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Quest Means Business
Sochi Security Tight; Chobani Shipment Blocked; Best Gain of Year for Dow; European Markets Rebound; ECB Holds Interest Rates; Central Bank Strategies; Forex Probe Widens; Most Powerful Businesswomen; General Motors Results; Holy Davidson
Aired February 06, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Closing bell is ringing, about to hit the hammer. Go on, hit the hammer. It's an up day on the market. The closing bell on Thursday, it is February the 6th.
Tonight, where is the safest place on the planet? Sochi Airport chief says Russia is ready for the Olympics and it's right there.
A case of tread softly. Mario Draghi plays the waiting game on cutting interest rates.
And Twitter takes more than a tumble. Billions of dollars wiped from its value as traders take flight.
I'm Richard Quest in New York, and I mean business.
Good evening. This time tomorrow when you and I meet, the Winter Olympic Games will have begun in Sochi. And right now, security forces are working hard, in their words, "to disrupt possible threats to the Games."
US intelligence sources say American and Russian authorities are working together. The head of the Games says Sochi will be the safest place on earth.
The last of the athletes have been arriving in the Black Sea resort, and the Russian government insist the Games will be safe from the moment you land at the airport to the moment the athletes compete.
(BEGIN VIDEOTAPE)
DMITRY KOAK, RUSSIAN DEPUTY PRIME MINISTER (through translator): I would like to repeat once again that the level of security in the city of Sochi is not worse than New York, London, Washington, or Boston.
(END VIDEO CLIP)
QUEST: Our senior international correspondent Ivan Watson is live for us in Sochi. Can't be any clearer than that. And bearing in mind, Ivan, that just before the Olympics in London started in 2012, there was a security scare there. So, to some extent, it seems as if everything is just best as it possibly can and the Games can now begin.
IVAN WATSON, CNN INTERNATIONAL CORRESPONDENT: Well, let's hope so. Certainly these latest reports raising some new security jitters right on the eve of the opening of the Games. I was at Sochi Airport today, where we saw members of Team USA, Team Latvia, Team Lithuania, come in. It was a pretty festive occasion.
But it gave me a chance to not only ask the athletes what they thought about this alleged toothpaste explosive plot that the US intelligence have alerted people about, but also the CEO of the airport himself, who first described about the $400 million that investors in the Russian government have put into upgrading that airport. But then I got to ask him about this latest security threat. Take a listen.
(BEGIN VIDEO CLIP)
LEONID SERGEEV, CEO, BASEL AERO: No, at this moment, I am more than happy to have the security forces around us that the Russian government and our security as well. They've done a tremendous job to bring everything to the standard -- to the highest standard as we can and what it should be.
And we went through about 30 different audits by security forces of different governments, countries, and also air companies, and all of them said the security level in our airport and this area is above any standards that they've seen in their lives. So I feel confident and I'm happy that we have this.
WATSON: Overnight, the US government announced that they were issuing a warning to airlines about the possibility of explosives in toothpaste and in makeup in planes specifically flying to Russia. What do you think about that?
SERGEEV: We just said that in this kind of environment for Olympic Games, it's better to take everything out of your hand luggage and to put in your luggage than to have special machines that check everything. So they're just for security, it's extra measures. So, that's what we do.
WATSON: Did that announcement come as a surprise? Because it specifically has to do with aviation and flights coming to this airport?
SERGEEV: No, it's all over Russia. So, it's everywhere, the same rules.
WATSON: So this is kind of information that's being shared now between the airport, airlines, security forces. You have to be on the lookout for specifically toothpaste.
SERGEEV: No, it's not only toothpaste. It's anything where there's liquid. Toothpaste, anything or cosmetics, whatever. So, you should not have anything in your luggage -- hand luggage, at least. And it's not only this place.
WATSON: And is that a new measure?
SERGEEV: No, I wouldn't discover or disclose everything that we use as security, machines or whatever measures. But it's just the rules that our government and we think it's the most appropriate at this moment of time.
WATSON: And so, what is your message, then, to possible visitors, especially after this warning came from the US government to airlines about the possibility of explosives in toothpaste or in makeup? What is your message, then, to visitors?
SERGEEV: If you look at the number of security forces in this area, probably this is the safest place in the country, maybe in the world. So, don't worry. Welcome to Sochi, and just enjoy your time here.
(END VIDEOTAPE)
WATSON: That's right. Don't worry and welcome to Sochi. Don't worry and welcome to Sochi, there, Richard. You and your viewers may be interested a little bit in the economic strategic perspective on this upgraded airport and on Sochi in general.
Mr. Sergeev, he told me that -- he conceded that Sochi basically has been a bit of a tourist backwater, and he is very much hoping that the Olympics will put it on the map as a tourist destination, both in summer and in winter. He's anticipating that the airport could be place --
(CROSSTALK)
QUEST: Right, this --
WATSON: -- that would accept 70 percent Russian tourists, 30 percent international tourists. A big challenge to get over: it's cheaper, he concedes ---
QUEST: Right.
WATSON: -- for Russians to take package tours from Moscow to Sharm El Sheikh in Egypt, to the Turkish coast, than it is to take to Sochi, to the Russian coast. He's hoping that all the new hotels that have come up here will help change that and make this a more affordable destination for Russian tourists in the future.
QUEST: And Ivan, finally, briefly, the mood? What -- I mean, obviously with this security threat, the toothpaste threat, the increased security, the terrorism that there's been. From the athletes that you've spoken to and the mood in the city itself, is there at least a feeling now that it is time for the sporting event to get underway?
WATSON: You know, for the first time, I really felt that -- dare I call it? -- Olympic spirit there at the airport as the athletes were coming out. They were excited, they were charged up, all of them looking forward to taking part in the Opening Ceremony and then getting started on the competition. As for ordinary people here in Sochi --
QUEST: Yes.
WATSON: -- you do sense some excitement and some apprehension. You view these stories, some people sending their children away from town for security fears. Other say, you know what? They're going to go to these events. They're looking at this as a two-and-a-half to three-week long festival for their region. Richard?
QUEST: Ivan Watson, joining us from Sochi. Ivan, if you've got a spare ticket, I'll certainly join you to watch the events. Many thanks, indeed, for joining us tonight.
Now one thing definitely not making it to Sochi in time is a massive shipment of Chobani yogurt. Yes, you heard me right.
(RINGS BELL)
QUEST: Chobani yogurt. Right now, there are 5,000 containers of this Greek yogurt. We have a variety of flavors for you. You've got -- which one is this? This is the vanilla blend. You've got the black cherry and you've got the blueberry.
Anyway, 5,000 of these -- not these particular ones -- are sitting in cold storage at Newark Airport when they should be on their way to the American athletes. Russian officials have blocked the delivery. This is the -- this is what they've sent -- saying that Chobani failed to submit the proper appropriate paperwork.
Now, it has sparked outrage. This is the form that they did submit, the sanitary certificate request was submitted, but are now apparently it's not being good enough.
Chuck Schumer, New York state senator says the Russian authorities need to get past "Nyet" and let the yogurt go. He says the customs documents were very specific, and he said, if you tried to fill them in, they were unobtainable. Schumer has asked the Russian ambassador to intervene.
He also says the US Department of Agriculture has asked US -- the Russian authorities to accept the American export certificate approving the yogurt, the certificate I've just shown you.
Meanwhile, the athletes themselves are showing their support for Chobani. Kate Hansen of the US Olympic luge team tweeted this picture of herself. "Just getting my last bite of Chobani before heading to Sochi. I'd eat it every day if I could."
And I suspect -- I suspect, Miss Hansen, having done an advert for Chobani like that, you probably will be eating it every day for the foreseeable future.
Right. Alison Kosik, now, is at the market. Alison, I've just been looking at the market while I try some of this yogurt --
ALISON KOSIK, CNN BUSINES CORRESPONDENT: OK.
QUEST: -- black cherry on --
KOSIK: The black cherry is actually one of the better flavors.
(LAUGHTER)
QUEST: All right. Well, look. While I try this, I've just been looking at the market. Well worth celebrating because, as I see, the gain of 170 or 187 points is the best gain of the year to date.
KOSIK: It certainly is the best gain of the year, of the short year so far. It was all about earnings and expectations today. Upbeat earnings from Disney boosting the Dow. So did high hopes for tomorrow's jobs report. Better-than-expected jobless claims numbers, that really gave momentum to the trade today, the claims numbers falling last week by 20,000 to 331,000.
The question is, Richard, for tomorrow: how much did the weather play into the numbers in January? Hm. Richard?
QUEST: Moral of the tale.
KOSIK: Yes?
QUEST: Do not eat Chobani yogurt when you're trying to broadcast.
(LAUGHTER)
KOSIK: You got it. It's like a commercial.
QUEST: All right. Thank you very much.
KOSIK: Sure.
QUEST: Alison Kosik at the Exchange. While I try and battle my way on -- excuse me. European shares rebounded after a flat session as the CAC 40 in Paris was the region's strongest performer. London's FTSE and the Frankfurt Xetra DAX both ended the day more than 1.5 percent stronger.
The head of the European Central Bank has been soothing investors' concerns. Mario Draghi says the ogre of deflation doesn't scare him.
(COMMERCIAL BREAK)
QUEST: The European Central bank kept interest rates on hold as President Mario Draghi talked down the threat of deflation. But he said the weak inflation we're seeing now is a threat, and if it goes on, he will act. The president said he's keeping a close eye on the progress of the recovery.
(BEGIN VIDEO CLIP)
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: As I said many times, we've got to be extremely cautious with this recovery, because it's still fragile and it's still uneven. And it really starts from low levels of activity. But so far, it's proceeding.
(END VIDEO CLIP)
QUEST: Mario Draghi. But you can't help notice that the world's central banks are moving in contrary directions. Some seem bent on a regime of slimming and trimming stimulus, while others are attempting to loosen the monetary corsets.
Now, the ECB, for example, may signal that it's going to loosen and have a rate cut. Draghi says he's ready and willing to act. He's looking more for more inflation information. But there's no question about it, the market does believe the ECB needs to do more, whether via LTRO or interest rates or some other form of liquidity provision.
On the other hand, the Bank of England is waiting for escape velocity, and with unemployment coming down faster than expected, and at the same time, forward guidance from the new governor Mark Carney looking a little ropey, one might say.
Then, of course, everyone's waiting for the forward guidance change, which could probably come with the inflation report next Wednesday.
On to the US Fed, and the Federal Reserve, here we have tapering and tightening. Now, they've reduced by $10 billion a month over the last two meetings, and they say that will continue for the rest of the year. The new chair, Janet Yellen, has taken over during the course of February.
Although it's not tightening, the amount of stimulus is not as great, and I suppose you could make a semantic argument that there's a tightening involved in that.
Finally to the Bank of Japan. And here, of course, we have Abenomics in full throttle, ready to expand stimulus. They've got a target of 2 percent inflation, and already, they presided over a year of almost extraordinary pump priming to try and boost the economy.
There's where the central banks are looking. Professor Richard Clarida is professor of economics at Columbia and he joins me now. Good to see you, Richard.
RICHARD CLARIDA, PROFESSOR OF ECONOMICS, COLUMBIA UNIVERSITY: Good to see you.
QUEST: Thank you for coming in.
CLARIDA: Absolutely.
QUEST: So, last night we talked about, on this program, how central banks do not appear to be coordinated at the moment, barely consulting with each other. When you hear that summary then, the central banks are at different points in the scale.
CLARIDA: Absolutely. The Bank of Japan really just got started a year ago doing massive quantitative easing. We expect them to double down on that later this year. Obviously, the Bank of England has done its forward guidance, it hasn't done quantitative easing in a while.
The Fed is tapering. And as you correctly said, the inflation data's very soft in Europe, and the ECB will probably act this year.
QUEST: Right, but here we have a situation where the Fed is withdrawing stimulus, but the ECB is likely to have to add stimulus. Now, if you've got the two largest trading blocs in the world at opposite or contrary monetary positions, is that dangerous?
CLARIDA: I don't think it's dangerous, but it does introduce volatility into the markets, and I think going forward, that will be a fact of life in the global economy, central banks moving on courses that are right for their economies at the time.
So, cooperation, coordination is all nice, but usually the most we can get is correlated policies, not cooperating policies. And now, they're less correlated.
QUEST: Right. That was my next one. Do you believe they're less correlated at the moment?
CLARIDA: Oh --
QUEST: I mean, they all sit around the table, and they all know each other.
CLARIDA: Sure.
QUEST: And they're on first-name terms.
CLARIDA: Yes. Yes, absolutely. And of course, the important thing with Yellen coming in is she knows this crowd, so she'll hit the ground running in that. But let's don't get off the big picture. The big picture here is we're in a period of very, very easy, accommodative monetary policy for some time to come.
QUEST: Oh, right.
CLARIDA: So, the Fed is tapering, but it's still buying a lot of securities this year.
QUEST: Do you buy this idea that we're not going to have deflation in the eurozone?
CLARIDA: I certainly hope not. I have every confidence that Draghi will do whatever it takes to avoid it. But they're getting too close for my comfort, Richard.
QUEST: Right, but there's nothing much -- what more can he do? His interest rate is virtually zero bound. He can do liquidity in other ways. He can do a few more LTROs. But if people don't want to borrow, he's between a rock and a hard place.
CLARIDA: Well, there are a couple points, though. The ECB has opened up the possibility that they may directly intervene and start buying loans from banks, secure price loans.
QUEST: Right.
CLARIDA: That would be a new step. And also remember, Richard, they haven't really done real QE yet. They've had this really complicated --
QUEST: They can't.
CLARIDA: -- process of --
QUEST: Well, they can't. They can't.
CLARIDA: -- of rate bumpers. Well, they can do more than they've done, I think.
QUEST: And you're expecting them to?
CLARIDA: I'm not sure if they'll do more of that, but they'll do more this year.
QUEST: Good to see you, Richard, come back again.
CLARIDA: Good to see you. Absolutely.
QUEST: Many thanks, indeed.
CLARIDA: Yes.
QUEST: Now, the New York Department of Financial Services is the newest member of the gang of law enforcement officials and international regulators investigating banks' foreign exchange trading practices.
The banking regulator, Benjamin Lawsky, has asked more than a dozen banks to hand over documents. The probe hopes to determine if banks rigged the $5 trillion-per-day currency markets. Investigators are looking to see if traders manipulated the so-called "fix."
The fix is the time of day, at 4:00 PM, 18 minutes ago, when interest rate prices are set. A flurry of trade spotted just before the 4:00 PM --
(RINGS BELL)
QUEST: -- deadline makes regulators suspicious. Allegations that bankers got together on chat rooms and shared information about their positions to beat the clock. Arun Srivastava is partner at Baker & McKenzie and joins me now from CNN London.
Is this a case -- I mean, this has the potential, because the forex market, Arun, is so vast, this has the potential to make libor scandal look like a walk in the park.
ARUN SRIVASTAVA, PARTNER, BAKER & MCKENZIE: I think that's right. It's an absolutely huge market spanning multiple jurisdictions. So, this case has the hallmarks of the libor case, written much larger, though.
QUEST: And everybody seems to -- I say everybody, and I don't mean literally everybody. But all the major banks and all the major players seem to be in some way allegedly implicated.
SRIVASTAVA: That's right. And there are a lot of banks which have been implicated in the press and investigations. Of course, at the moment, we're at the stage of the investigation without any findings being made. But many major global banks are set to be helping regulators and investigators.
QUEST: What are they said to have done?
SRIVASTAVA: Well, there's two central allegations. One is the one that you mentioned already, which is essentially collusion. So, individuals within the bank colluding with other individuals at other banks to manipulate the fix, to position it in a way that is beneficial to them and potentially detrimental to their clients.
And if that is proven, it raises issues around potentially fraudulent conduct, but also collusion may result competition issues as well, where there's information sharing. The other central allegation that's made is relating to front running.
QUEST: Right.
SRIVASTAVA: And that's essentially where --
QUEST: Where you get ahead of your clients.
SRIVASTAVA: -- where you keep information. Yes, exactly. And then you abuse that information and trade on it for your own benefit and again, potentially adverse to your client.
QUEST: Now, the front running has been around before. There's nothing new about it, necessarily, on the front running. The fixing allegation, of course, is -- is rigging the whole market, isn't it? If proven, you are rigging the market.
SRIVASTAVA: I think that's right. It's a far more serious allegation because it more clearly demonstrates a deliberate strategy to pursue an unlawful purpose.
QUEST: Right. But forex is so vast, Arun. We know with libor, you fix with a certain number of banks and it's a complicated process. But there's not many players involved in the libor fixing mechanism. However, forex is so vast, how could this be done?
SRIVASTAVA: Yes, it's a fair point to make. And the one point a lot of people have made is that these are such large markets, it's actually very difficult for certain banks -- for individuals at banks to actually bring about any change in the rates.
But one feature of this market is that there's a big concentration of power, if you like, in the foreign exchange market, in a few banks. And also, you can look at currency pairings, which are not liquid.
So, not potentially the major currencies, but the currencies which are not traded as frequently as others. Or even in forums or execution venues, which are not as liquid as the larger ones. And these sort of avenues are potentially open to bring about this allegation of rigging of the market.
QUEST: In a word, we're going to hear more of this, aren't we? This ain't going away fast.
SRIVASTAVA: This is not going away, and there may be plenty of other benchmarks that are being investigated.
QUEST: Right.
SRIVASTAVA: One thing that's happened since libor is it's opened a lot of doors into a lot of other markets, which have got regulators interested.
QUEST: Good to talk to you. Thank you, sir, for joining us from Baker & McKenzie --
SRIVASTAVA: Thanks a lot. Pleasure.
QUEST: -- and putting this into perspective. Appreciate that. Obviously, these are very difficult allegations to discuss, particularly bearing in mind the number of people involved and the complexity. And note, of course, that so far, nothing's been proven.
Still to come, Pope Francis' Harley Davidson goes under the hammer in France, and we'll have a look at it in a moment.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: For the first time, Fortune is recognizing the most powerful businesswomen in the world. It just released the list of the global top 50. In third place, Indra Nooyi, the chief exec of Pepsico. In her seven years in charge of the company, she has doubled the international sales. It now makes up roughly half of the company's $65.5 billion in revenue -- $65 billion in revenue.
In second place, Ginni Rometty at IBM. Now, there, the push has been for emerging market, and IBM is taking its Watson super computer to Africa, where it will be used in such areas as health and education.
The top spot, the most powerful businesswomen in the world -- drum roll, please -- brrrrrring! Ding! Mary Barra, the new General Motors chief executive, Mary Barra. She's the first woman to run a global automaker and faces the daunting task of strengthening the country globally.
Now, of course, she may well have been disappointed with her company's results today. While it did well in the US, GM fell short just about everywhere else. Look at the earnings. The profits were down some 13 percent.
It was overseas, non-US, the firm lost money in Europe -- well, everybody's losing money in Europe -- and saw profits fall sharply in South America, India, and the Middle East. GM says it will have to spend about a billion dollars -- a billion dollars -- to fix its problems.
And don't forget, of course, Mary Barra has her own issues and questions, how much actually is she being paid, and is she being paid less than her predecessor, who was a man. The company says not.
Anyway, Pope Francis had better luck with his dealings in the automobile sector. A Harley Davidson belonging to the pontiff has sold for nearly 20 times its estimated value at an auction in Paris. That's the Harley Davidson that belonged to His Holiness, and Jim Bittermann is in Paris.
(BEGIN VIDEOTAPE)
JIM BITTERMANN, CNN SENIOR EUROPEAN CORRESPONDENT (voice-over): It was a case of re-gifting Vatican style. The present was a Harley Davidson Dyna Super Glide. Not, to anyone's knowledge, on the pope's wish list.
But perhaps remembering second Corinthians, "that the Lord loveth a cheerful giver," Pope Francis accepted it nonetheless. And he even autographed the gas tank, a signature that went as well on the motorcycle jacket that came with the bike.
But what do with a hog, as Harley owners lovingly call their machines? It's pretty hard to imagine any pope, no matter how informal, wanting to jump on the back of a bike in his papal whites, to let his chasuble fly free in the wind.
UNIDENTIFIED MALE: Eighty-five thousand, we've to the online bid.
BITTERMANN: So, the Vatican decided to auction off the Harley for charity, Caritas Roma, in fact, the Catholic organization which runs soup kitchens and shelters for the homeless.
With the auctioneer employing the heavens to encourage the bidding --
UNIDENTIFIED MALE: The bid from there.
BITTERMANN: Prices went steadily upward.
UNIDENTIFIED MALE: Two hundred and ten thousand.
BITTERMANN: Until it was finally sold for 210,000 euros, about $285,000, more than ten times the sale price.
UNIDENTIFIED MALE: Thank you online.
BITTERMANN: The winning bid came in by telephone, and the bidder's identity remains anonymous. The papal letters, that motorcycle jacket signed by Pope Francis, went to a different bidder for another 50,000 euros or almost $70,000.
And just to join in the charitable spirit, the auction company which handled the sale as part of its annual auction of collectible vehicles in Paris says it will not charge its usual 10 percent fee.
BITTERMANN (on camera): The auctioneers say the pope was actually given two Harleys, so perhaps one day, there'll be another holy hog to bid on. Or perhaps the pope will just want to keep it for tooling around his earthly domain.
Jim Bittermann, CNN, Paris.
(END VIDEOTAPE)
QUEST: AOL's comeback seems to be complete. The company has reported better-than-expected results. You'll hear the interview with the chief exec and chairman next. This is QUEST MEANS BUSINESS.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network the news always comes first. Qualifying events at the Sochi Olympics have begun. Six thousand athletes from 85 countries are to compete in 98 events. There'll be 12 new events. The torch relay will wrap up its journey at Friday's opening ceremony. And in the last few moments, the law enforcement officials tell CNN passengers on flights from the U.S. to Russia may be asked to give up toothpaste and cosmetic tubes because of the security threat which became public this week.
The Italian Navy has rescued more than 1,100 asylum-seekers from overloaded rafts off Italy's southern coast. Officials say most of them are believed to be from sub-Saharan Africa. More than 2,000 asylum-seekers landed in Italy in January, ten times the number in January of 2013.
In the Syrian city of Homs the United Nations confirms there will be a humanitarian pause in fighting to allow for evacuations of injured. A new agreement will also open up a corridor so humanitarian aid can get through. The Ukrainian president Viktor Yanukovych says he's willing to adopt constitutional reforms backed by the opposition. He also told a senior U.S. envoy he's open to dialog and compromise with the protesters.
Strong global ad sales have held AOL to a strong fourth quarter. (DIAL-UP ONLINE SOUND). And then went beep, beep, beep. (LAUGHTER). Look, all right. If you're over 30 that means absolutely nothing to you. If you're decrepit like myself, that's a noise which we'll again because it's such a bit of history -- when you're ready. (DIAL-UP ONLINE SOUND). The firm reported its quarterly revenue of $639 million, much better than analysts had expected. Net income failed to match up to their hopes. This is the way the share priced -- virtually unchanged, but at $47.15, investors were pleased. Poppy Harlow is with me. You're waaaaaay, waaaaay to young -
POPPY HARLOW, JOURNALIST FOR CNN: To remember that?
QUEST: -- to remember that.
HARLOW: I'm not, I'm not.
QUEST: (IMITATING DIAL-UP SOUND)
HARLOW: I look to young to remember that but I am not --
QUEST: Look, come on.
HARLOW: I remember it well, but when you look at AOL, we talked to their chief executive today, Richard and -
QUEST: I just got to report something. We do have to not -- we must remember not to dwell on private grief here.
HARLOW: Private grief, right.
QUEST: AOL/Time Warner.
HARLOW: Right, yes, exactly with the company.
QUEST: AOL/Time Warner -
HARLOW: Try to forget that.
QUEST: -- which was put together in one of the worst corporate examples -
HARLOW: In history.
QUEST: -- thank you.
HARLOW: But -
QUEST: Yes.
HARLOW: About AOL today -- yes, the shares are down, but these were pretty astounding earnings. I mean, their revenue was up, you're over your 13 percent, ad sales globally up 23 percent. But there's a bigger picture or story here because a lot of people want to know what's going to happen to AOL -- will they merge with Marissa Mayer's Yahoo. Also, what about Patch, the local news sites that they invested hundreds of millions of dollars in. (All things) we spoke with Tim Armstrong about the chief executive. Take a listen to that.
(BEGIN VIDEOCLIP)
HARLOW: What do you think is making AOL stand out right now?
TIM ARMSTRONG, CEO AND CHAIRMAN, AOL: I think first and foremost it's the talented team we have. We have 5,000 people here who are really dedicated to the company, and our strategy, our customers. And one of the things you'll notice in our results is that the areas that we strategically moved into three or four years ago which were video, mobile -
HARLOW: Yes.
ARMSTRONG: -- the programmatic advertising business have really made a tremendous difference for us and our results. And it's really important to recognize that a lot of the -- those changes we made three years ago are now coming out in our results. So, and that that's taken a lot of patience, time and energy for us to turn AOL around.
HARLOW: I want to talk about that more specifically, because last quarter you acquired Adap.TV to boost exactly that -- video ads. You've got competitors like Yahoo hiring big-name talent like Katie Couric, David Pogue. Is it Adap.TV going to do for you what you need without having to hire big-name media talent?
ARMSTRONG: Well, just as a reminder, we have really big-name media talent here, we have Arianna Huffington --
HARLOW: How could we not mention Arianna?
ARMSTRONG: Arianna's now in five continents. We bought her, she was in one, now she's in five -
HARLOW: Right.
ARMSTRONG: She went from 20 million users to 94 million users. And if you look at what we've done in video -- basically we have partnerships with ESPN, Discovery Channel, you know, major things -- so if you look at our strategy, we might have the most scaled media strategy in the digital age right now. And it really comes down to the following things. Is we are partnered with the best brands in the world, we own some of the best brands in the world and we're distributing them across the entire internet on platforms. And consumers love it, advertisers love it, and our partners love it, so we're not worried about anybody else's strategy because we think our strategy is really scaled.
HARLOW: So you've got Engadget, TechCrunch, Arianna and Huffington Post, but do you think it's a smart move and might we see you bringing on some really big-name, expensive media talent?
ARMSTRONG: Yes, so our big, expensive media talents in the company every day and they're -- you know -- we have tens of thousands of bloggers who come with us, we have people coming, we have 17,000 guests on Huffington Post Live. So, instead of having one star, we have tens of thousands of people coming in who are really well known.
HARLOW: So looking in your numbers, you saw a 2 percent decline in search revenue in Q4, but display ad revenue was up. Yahoo has sort of the opposite issue. Search up, display ad revenue down. Are you interested in an AOL/Yahoo merger -- have you discussed the prospect with Yahoo's CEO Marissa Mayer?
ARMSTRONG: Well we have a lot of partnerships with Yahoo right now across ads and content and a number of areas, so we work closely with them already. And I would say that for us and Yahoo, the partnership path has been successful and my guess is that's going to continue.
HARLOW: I want to read you a tweet by Marc Andreessen. "I think main problem with local news is most people don't care. Sad but true."
ARMSTRONG: Well if you look at the statistics, it's exactly the opposite. You have local news and information is really important to people, even on Patch we have gotten up to close to 20 million users on that just being in 900 towns. So, I think local news and information is actually critically important and -- look, don't believe me -- call Warren Buffet. He's buying local newspapers and information.
(END VIDEOCLIP)
HARLOW: He is indeed. And you know the interesting thing, Richard, about talking about local is because AOL sold off Patch in the last quarter --
QUEST: Right.
HARLOW: -- this was something that he founded when he was a Google, he brought over to AOL, he bet on, he poured in hundreds of millions of dollars and it didn't work. So what Patch showed us is that the market for AOL wasn't ready for hyper-local news or advertisers weren't ready for that yet.
QUEST: Poppy, thank you. Keep an eye on that price.
HARLOW: Welcome.
QUEST: That's the market. Poppy Harlow joining us -- many thanks indeed. AOL is managing to reinvent itself in a fully-fledged comeback. Whether we're talking about the old guard or the new guard of tech companies, failure to adapt can be brutal. Sony is a veteran in the tech world and is struggling. The Japanese firm has warned of a $1 billion loss this year. It's announced it's selling off its PC units and spinning off its TV business. But the newcomer -- that's as newcomer Twitter tanks. It made a $511 million loss last quarter, facing a slowdown in user growth. The share price up more than 24 percent today. And if that wasn't enough, LinkedIn shares are down more than ten percent after hours. The company posted a disappointing outlook for the current quarter and for 2014. We need to put this into some sort of perspective. Dan Ackerman is with me. Good to see you, sir.
DAN ACKERMAN, SENIOR EDITOR, CNET: (Inaudible)
QUEST: Senior editor of CNET. Now look, what is going on? Make sense of this for me.
ACKERMAN: I think it shows you that you don't have to be really an old company or a new company, you can be in trouble either way. In Twitter's case -
QUEST: Right.
ACKERMAN: -- it's because, you know, they've said that a lot of people like Twitter, a lot of people use it. But it turns out that a lot of those people are already on Twitter. How do you get new people who've said it's not for me up until now on that?
QUEST: But you've got Sony which seems to have lost money for as long as I can -- how did it stay in business?
ACKERMAN: Volume maybe.
QUEST: But Sony's losing money and it's getting rid of its PC or its (inaudible), (Inaudible) is getting rid of this bit -- what does the consumer want these days?
ACKERMAN: Well, that's the problem -- making consumer hardware is a very expensive business. You got to put a lot of risk in, you got to make a lot of stuff, you got to ship it, put it in stores. People buy or don't. When was the last time Sony was really on top of a particular category? Did well with the PlayStation and the PlayStation 4 just come out -- I guess that was kind of a win, but Walkman?
QUEST: So it turns itself into a content company, basically.
ACKERMAN: Well, it had a content company and electronics company, and it always had trouble for years and years -- getting those two parts -
QUEST: Right.
ACKERMAN: -- to work together. When you think about the original MP3 players and stuff, Sony players wouldn't play MP3s -- it's because the music guys wouldn't allow it.
QUEST: OK, now, we've had results from LinkedIn, we've had results from Twitter, we've just been talking about AOL. I'm trying to see where this is going. Who are the players? What is the strategy that unlocks the holy grail of revenues?
ACKERMAN: And I think the question -these companies need to figure out is, is that strategy making physical things and selling them like Sony does, and like Google does now, because they make their own product, and like Amazon does, because they're making their own products.
QUEST: Except Google of course has got rid of -
(CROSS TALK)
ACKERMAN: But it's not as easy as it looks.
QUEST: OK, are we at a situation here where we're watching the sausages being made and we don't know how this is going to shake out because the revolution is taking place in front of our very eyes.
ACKERMAN: That is true, and the hardware is one thing, but if you're in a company that just kind of makes ideas like Facebook and Twitter, it turns out we like getting those for free, so how do you monetize that? And that's really the problem these companies are having. They have a lot of people -- how do you make money off of those eyeballs?
QUEST: All right, let's be honest, Dan. Are you surprised that AOL is still around and Yahoo is still around?
ACKERMAN: My wife worked for AOL for many, many years. I have mixed feelings about the company. I think they're so -- they're big and they have a lot of good sub-brands to them that are probably more important than the AOL name itself.
QUEST: That's a beautifully diplomatic answer.
ACKERMAN: Thank you.
QUEST: And that's as far as we're going to go. Thank you very much indeed for joining us. Many thanks for joining us. Still to come when we come back after the break (RINGS BELL). Fashion's veterans step aside as fashion season takes off. We look at some up and coming designers who are "Cutting the Cloth" -- a report from (Inaudible) in a moment. This is "Quest Means Business," good evening.
(COMMERCIAL BREAK)
QUEST: Whenever it's fashion week I always sort of suggest what's the latest thing in pinstripes. Well, it is that time of the year again as New York kicks off the 2014 fashion season. It's not just about the big names, it's also a chance to discover the new talent. Maggie Lake reports.
(BEGIN VIDEOCLIP)
MAGGIE LAKE, BUSINESS ANCHOR AND CORRESPONDENT FOR CNN INTERNATIONAL: The last-minute preparations are underway. New York's fashion week is always about high glamour and big-name designers, but it's also about giving students some very important exposure. Each year, San Francisco's Academy of Art invites its most talented students to debut their collections right alongside industry giants. This year's finalists include two Chinese students who got the chance to create a new line. Mingyu Du from Qinhdao is hoping her military-inspired collection proves you don't need a fortune to be fashionable.
MINGYU DU, ACADEMY OF ART STUDENT: Actually from this process I learn a lot. I learn how to combine things together and also learn you can see my collection and understand fashion because you don't have to spend like $1,000 to create a coat. You can just spend like a $10 to $39 for a whole look. All my collection, they are made by camos.
LAKE: This used to be a tent?
DU: This one is a tent.
LAKE: With nearly 100 shows happening over the course of the week, the competition to stand out and attract buyers is fierce. Hong Ni from Hangzhou says her upbringing gives her an edge.
HONG NI, ACADEMY OF ART STUDENT: Yes, when I was a childhood and I really like handling everything and my background is Chinese (inaudible) and textiles. Here we are, photos. It inspired me a lot and see this little (frock) and this is like a building in (Inaudible). Yes, I want to go back to China and find my team and the group and I want to continue to create and do the textile designs, and I want to (inaudible) my team.
LAKE: Two very different designers with one common dream -- to build a global brand that cuts across borders. These students hope this once-in- a-lifetime chance to strut their stuff in one of the world's biggest fashion capitals will pay off.
NI: I hope I can have my own (inaudible) show in New York maybe (inaudible).
LAKE: Maggie Lake, CNN New York.
(END VIDEOCLIP)
QUEST: Fashion week underway. Jenny Harrison's at the World Weather Center. Jenny, every time I talk to anybody in the U.K., they just keep telling me that the weather is appalling. My mother says it's dreadful and she wonders when it's going to end.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: I know, well that's the big question, isn't it, Richard? And you're right -- same here -- if you talk to family members and friends, it really is a very, very serious situation, and certainly in the last few hours, guess what, there's another big storm system really brewing and coming in throughout the weekend. And of course because of these systems, the direction they're coming in from is the same region the entire time for the U.K. -- Ireland, northern and western areas of France. This is the region that's continuing to be hit. This is the rain in the last few hours, some of it very heavy. You can see some pink and white and there's some snow certainly across into Wales, those higher elevations. And look at the rain that's come down Wednesday in Thursday -- 38 millimeters in Capel Curig which is of course up there in (snow) (inaudible) Saturnia, but 22 millimeters in Sonnybridge and across in Ireland 27 millimeters. All of this coming in on top of the rain that has been coming down so consistently, and the statistics are absolutely staggering, this from the U.K. Met Office.
And in the entire United Kingdom more days of rain in January than any month -- any month at all -- since 1961. And then just look all of these other statistics. They really are just staggering. At the southeast of England, the wettest -- let me move out the way here -- the wettest month ever. And you can see here the wettest December and January for England and Wales since 1876.
QUEST: Lord.
HARRISON: Look at the years -- you know -- 248 years -- it's been the wettest exceptional period of rainfall across southern England in 248 years. So, this is how bad it is. Remember this is -- you know -- on top of December's rain. The system now is still to clear through, but as I say there's another one coming in behind it. This is the next one, and in fact very heavy rain with this and it's so widespread and persistent and constant. And look at the amount that's going to really add up over the next couple of days -- 58 millimeters likely in London. Look at these pictures, because I showed you a still picture of this yesterday. This is Dawlish on the south coast of Devon. Just look at this -- the force and the power of those waves literally just smashed the sea wall and it has completely buckled and collapsed the railway. Now this is a main route, a main line right down in to the southwest into Carmel and the U.K., and they're estimating at this stage it's going to cost millions and millions of dollars -- the loss of business and obviously repairing it as well. So, that is how bad it is in some areas. Of course (inaudible) were also evacuated.
So, there's more to come. There really isn't much of a breather in between. These are the winds, look -- let me show you this because again we've got winds around 100 kilometers an hour as we go into the weekend with this next big storm system coming through. And with those winds, expect some long delays at the airports. There are warnings in place for these winds as we continue into Friday. And the delays at the airport, as I say, they're going to be widespread and also quite lengthy. Look at that rain coming in, Richard.
QUEST: Jenny Harrison is with us -- with the snow in middle Europe and the rain in western Europe, we're well and truly in the depths and darkness of winter. Jenny, many thanks and you keep watching those for us of course -- important stuff in the days ahead. Jenny, appreciate it. When we come back -- well, whatever the weather, there's always one thing that can usually make things just a little bit better. And I'll show you what they are after the break.
(COMMERCIAL BREAK)
QUEST: Dunkin' brand's net income rose 22 and a 1/2 percent in the fourth quarter of last year. Now, the company's the parent of Dunkin' Donuts and Baskin-Robbins' revenue up 13 percent. If you're talking about Dunkin' Donuts, you really got to see what they make. Now, at the core of the brand is of course the donuts themselves, whether they are the new Munchkins or the (inaudible) little things like the valentine hearts donuts. Then of course the company has branched out into coffees where margins are even better. Their beverages make up more than 60 percent of sales -- some new ones of course like iced coffees. But that's only so far -- flavors, pumpkin, salted caramel coffees. Then from donuts to coffees, you end up with ice creams and cakes -- more specialty items and that boosts sales as well. You start to see a smorgasbord of donuts and that's how you make up the margins. The chief exec of Dunkin' brands, Nigel Travis, joins me now from Newton, Massachusetts.
When we talked last year, when you were talking about how you diversified the company -- how you move into different areas. So, where does the growth come from next?
NIGEL TRAVIS, CEO, DUNKIN' BRANDS: Well I think we're excited about a number of things, Richard. One is that we're moving into what you could broadly say is the technology space. We have in the U.S. centralized the POS for both our brands. That means that we two years ago launched our mobile app on the Dunkin' side -
QUEST: Right.
TRAVIS: -- now has over 5.5 million downloads. And on top of that, we just launched Loyalty. We're kind of excited about that. Loyalty was launched last week -
QUEST: But is --
TRAVIS: -- our app actually meets the -
QUEST: I'm just going to jump in here -- is the idea to get the person who's buying a donut, to buy a coffee, to buy an ice cream? Or to increase the total number of people coming in and of course grow it internationally?
TRAVIS: It's both. Firstly, we want the people who are coming in the morning to come in the afternoon. We want some people to come more frequently, and everyone has different behavior. And internationally, obviously what we're doing is we're taking some of our U.S. disciplines and applying them internationally. But we think we can really build the excitement. Recently since I last spoke to you, we did a deal with Liverpool Football Club. We think that's going to be very helpful internationally. Liverpool's -
QUEST: Right.
TRAVIS: -- got a number of fan clubs around the world -- they're seen in 200 countries, and we think that we can really go out and push our products like these donuts and our coffee all around the world -
QUEST: All right, but -
TRAVIS: -- and the support of -
QUEST: -- what's the next big thing in donuts? What is it people really want? Because, I mean, look -- we've got a humble glazed donut which is all very nice. You've got the Munchkin. But what do people really want in a donut?
TRAVIS: Well I think people are actually going slightly up market in donuts. We've got all (inaudible) in development, we've got all kinds of premium donuts here in the U.S. In Germany, we've actually had premium donuts for some time. So, these are more enhanced donuts, they tend to be a bit bigger, a bit more exotic and we think that's an opportunity. People like to sort of kind of price themselves up into a little bit more of exotic luxury I could describe it.
QUEST: The competition --
TRAVIS: (Inaudible) the next place for donuts -
QUEST: The competition is vicious whether it's Starbucks or all the other purveyors. So, staying relevant and growing the business is your biggest challenge, isn't it?
TRAVIS: Well, I think we've managed to stay relevant. As I was saying before, I think we've done a great job in the technology space with everything from Twitter that you were talking about before -- Facebook, we're even got 5.5 million people online which is a Japanese website. So we're focused on that, we're very focused on this group called the millennials and I think the way we get to them is by communicating through social media by things like our Loyalty program and of course great new products. We launched 40 new products in the U.S. last year, and we'll bring out about the same number this year.
QUEST: Right.
TRAVIS: They love Nu-nu's (ph).
QUEST: Good to see you. Thank you for joining us, and I can tell you there's more than one person in this studio who thanks you for the tea time feed.
TRAVIS: (LAUGHTER).
QUEST: Many thanks indeed. So to the markets -- why don't I just take these things with me. It was a very good day. It's one of those days that's worth celebrating. The market is up 188 points, the Dow Jones gaining 1 and a quarter percent. Interestingly, this is the best performance that the market has seen so far this year. In fact, it's such a good -- it's such a good -- this way. It's such a good market that we really do need to celebrate and hand out a couple of things to everybody. Here, come on, celebrate a good day on the market.
(COMMERCIAL BREAK)
QUEST: Now in the last few moments it's -- we just received news that the U.S. federal government is to temporarily ban all liquids, gels, aerosols and powders in carryon luggage on flights between the United States and Russia in response to the intelligence that terrorists might conceal explosives in toothpaste and cosmetic tubes. So, what this means is that the usual sandwich bag of liquids and gels -- you know, no more -- no item more -- than 100 milliliters, in total no more than 1 liter -- all in the plastic bag. Well, that's no longer going to be allowed from the United States to Russia. And one could only wonder how far and how long before European regulators follow with the same idea and decide to ban on flights from the E.U. to Russia. If this is the case, are we now looking at some more chaos and confusion. Perhaps not as bad as when liquids and gels were completely banned some years ago, but in the race to stay one step ahead of the terrorists, it seems the authorities have decided it was time to act. No liquids, gels, cosmetics and toothpaste allowed in the cabin.
And now that's "Quest Means Business" for this Thursday night. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable. I'll see you tomorrow.
END
