♪ carol: welcome to "bloomberg businessweek." i'm carol massar.. i'm jason kelly.. >> this week's issue, how to fix american capitalism and build prosperity. >> that is according to analysts. >> the magazine investigates what happened to president trump's $ 4.5 billion deal. jason: we begin with the international cover story, a

report that sheds new light on chinese tech giant huawei and allegations of trying to steal u.s. trade secrets. carol: editor joel weber is here with us, and this is a story that reminds us why officials have a so many problems with huawei. joel. joe: it is a special story that provides a rare glimpse of something only has understood. the u.s. always claims that huawei is a bad actor, yet there has been no tangible proof. erik schatzker pulls off an incredible story. from the moment he came to us with it, we said stop talking and start writing. jason: go wherever you need to go, and it takes him to vegas. there's a sorbet stand involved. schatzker undercover. joel: where this really began was an american company that has a glass it thinks will make better smartphones. you know how your smartphone shatters, and you ask why does this happen? he thinks he has that technology.

he sends a sample to huawei and it comes back broken. that is not supposed to happen and that is what leads us into the story. carol: i sat down with eric and he tells the story is so well. we got more with erik schatzker on this story. erik: there was an investigation underway involving a small start up based outside of chicago in the advanced materials industry. they are trying to develop a diamond coating that would go on top of your smartphone display, making it harder, more scratch resistant, and ideally of great appeal to the likes of apple, samsung, lg, the major smartphone manufacturers, including huawei. the reason this was happening was because of their interactions with huawei. they had been sending samples of their diamond glass product product to a bunch of different smartphone makers. carol: which is what a supply

will do. erik: standard in the industry. you develop a new technology. you go to multiple iterations. once you think you have something to show customers, you send it to them and they perform tests. carol: and there are rules, correct? erik: yes, and in this case, it was you can have the sample for 60 days and the tests you perform have to be nondestructive. so this company sent to rounds rounds of samples to huawei and we assume they did the same thing with other companies. after the second round of samples went out, the 60 days passed and the sample did not come back. they demanded the sample be returned immediately, as you would, and the first thing they got back from huawei was an email with a picture in. the picture was, under magnification of the sample, and it had a big scratch. we talked about this diamond

glass is being scratch resistant or unbreakable. it is come up to a certain point. it is very thin, it is not like it is a chunk of diamond. it also was not in its final form, this was still a prototype. so they saw the scratch, and they thought, my goodness, they have violated the terms of our agreement, damaged the sample. again, they persisted in asking for the sample back. it was finally returned last august 2018. when the chief operating officer at this little start up outside chicago opened up the cardboard box -- carol: tons of safety packaging right? erik: it is delicate equipment. threw away the airbags, opened up the plastic case, he realized the sample was not just damaged, the sample had been broken into two pieces and three shards of this diamond glass were missing.

it was at that point that he and the ceo and founder of this company realized that something very bad was going on. this is not what companies do when they are engaging in good faith business. huawei destroyed the sample for reasons they did not understand, but that they could surmise and they feared the worst. jason: the worst being that their intellectual property was being stolen. erik: that is among the range of worst possible outcome, yes. that huawei had damaged the sample in an effort to reverse engineer the proprietary processes and figure out how to put the diamond coating on the glass themselves and get to market that much faster, and in doing so, potentially destroy the commercial opportunity for akhan's semi-conductor. but what else would they -- ?ight they want it for

they didn't get into it just to glass, but there are a lot of potential applications. these are two electronics if you and defense. want to get into the business of laser weaponry, either on an defensivebasis or basis, you need diamond. i'm not going to into the basics but diamond is a very good heat , dissipating material. it has particular use in defense applications, as opposed to offensive applications. they worried that maybe it was not just huawei trying to get a jump, but the chinese military trying to get a jump on the u.s. army. carol: enter the fbi. they brought the fbi in then. erik: they did. two weeks later, the coo, this gentleman was at an fbi seminar.

the chicago field office was holding regular seminars on corporate espionage and he had been going to these in a bizarre coincidence, a special agent at the fbi field office was delivering a seminar on corporate espionage and the case study was something that is now -- that has now become a little more famous, huawei's attempt to steal intellectual property from the mobile lab outside seattle in 2012. the coincidence was just too powerful, he decided right then and there without ceo or board approval he had to talk to the fbi. he approached her during the break and briefed her on what akhan with huawei. he says the fbi took an immediate interest and things began to move very quickly.

jason: that is an important thing to point out. any of us in our businesses, if we approach the fbi and especially as a small company, we think the fbi is going to proverbially pat us on our head and say, we will get back to you. stick it in a file somewhere. erik: that is not what happened here. we have also been led to believe that because the fbi has been dragged over the mud politically over the recent months, but in this particular case, they were on it. carol: up next, we hear from the ceo of akhan semiconductors and his interview with eric. . jason: plus, a play-by-play of the fbi sting operation. carol: absolutely fascinating. this is "bloomberg businessweek." ♪

carol: welcome back to "bloomberg businessweek." i'm carol massar.. jason: and i'm jason kelly.

join carol and me for businessweek every day on the radio or our daily show. carol: and you can find us online at businessweek.com and on our mobile app. jason: we are going to stay on this international cover story about huawei. carol: erik schatzker followed an fbi investigation into huawei's dealings with akhan. jason: akhan's ceo explains what -- why he thinks huawei try to grab his technology and what he thinks will happen next. >> worst-case scenario and what we have been publicly discussing some of the work we are doing. it could potentially put them in the right direction in terms of what to optimize, i would say that is the worst case in a weapon standpoint. in the best case in the context of weapons espionage, simply wanting something to differentiate them from the samsung's and apples and googles of the world and giving them that advantage.

they are setting up to bring out some sort of finality to the investigation. akhan is looking to file civil litigation concurrent to it. our main purpose is making sure the fbi gets their investigation right. there is in part a national security portion of it and a corporate espionage, a market couldportion that akhan seek as a remedy in terms of damages. carol: now we get to some of my favorite parts about the story. we talked to erik about the lead up to the fbi sting operation. it happened at the consumer electronics show in las vegas. erik: the fbi, in order to keep the investigation running, the fbi did not want them to break off contact with huawei. at a certain point, they asked them to reinitiate contact with huawei so that the fbi could listen into a conference call, affectively bug the conference call, and have these akhan executives ask questions. what happened to the sample, where to go? and the course of this call,

they learned the sample had actually gone to china. that is a very important point to make because diamond coating with its applicability to military applications is on a restricted list. it is not allowed to leave the country, regulated by a regime called the international traffic in arms regulations. if it had gone to china, and they had very good reason to believe that it did, that would have been breaking american law. carol: take us to the consumer electronics show in vegas. what happened? was it a sting operation? erik: that evolved out of the same conference call that a wildly individual admitted that it went to china. she indicated that while it wanted to continue conversations. it was very difficult to figure out who is playing who here? we, as an akhan is trying to lead huawei down the garden path so the fbi can gather more information. at the same time, huawei is

trying to play akhan to learn more about their proprietary processes. so they set up this meeting at the consumer electronics show, happened towhere i be. they wired up the chief operation officer with covert surveillance devices. initially, they were going to have this meeting in a room at the consumer electronics show. an hour before it happened, the huawei representatives suddenly and maybe suspiciously change d the location of the meeting to the food court at the venetian casino. that is where the sting went down. carol: and you saw it? erik: i watch the two groups meet the akhan executives. i watched them walk toward the food court. don't know who ultimately made this decision, but they walked

into a fast casual restaurant called "prime burger." that is where the sting went down, trying to look inconspicuous by a gelato stand. jason: where does it stand? what happened? erik: the fbi, thanks to the surveillance agreement, recorded both audio and video of this interaction. there were discussions there again about what the sample had been. the huawei representatives who were there claimed ignorance about the damage and how it got to china and all of that. but they kept pressing for more detail about akhan's operations, trying to get a little further along up the value chain , understanding how they were able to engineer the film. not even a couple of weeks later, this was about 20 days later, on january 9. then on in january 28, the fbi conducted a raid. they executed a search warrant on huawei operations in san diego, where the sample had originally gone from akhan to huawei.

they gathered further evidence, and now we are waiting to find out what the government does. jason: one of the tricky things about huawei is that it is privately held. we don't have a lot of information. that is why we have taylor riggs to help us understand this chinese and tech market. taylor: we know huawei is so closely held within the chinese government that we do have a lot of information. we have an etf the tracks the chinese tech sector and gives us a good gauge of where we all stand, relative to the u.s. it looks like they actually track pretty closely together, except what caught my eye was at the end. looking at the forward p/e ratio, the u.s. tech sector has had a bit of a run-up in price because some are saying with the 5g rollout. we heard from earning season that a lot of analysts and investors expect 5g to boost the u.s. tech sector. and 5g, therei

been some convocations with that . we will wait and see. carol: interesting to see that gap. taylor, thank you. up next, the strange and similar case of dr. yellen and chairman j. this is "bloomberg businessweek." ♪

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

york, in boston, washington, 1061 d.c. -- jason: am 960 in the bay area, in london, and on our app. in the finance section, the fed chairman jay powell and his predecessor janet yellen turned out to be remarkably similar policymakers. carol: we spoke with a federal reserve reporter jeanna smialek about what can be then result of the yellen-powell era. >> she is doing he's aptly what janet yellen did still in the fact in the sense that they are still pursuing a patient, gradual rate half along the -- rate path that is allowing the labor market to make as much progress as possible while restraining inflation. we heard him signal at the federal open market committee meeting that the fed might be taking a pause for the foreseeable future. still very much taking this kind of cautious approach. i think it is a real story of continuity so far. jason: let's remind folks that, back in december, if we were having this conversation six

weeks ago, it would be very different because the markets, the president, was a little grumpy with the jay powell. >> they were impatient with him. but one of the things i think is so interesting about looking at janet yellen's legacy and jay powell's legacy and comparing them is that, at the end of the day, they followed a similar what is called a reaction function. they both moved rates up when the economy was looking stronger and inflation looked like it was headed up and unemployment was lower. they both took causes when it -- pauses when it seemed like there were risks on the horizon or immediate signs that global growth is showing some cracks. what was interesting about that was that janet yellen repeatedly took fire from every side because she was going to slow on rate hikes and there was this real concern she would let inflation get away from her. i think jay powell took

criticism for the exact opposite reason, there was his idea that he would hike right in the recession and the fed be the cause of the next recession and now that he has paused, he is taking a lot of heat for capitulating the markets. you cannot win. carol: it is a tricky time. let's get into that a little bit. here we are, the few months away from being the longest u.s. expansion on record. we keep talking over the last couple years about a goldilocks economy, not too hot, we still have job growth. but it is a tricky time for jay powell in terms of what he does next. >> yeah, absolutely. here is the moment where jay powell's legacy diverges from janet yellen's. what powell is going to have to do with this colleagues over the is toouple of years create some sort of playback for the next recession.

we have already seen him decide what will happen with the balance sheet. the fed decided at the january meeting that they are going to stick with their current operating framework and have a slightly bigger balance sheet than they had in the past. they have slightly bigger issues downstream. they will have to talk about things like is the inflation target the right one? what do you do in will where inflation is permanently lower? you have less ammunition if there is a financial crisis because they know it is cutting that fund. it is their most potent peace of ammunition in their toolkit. so there are these real questions, and they are not resolved, and jay powell is going to be the person in charge of the committee when i have to think through those questions and come up with answers that could be politically difficult. carol: also in the finance section, what happens when hedge funds are built around one great manager? jason: and what happens when that great manager leaves? carol: we profile the investment brains behind fir tree. jason: until he walked out the door. >> fir tree was founded by a man

named jeff tannenbaum and it did not take off until he tapped one of his former classmates, this guy named andrew fredman. fredman comes along in 2000 and takes this firm from being $300 million to $13 billion. his track record is -- carol: that's huge. >> -- is really big. he is a very good investor. we were comping his returns relativee s&p or other value firms or hedge funds at large, and he really did beat. he annualized 7.5% over his tenure, including bad months when he wasn't even there, and we just try to take a full extra. he built it, but he is not the personality that you see often in investing. he stays in miami, florida, even though headquarters are here in new york.

he kind of has got this child of the 1960's personality. he is obsessed with every trade that is put on, he is on around-the-clock, dialing up analysts. he is involved in the culture in a very important way. even though jeff tannenbaum was the founder, fredman was the heart and soul of the firm. unlike bill gross, who retired at 74, well past his prime, fredman steps away at his prime, which is never see. carol: early 50's? >> 53 years old. he has his lottery ticket of -- ticket and he just throws it away. he still got very rich, he was just kind of done in. we rarely see that, and it shocked everyone. even though fir tree had a succession plan in place, a top lieutenant of his who was the natural successor, he said over -- he took over and they had

this whole group of managing directors that would support the successor. things still fell apart, and that is what is so interesting about the story. you can have a plan, but to execute and see how it comes together when the time comes, that is what is really interesting about the hedge fund industry. carol: and that is the underlying theme of your story. you talk about him being the heart and soul of the firm, and when that goes way, it all comes undone. >> you don't appreciate has -- how someone is the glue until they are gone. and you can try really hard to stick to your plan, but at the end of the day, the firm has lost $8 billion since he has left. the performance has not gone well. it has been bad here after bad year. last year, they lost 8.2%. they were mired in a lot of bad trades that came about starting

when he stepped back. jason: one of the things that you point out, and you mention private equity funds earlier, that money is locked up for longer amounts of time. with a hedge fund, it starts to spiral downward. performance gets to a lower point and people start to pull their money out. other people start to pull their money out, and it spiraled downward very quickly. >> fir tree has their capital locked up for two years because they do take more private equity style positions. investors' you know patience is wearing thin. now it has been basically five years of mediocre performance. even though the capital is locked up, you can see that redemptions are happening. carol: money talks. if money is going out, obviously, investors are not pleased. jason: still ahead, a lifeline for the recording music industry. carol: and $8 million nothing burger for wisconsin. jason: this is "bloomberg

businessweek". ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelly. carol: and i'm carol massar. still ahead, building a better economy using ideas from across the political and ideological spectrum. jason: plus, what is special about tunisia? it is the only democracy left from the arab spring uprising. 2011 carol: we start with the cover story. jason: takes us inside wisconsin's disastrous deal with foxconn.

carol: huge tax break was supposed to create a manufacturing paradise, but in reality, is a different story. joel, this is a story about promises versus reality. >> $4.5 billion tax break that would create a manufacturing paradise. 13,000 high-tech jobs, manufacturing jobs in wisconsin and already looking like a total bust. jason: and was not so long ago president trump was there was senior members of his ministration. >> and it was wisconsin, where scott walker put his political reputation on the line. jason: and important people in business. we were reminded going into this story foxconn is the biggest contract manufacturer in the world. joel: yeah, exactly. this is a story about job creation and a state that will do anything to jumpstart its economy. and yet nobody is holding anyone accountable anymore. there have been a lot of headlines about lcds made here,

not made here, but nobody is talking to people with boots on the ground. we talked almost 50 people to get the inside story on this one. jason: it got into some of the documents underlying it. it is really and amazing peace of reporting. austin: there was this big deal promise and subsidies to this taiwanese manufacturer foxconn. they were supposed to create 13,000 factory jobs, transformative for the state. but so far, things are not going so well where the facility is based in mount pleasant , wisconsin. jason: take us back to the scene. you have president trump, a plethora of big political names. president trump, his chief of staff, who is from wisconsin paul ryan. , former speaker of the house also from wisconsin. wilbur ross, steve mnuchin. this canopy of people who are

there, and this seemed to embody a lot of the promises of the trump campaign. austin: trump on stage said that this is going to return america's industrial might. he said that this was central to his trade war deal with china does it was going to bring factory jobs back, blue-collar jobs back to places like wisconsin, revive what he lost in the last decade to mexico and asia. but a lot of the sources that we have who are watching in the audience, they could not have been further from the truth. trump was talking about everything was going to be made in the usa, but it turns out the tv's made there are manufactured, they are only assembled, a lot of the parts imported from mexico. indeed, the display still said made in mexico. he talked about how there would be good paying jobs coming. it turns out the production workers were just temps, hourly

interns getting paid $14 an hour without benefits. they felt like a lot of jobs were underwhelming and did not live up to any of the promises the president seemed to make. carol: i turned to jason and said cannot remember what we have the president at different companies saying i will be bringing back the jobs? that was a most year ago. what is interesting is it is just shortly after that that interns working for relaxing i -- working and realizing i was not going to have my job. things became undone. austin: just a couple of weeks after the president visited mount pleasant, wisconsin for the ceremony, a manager called a group of 15 interns into a room and told them that they're not going to hire those people full-time because there was not enough work for them to be doing. in fact, two of the sources in that room recalled the manager saying that there were external

pressures changing the wisconsin project, received a pretty - which seemed pretty cryptic, but foreshadowed what we have recently see. carol: were there ever 13,000 jobs created? >> no, no, no. those were long-term projections. the company committed to creating up to 13,000 as early as 2022. it staggered hiring commitments, and they have already missed their first year of hiring. they were supposed to have 1040, their maximum target, and they missed it by about 82%. jason: not to the economics section and a broader focus on the u.s. economy. something close to the headlines. carol: we are all going to learn something here however from house a wide range of ideas of how to breathe new life into american capitalism. >> modern monetary theory is a way to pay for things. the idea that countries with their own currency have greater control over debt if they are

borrowing in their own currency. they can manage deficits and debt better than a country like maybe mexico or egypt, which depends on international capital markets. carol: so the u.s., for instance. >> right. it says if you look at our recent experience like the aftermath of the financial crisis, we were able to spend a -- big on rescue programs that were a priority at that time and we haven't fallen off a cliff. mmt is the way that people endorse this idea are thinking about paying for something like the green new deal. jason: let's talk about tariffs because i feel like we talk about them all the time and the conventional wisdom is that they are bad. and yet you have people who are like, hold on a second.

>> there is a camp on the fringe of economics, because there is a consensus that tariffs are bad, that goes all the way back to alexander hamilton's research on manufacturing. to look at how tariffs can be applied in a way that benefits the economy. looking at trump's tariffs which now exceed something like $300 billion and may soon expand, they say that it is actually revved up manufacturing. they claim they have created something like 280,000 jobs. jason: some people are skeptical of those numbers. >> yes. but the idea being that they have created or improved business confidence in certain sectors, allowing companies to invest more.

if you are being being shielded from competition, at least for a moment, it will theoretically embolden you to invest more, in theory. [laughter] the question is the belief over how long those would stay in place. as soon as it comes down, we will see that some of these jobs will evaporate as soon as they come down. jason: up next american workers , finding new ways to organize. carol: and how tunisia was able to forge ahead with democracy. while so many of its neighbors are struggling. jason: this is "bloomberg businessweek." ♪

jason: welcome back to "bloomberg businessweek." i'm jason kelly. carol: i'm carol massar. join us every day on the radio from two-wall street time. you can also catch up on our daily show. just check out our podcast. jason: and find us online.

in the u.s., a contrarian take on the view that american workers have less leverage with their employers. carol: we heard how workers and activists are finding new ways to get what they want. >> when i set out to write this piece, i wanted to know what was going on. how come if unions were dead and the american labor movement was dead, why all of the sudden did we have workers speaking up and getting what they were asking for? carol: what did you find out? >> the labor market is tight, which gives workers a little bit more moxie than they might otherwise have in a bad economic time. social media has made a huge difference because it gives people a way to find each other. facebook, co-worker.org, deep in the threads of reddit. they can talk to one another and to share information maybe in a way that they wouldn't have been

able to before. it also allows them to make their case to the public, which companies have become sensitive to. jason: one of the interesting things about this is you talk about different generations having different approaches, but ultimately similar approaches to just wanting a fair workplace. increasingly, it is younger people who are driving this. people who may have grown up in the labor union families or may not have, but they're finding a voice. >> that's right. one of the things that was interesting to me is i talked to a woman who is part of the union at huff post, which recently went through a round of layoffs. right around the same time that buzzfeed did as well. this woman is 29, and immigrant said she grew up with , a lot of precariousness. unionized, itost

made sense, because she wanted a lot of ways in an unstable industry to shore up her financial situation. and then we saw the difference between what happened when huff post had the layoffs and then buzzfeed did recently. buzzfeed was a nonunion workplace. you really saw a lot of those workers, current and now former, on twitter advocating that they should be paid for vacation days that they had accrued. jason: one of the things to point out to the top of the story is that it was not expected to be this way, especially given what the supreme court has said about labor unions of late. >> yes, and i don't want to overstate what is happening here. union activity is historically way, way down. the supreme court rulings have been really damaging to the protections of workers who are speaking up.

carol: remind us of those rulings. >> there were two. one made it harder for public-sector unions to fund themselves, the other made it harder for them to bring class actions. the legal challenges are real and the formal protections have really been eroded. companies have a lot of legal power. but sometimes, power is not manifest in a legalistic way. carol: and the international remarks, tunisia is the only democracy left from the 2011 uprising. jason: we talk about what lessons tunisia holds for the rest of the region. >> i went back to tunisia after several years, having covered extensively in the arab spring. i remember particularly one person, a young woman who was an activist blogger. she was the one who brought international attention to the protests taking place in a small

town in tunisia, which eventually exploded to become the arab spring. i remember meeting her then and she was optimistic about the future of her country. i wanted to go back and find out where she was. i also took the opportunity to meet a new class of people in tunisia, free politicians. people elected to parliament in free and fair elections. this did not exist in tunisia eight years ago, does not exist almost anywhere in their world. -- in the arab world. just one of two places where that is absolutely true. this was a chance to take soundings of people i already knew and a whole new category. trying to understand where democracy is in the one country that somehow survived the arab spring with its democracy intact. that was the purpose of my trip. jason: it is such an interesting point. because as you say, tunisia

kicked all of this off. when the history is written in a demonstrative way, that is where it all began. and yet, so many things, especially here in the west, people think about egypt and other places as much more dramatic examples, and yet, as you say, democracy has taken root. why there and not elsewhere? >> several different reasons. one is perhaps because tunisia went first, they had institutions that worked very hard to protect the democracy once they had it. in 2015, a bunch of civil groups were given the nobel peace prize for doing exactly that. the largest labor union in the country and other civil groups got together to protect the democracy after the dictator was thrown out. that did not happen in some other countries. tunisia has also had a large

.roportionally middle-class a robust tourism industry and exposure to international, particularly european affairs. all of these things also helped tunisia, and they will say this all the time. it also helped that they are so small. we are so small, foreign countries did not feel like they had to interfere. they managed to skate under the radar a little bit. whatever the reasons, it is working. it is messy, cluttered, confusing. not all tunisians understand this thing they have gotten their hands, but they value it. they're glad to see it and they would not have it any other way. carol: up next, what facebook's data collection practices are like irl. jason: ir l means in real life. this is "bloomberg businessweek." ♪

carol: welcome back to "bloomberg businessweek." i'm carol massar. jason: and i'm jason kelly. you can listen to us on the radio, on sirius xm, in new york, boston, in washington, d.c. -- in the bay area, in london, and of course, on the bloomberg business app. facebook has increased limits on the outside use of data. jason: but they are ratcheting up their own data collection practices. carol: interesting story. here is the story. >> for the past year, we have heard this over and over, the argument from facebook that they do not sell your data. pundits come out and say technically you do, it is just semantic argument. you collect the data, and then you rent it to advertisers, you

to them targeting the advertisers. then we get into this debate over whether facebook should be doing this or not. that is what i am arguing is not the real privacy debate when it comes to facebook. the real debate is how much data are we giving them and how transparent are they being about the collection of the data. and i think some instances over the past year have shown that that is probably a more important discussion to be having. because we really don't know and they really don't talk about the extent to which that occurs. jason: this has really come to the fore more recently as they started to talk about maybe consolidating some of the back end, at least, of their more popular applications. but they are really counting on to grow the business. help us understand how that goes into play. >> you have facebook, who knows who everyone is. if you log into facebook, you have to use your real name. if you use whatsapp or

instagram, you don't have to use your real name. people have been able to have semi-anonymous identities, and what facebook is doing is combining the back end of those platforms so that you can send messages to yourself on a different service. this is not something that people have been asking for, but it is something facebook argues that we will want, this ability to send a message through whatsapp or through instagram, vice-versa. and what that is going to do for facebook and what they have not discussed is it will allow them who you are on most platforms and it will collect the identity to the data facebook has for your real identity. it is just another way facebook has been connecting the dots and, get this, their arguments about that combination and why that is so important is

encryption and why you can send and to end messages. this saying they are doing it in the name of privacy, but they're actually going to get more data out of this. so we will see that over and over again. facebook say they're doing something for privacy that gives them a lot more information. jason: in the business section, sales of streaming music artists -- are surging. this chart shows us what is going on. the purple you see, that is the , cassettes.s, lps that has been going down. streaming has been languishing for a while. carol: streaming is in yellow, and for many years, streaming in terms of revenue growth kind of going nowhere. but taking a look at the last few bars, you can see that streaming revenue has really taken off. i think this really goes to the case that content at those music labels changed and it also explains why universal could be valued over $25 million in a sale by vivendi. jason: a lot of people are looking at that. >> the initial decline in music was because first you have

piracy, and then you had itunes. itunes made it so that somebody could go for spending $20 on a cd to spending one dollar on a song. streaming flip the equation, where all of a sudden, people can pay $10 a month, or a little bit less, and that is actually a better deal for record labels then they were getting in some cases in the cd era. there's still a lot of tension between the big internet companies and the music companies that is ever present. record companies now like to claim they are responsible for the success of spotify, which i find to be a little bit ridiculous. but there is no question that the streaming services are turning on all over the world. the opportunity a lot of these companies see, and what universal or vivendi will try to tell investors, is that what you are seeing in the u.s. and europe will play out all over the world. you will see streaming services develop in india, china, may -- maybe even places like

indonesia and saudi arabia. if that happens, there is a chance music as this can get back to where it was before. it is important to know that even though it is growing again, the music business is still a fraction of the size that was in 1999 or 2000, especially when you start to account for inflation. jason: i want to talk about that potential sale, but before we get there, remind us of the economics of streaming. however but he gets paid along the way. it is different than going out and buying a record or cd. >> it also varies based on the service and the but for the country. biggest service, spotify collects their price from you the $9.99, and they split that amongst the different rights holders based on their share of streaming. if you are warner music, you are

getting a cut of every customer based on how much your artists get streamed. you are incentivized to do a really good job developing artists and holding onto new catalogs. this has boosted the value of all music copyright because the more you have, the more you get paid. carol: what i love about your story is you dig into the value of music content. that is growing and place in the -- plays into the whole idea of vivendi thinking about a partial sale of universal. >> yeah, music is always able to trade because it is a sexy industry. even in 2011 when the industry was near the bottom, warner group got sold for $3.3 billion to a ukrainian billionaire in large part because he wanted to be close to the music business. he likes being at the parties and with the different celebrities. but now it is seen by investors

and financial institutions as a real potential or opportunity. you saw with sony atv, a music publishing app, that a consortium of investors bought at a low value in 2011 in 2012, traded it six years later, and got a killing. carol: bloomberg businessweek is available on newsstands now. jason: and also online at businessweek.com and on our mobile app. carol: the story by austin and foxconn. it is so timely comment hearing about president and his initiatives. this was supposed to great -- to create thousands of manufacturing jobs and the reality is that it has not lived up to that. jason: that is the u.s. cover, mine is the international cover. erik schatzker, what a tour de force of reporting. taking you inside huawei, which has been in the headlines, but from a different angle. carol: it is all about an undercover investigation. and you can find more stories online over the weekend.

jason: and check out our podcast available on itunes, soundcloud, and bloomberg.com. carol: more bloomberg television starts now. ♪

haidi: welcome to daybreak australia. shery: i am shery ahn and bloomberg's world headquarters in new york. sophie: we're counting down to asia's major market open. haidi: the top stories we are covering, china's robust start as market return from the holiday break. yuan is under pressure from a strong dollar. trade is it to dominate the week again as negotiators meet in beijing. the vice premier will again join the negotiation.