most people tell you that is necessary, but not sufficient and that monetary policy has a role to play. this fed seems to be a little bit more comfortable with that notion, but we are yet to see how far they are willing to go with it. jonathan: you and i have had a

discussion on what should guide the fed. what do you think is guiding the federal reserve right here, right now? mohamed: a very strong u.s. economy and because of that, both elements of the dual mandates are either met or will be met soon and if it weren't for the rest of the world, they would see a clear path to tightening at the same rate as what is implied in the dots, if not more. i think it is the rest of the world that makes them a little bit more cautious, but of course, they are not going to express that loudly. jonathan: from what you have said, it makes me think the tension after 2019, 2020 between market expectations lower than federal reserve expectations, do you think it reconciles with the market coming up towards the fed? mohamed: yes, absolutely. jonathan: how are they going to engineer that change and when do they need to make that communication shift to get the markets to come with them? mohamed: they are doing it very

gradually. you have seen the market edge up closer to the fed and the last two years, that has been the story. earlier, it was the fed coming down to the markets, but we have seen a change in regime. but they do it very carefully because they don't want to derail economic growth and they don't want to disrupt markets too much. so it is very gradual, but i think that ultimately, the convergence will happen from markets going up to what the fed has already signaled. jason: in his column, he asks a key question. will u.s. economic growth dip or will the rest of the world start to catch up? carol: let's bring in taylor riggs is a bloomberg terminal chart to help us. taylor: always a terminal chart to help us out. come into my terminal here. i am looking at u.s. indices versus indices of the rest of the world. you can see massive the divergence is happening. we have normalized it back to the election, a key date and a

correlation run-up, look at this. that was tax reform, when the u.s. started to outperform other countries. as you know, even higher interest rates, the strong dollar, the u.s. strong economy, third quarter earnings off to a strong season, all of this pushing the u.s. equities higher, creating the divergence we are seeing relative to the rest of the world. carol: pretty marked. jason: very stark. that brings us to another paradox, the dominance of the u.s. dollar. u.s. share of the world economy has drifted lower for decades, yet the dollar remains almighty. carol: that brings us to another chart. this chart in "business week" america makes up two thirds of international debt and a global share of reserve holdings. that is the colored in blue. oil and gold are priced in dollars, not euros or yen and when somalia pirates are holding up ships at sea, it is for dollars. jason: is the dollar dominance unraveling? peter: the u.s. share of world

gdp has fallen since world war ii when it was skyhigh in a roller coaster up and down way. yet, the dollar's role, just as important as when britain woods was being formed. it is used in transactions, european company might buy a european product and yet priced in dollars, oil and gold are priced in dollars, most countries have the majority of their reserves to foreign currency in u.s. dollars. the u.s. being one of the only exceptions. ours is in gold. overall, the dollar is the currency everybody links to, even russia, when it is figuring out its exchange rate, tries to kind of stay in line with the dollar, and the chinese yuan. carol: the big question here is, the almighty dollar? is it en route to not being the almighty dollar and what are the

consequences for the united states as a result? peter: that would be a very long, slow process just because in this path dependence, it is hard to dislodge a currency. but jack lew warned in a speech in 2016 when he was still on the job that you don't want to overuse sanctions. you want them to be, first of all, everybody is in this together and second, if there is evidence that a country subject to sanctions has mended their ways, you want to remove those sanctions. he was not talking about iran by name but that was the implication, and trump seems to be violating those principles in a way that gets the back of the rest of the world up and they say, we really want to disentangle ourselves from the dollar. even if it might not happen quickly, carol, it could happen.

jason: if not the dollar, what? peter: that is one of the reasons -- the euro doesn't even have a real government behind it. there is no fiscal and taxing authority, and the chinese government just doesn't seem to be willing to have the openness that would be required of a country with a reserve currency, so the u.s. is by default the world's reserve currency. carol: coming up, traditional studios tired of being outmaneuvered by netflix are fighting back. jason: and we will hear from barry diller on the rise of streaming services. carol: plus, for one flower business, it is definitely blooming. jason: this is "bloomberg businessweek." ♪ ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelly. carol: i'm carol massar. you can listen to us on the radio on sirius xm channel 119,

and on am 1130 in new york, 106.1 in boston, 99.1 fm in washington, d.c. jason: am 960 in the bay area. in london on dab mux 3 and in asia on the bloomberg radio plus app. it is hard to count all the ways netflix and amazon have already disrupted the entertainment industry. carol: disrupted and threatened. in the latest episode of "the david rubenstein show: peer-to-peer conversations," there was a discussion about how the subscription giants could overtake the movie and tv industry. david: you expect movie and television companies to be bought by these technology companies? >> i am not sure about buy them. i think they will supersede them. the thing is that the two companies that are really dominating right now are netflix, grown totally outside of the infrastructure of the entertainment business, and amazon, whose business model is

absolutely antithetical in a way to what the business model of entertainment has been, which is you put on a show and people like it and the audience comes and they pay you. their business model is to sell subscriptions to prime. just as a subsidiary, they give you good stuff on the side. david: worked out pretty well. jason: let's stay with netflix's threat to the entertainment industry. in the business section this week, as netflix commits to spending more money on content, it is draining talent from the network and studios that used to dominate hollywood. carol: the changing dynamics. established companies are having to draw battle plans to keep their stars in the fold. reporter lucas shaw sets the scene. lucas: netflix put out the first couple of shots last year, signing shonda rimes and producer ryan murphy, the creators of "gray's anatomy" and "american horror story," two of the most prestigious show

runners in hollywood. and properties of fox and disney. netflix threw down so much money and got so many headlines for those deals, it sent shockwaves through the entertainment industry and forced other tv studios to reassess how they are making deals with high-end talent. so we started to see over the past few months some of the other studios adjust the types of deals they offer and how they are approaching their talent. the most notable example being warner bros. with a producer who produces 15 shows on the air right now, the most of anybody ever. >> you are talking about big money, $240 million for ryan murphy, shonda rimes, was about $150 million. do they have a preference or will they go where they get the big bucks? lucas: it depends on who the person is. in the case of shonda rimes, she was pretty unhappy at disney and abc. disney only provided one outlet

for her, abc which is broadcast tv, which is you have a lot of rules about what you can and can't do. not a lot of cursing, no nudity, you can't take a lot of political stances. shonda is pretty provocative in her work and can push the boundaries of entertainment and wanted to make shows you might see on hbo or netflix that wouldn't work at abc. somebody like greg bramante is happy in his lane. they all want the most money they can get, and the dirty secret of those big numbers, the big dollar signs you see netflix schilling -- shelling out, it is a lot of money up front and very little money in the backend. it has adjusted the way producers and writers are paid, and it is not clear if they will make more money or less money than they would have. carol: that is a key point. that backend is how you that producers used to get money. they would get the first run on the network. whether it was reruns for years

and years later, you think about tom warner in your story behind "the cosby show" and others, he made an awful lot of money that way. lucas: yeah. there's a long list of famous tv producers and show runners who made hundreds of millions of dollars and in a couple of cases, more than that because of syndication, where you make a show for cbs, abc, nbc, one of the main networks, and it gets reruns and vhs tapes and dvds, and you get paid for the next 40 years. that market for syndication has started to dry up in large part because of netflix. you don't see a lot of shows getting sold for multiple million dollars in reruns and those types of deals. so you are having to accept more money up front. however, in the rare case you have a huge hit on a broadcast network, there is still a lot of money in that back end. shonda rimes, i'm sure, still gets paid a lot of money for reruns of "gray's anatomy" and

she made a calculated choice it was worth it to her to have the creative freedom at netflix and get all the money up front, and sacrifice maybe a little money on the backend. exactly how backend works in a netflix, amazon, hulu world, we are still figuring out. jason: we turn to the pursuit section, which also a hollywood angle. carol: everybody needs a flower guy like this. here is editor chris rouser on the floors to hollywood royalty and real royalty and his booming business. chris: for the cover story this week, we looked at the flower industry, which tends to be a coincident index of the economy. during boom times, people are spending more money on flowers. people right now are spending a lot of money on flowers. one of the guys doing really well is jeff latham in l.a. he also works out of paris. he is the florist to royalty and hollywood royalty. jason: he got his start in saudi arabia. anybody who's career spans the prince and kris jenner has got to be doing something right or

something big. chris: he became the florist in residence in paris and turned the lobby into a tourist destination. it spends more than $1 million a year on the flowers and met a lot of celebrities coming through the hotel. he befriended the kardashians and he did kim and kanye's wedding, he did khloe kardashian's baby shower, and this has made him very famous. carol: the lobby is how he met the clintons, oprah, and ended up doing flowers with them. chris it was an assistant job at the hotel and it skyrocketed into this other business. jason: he has been propelled by social media in many ways because now, the world sees this and they want even a small version of these hundred thousand dollar, multi-hundred thousand dollar, million dollar arrangements. to call them an arrangement is to understate what they are. chris: he has 900,000 followers on instagram and it has affected his business.

flowerll see lots of walls at weddings, one burst of color. he says brides will spend more money on one big statement piece people will take pictures of than the rest of the flowers at the wedding. carol: "bloomberg businessweek" is available on newsstands now. jason: and online and on the mobile app. must read this week? carol: the first two stories we covered over the past 60 minutes, the big hack, our cover story this week. incredible implications. it has been an investigation that has been going on for several years. we still don't quite know how it will all play out, but we also talk about software. this one is about hardware and the implications are much more darker and deeper. jason: i feel you have to sit and read to digest this, because there are so many implications about investing, running a business as well. also, sit and read josh green. he is a must read all of the time. this is really a different take, taking you into the underbelly of politics where 30 days out,

give or take, from the midterms, a lot at stake. carol: exclusive stories, lots of details. jason: more bloomberg television starts right now. ♪

♪ nejra: mega-media mergers. a $39 billion battle for sky. what hurdles still remain. bracing for new roles. the asset managers are bidding for a last-minute rate from a eu policy. nejra: and a scandal. how did go from loki lender to the subject of one of europe's biggest and most brazen cases of money laundering. and what is next. welcome to bloomberg markets rules and returns.