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Quest Means Business
Scotland Independence Vote "Too Close to Call"; European Markets Down; US Tech Stocks Up, Dow Down; Ukraine Cease-Fire Under Threat; EU Agrees Russian Sanctions; Alibaba Hits the Road Ahead of IPO; Twitter Tests In-App Purchases; Apple: New Products, New Problems; ECB Has More Options
Aired September 08, 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: Start of a busy week. The Dow Jones Industrials, the market is closing. When they pull -- when they push the
bell and ring the gavel, with so many geopolitical issues -- go on. Has he hit it? The market's closed. It is Monday, it's September, its the 8th.
The polls, the pound, and the price of independence. In Scotland, the yes vote has taken the lead.
More sanctions soon says the EU. And Russia, of course, threatens to retaliate.
And selling to save face. A second racism scandal in a year to hit American basketball.
I'm Richard Quest. Today from the CNN Center, and I mean business.
Good evening. Tonight, one of the oldest political unions in history is in jeopardy, and investors are scrambling to get contingency plans in
place. For the first time, it appears a majority of voters in next week's referendum on Scottish independence may be in favor of leaving the United
Kingdom.
The pound sterling has fallen to its lowest level in almost a year as the odds of avoiding a major economic and political shock are starting to
narrow even further. The polling group YouGov says the race is "too close to call." The latest polls from YouGov shows a slight majority favoring
independence.
The British chancellor now says he'll offer Scotland new power on its taxes and spending if they agree to stay. Now, let's put this into some
sort of perspective. If you join me at the super screen, you'll see exactly what I mean.
We're talking about a union, this is the Act of Union that has put the two sides together. It goes back to 1707. It's the single piece of
legislation, that Act of Union, that ensures Scotland's economy is closely entwined with the rest of the UK.
Now, after 300 years of government, Westminster faces a sudden or potential departure with Edinburgh. And these are the sort of issues that
have to be sorted over.
First of all, you've got the issue of the national debt. Who pays the share of the whole national debt of the United Kingdom? The Scottish
government is saying they're not going to pay any. The prime minister of the UK, David Cameron, says not paying debts would constitute a default.
The argument is simple: you helped run up the debts, you've got to pay them.
Then you've got what's happening with the banks and the banking sector. RBS, Lloyds are all making contingency plans. The banks may have
to move company headquarters to London. The British government owns stakes in both banks. Not surprisingly, bank stocks have been fairly badly hit.
Lloyds is down 4.5 percent, RBS, Standard Life also down sharply.
And then you have, worryingly, the currency. The government in London says no currency union. The Scottish government says Scotland could still
use the pound. Goldman Sachs is threatening a possible euro-style crisis.
Now, we have our various correspondents who are covering this from both sides. Jim Boulden joins me now to talk about the Scottish aspect of
this. Jim, when we look at this and see exactly what is happening with the current state of this, London must be having a serious shock of what comes
next, bearing in mind this first referendum or this first poll.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Yes, absolutely. And this has been brewing for the last couple of days, really. A lot of people
were trying to say that this wasn't going to happen, that it was going to be no.
And in the last week, when we look at the markets, they started to notice this really around Wednesday of last week. And when you look at
something like the British pound, as you say, against the dollar, that's when we saw the pound starting to really fall. And then it took off and
lost even more value today.
So, when you're talking about the confidence in the markets, it's about volatility, it's about uncertainty, and so they're starting to say
wait a minute, we've got to take this really seriously because of these new polls, and we've got to start thinking to ourselves what if, what if.
And there's just a worry here in London that there aren't enough people saying "what if" in companies, in government, in foreign firms, and
investments and how you use your -- what you do with your dollar, what you do with your pound, what happens to the oil, et cetera et cetera.
So, all of this uncertainties come in here, and that's no surprise. We've seen the pound lose 5 percent of its value since July and really
start to slide just today in the markets, Richard.
QUEST: OK, but Jim, as we factor in that change, I guess the issue besides the question of uncertainty -- or maybe that is the issue -- is it
simple uncertainty of how you unravel this if there is an electoral earthquake as would be seen by the no campaign?
BOULDEN: The simple fact is, when you have the government in London and the government in Edinburgh disagreeing on the fundamentals of how you
would split the two, that's where the worry comes in.
What happens to the debt? What happens to the EU? Now, this is one of the great debates. Scotland says -- those who want to have an
independent Scotland say, well, we'll just stay in the EU and we'll continue to use the pound.
Others have said that's simply not possible. Scotland will leave the European Union and have to rejoin. You'd have to get other countries to
agree for them to rejoin. And they would have to take the euro.
Well, that changes everything when you think of your investments. As you said, some of the banks that are based in Scotland might have to move
their headquarters. Investments would change. Who pays of the debt --
(CROSSTALK)
QUEST: OK, but --
BOULDEN: -- that's been built up all these centuries?
QUEST: Jim, this debate has been on the cards now for --
BOULDEN: Yes.
QUEST: -- over a -- for several years. Certainly the date's been known for a long time. Was it inevitable -- certainly it was inevitable
that there would be a closing of the polls. But was it inevitable that these fundamental questions would be left to the last minute and cause such
chaos?
BOULDEN: Well, those who are Scottish who are in Scotland who say no, we should stay as a union, are pointing to this and saying this is the
reason why we shouldn't do this now, because we don't know what's going to happen. We don't know the unknowns. It's too uncertain.
The people on the yes side have said very simply all along that there's a plan in place and they will have to negotiate a separation and
that it's more emotional, maybe, and political than it is just about the finances, because they think Scotland can go it alone as a separate
economy.
QUEST: Jim Boulden, who's in London. Jim, thank you. Now, European markets ended the day in a decidedly uncertain situation. There were
issues of Scotland and Ukraine, all held the markets. But the DAX was lifted by a report of a German record trade surplus that raised the
expectations of economic growth in the third quarter.
Let's go in Stockholm, where Electrolux was up. It's purchased GE's appliance business, the price tag of some $3.3 billion. To the United
States --
(RINGS BELL)
QUEST: -- where the market -- Twitter shares ended higher after an announcement it's testing a buy button. Yahoo! shares jumped after
Alibaba's IPO announcement, and we'll talk more about those in a moment. And shares of Boeing were up sharply. Why was that? Because Ryanair is
buying 100 737 Max 200s.
The market, though, if you look a the way the market overall, it was down at the open, down through the day, and closed down at the end.
Still to come, as the EU announces its massive wave of sanctions, Russia is threatening retaliation. But what and how far will those
sanctions go? QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: The EU is ignoring threats of retaliation and moving forward with sanctions on Russia. The European Council president Herman Van Rompuy
says that the new round of sanctions, the fourth, will take effect in the next few days. We'll get more from Moscow in just a moment on the depth
and range of these new sanctions, which we haven't been given full information.
But it all depends on whether the situation in Ukraine itself stabilizes. In at least two eastern cities, the shellings continued, and
that's despite a truce that was agreed on Friday. Here's Diana Magnay with more.
(BEGIN VIDEOTAPE)
DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT (voice-over): It should have been quiet. It wasn't. Around midnight on Saturday, a massive
artillery bombardment targets Mariupol's eastern outskirts, shattering any notion of a truce.
As we drive east against a flow of traffic fleeing the shelling, we here machine gun fire. At he side of the road, a Lada is shot to pieces
through the back and sides. The family inside terribly injured. Too many, somehow, for this tiny car.
Children in shock, this man also, bandaged already but covered in fresh blood. The women inside barely conscious. One of them died later,
the first known civilian casualty of the cease-fire.
It's hard to make sense of it, why a civilian car fleeing the shelling should have been sprayed with bullets on its way into town behind Ukrainian
lines. Police say they're investigating.
The rebels have clearly targeted the Ukrainian checkpoint on the road east out of Mariupol. It's still there, but the surroundings are trashed.
Helpers gingerly lift damaged fuel pumps. The smell of propane gas thick in the air. The shelling closer to the city than it's come before.
"I live one kilometer from here," this man says, "and I heard a lot of shelling and bombing. First it was artillery, and then mortars, because
there was much less time between and launch and when it landed. And then, lots of shooting."
Ukrainian forces very much on edge, scared of a fresh onslaught, which comes soon enough.
MAGNAY (on camera): That cease-fire clearly not even worth the paper it was written on. There are a lot of journalists up at that checkpoint
just now. We heard the boom of mortar fire, it sounded like it was incoming. Everyone ran, even the soldiers looked panicked.
MAGNAY: Shells and mortars are merciless, but if and when the artillery guns fall silent, there are armed groups of men on both sides who
don't care much for the law. They may make peace an altogether more dangerous prospect.
Diana Magnay, CNN, Mariupol, Ukraine.
(END VIDEOTAPE)
QUEST: That's the situation on the ground. Matthew Chance is in Moscow to bring us the details. Now, we don't know all the details. We
know it's going to be financial services, we know it's going to be targeting some more direct individuals, who they are and how and those sort
of things. But this -- what's Moscow's retaliation going to look like, do you believe?
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, it's difficult to say. The Russian government has said that they will respond
to these sanctions, if they're ever implemented of course and we'll come to that in a minute. And they'll respond asymmetrically.
Dmitri Medvedev, who's the country's prime minister, has said that one of the areas that could be looked at is the area of transport, and he's
indicated that they're considering banning international overflights over Russian air space, which he points out would have an impact -- a
devastating impact on European airlines.
You can imagine how much of the air space we're talking about. It'd be very difficult for European carriers to fly, or certainly much more
expensive for them to fly from Europe to Asia. Also difficult for the United States to get its airlines from the United States to Asia. It
usually crosses Russian air space.
That's one of the levers that the Russians could pull. But there are lots of other levers as well. Russia is a major supplier, for instance, to
Boeing, of titanium aircraft parts. There's the swift -- there's the MasterCard and Visa issue, 200 million cards have been issued by those
companies, that company, in Russia. There's a question mark hanging over them, too.
So, all sorts of economic levers that the Russians could pull. It may damage them as well, but you get the impression the economy, the Russian
economy, isn't the main consideration for the Kremlin right now.
QUEST: I suppose what -- bearing in mind that this is starting to have a very deleterious effect on investment and investors' confidence, and
as you say, the Russia economy is not the main driving force of Vladimir Putin, but, Matthew, when do you get the feeling Russia gets nasty over
this?
CHANCE: Well, you could argue -- and of course, the case has been argued in the United States and in Europe -- that it's already getting
pretty nasty. There's a lot of people been killed in eastern Ukraine.
Look, I think everybody expects that it doesn't -- everybody hopes that this won't escalate into a full-scale trade war. And I think the
concern about that happening is one of the reasons why this latest raft of European Union sanctions has not been put into force straightaway.
The wording of this statement from the European Council, very interesting, indeed. Deliberately ambiguous about when this -- these
latest raft of sanctions are going to be implemented. They're saying in the next few days, of course, to assess the impact of the cease-fire.
But that next few days is also time, perhaps, to paper over some of the differences that are emerging within the European Union about the
wisdom of going ahead with sanctions against Russia at this stage because of the issue on the ground, but of course, also because of the risks for
this to escalate beyond anybody's control.
QUEST: Matthew Chance in Moscow, thank you.
Selling investors a piece of the largest ever IPO will be no easy task. You need a hundred meetings in ten days. Alibaba is now taking its
show on the road, in a moment.
(COMMERCIAL BREAK)
QUEST: The company is described as a cross between eBay, Amazon, and Google -- eBay, Amazon, Google. Now, just think about the size of that
enterprise, eBay, Amazon, and Google. And it's going to be -- or likely to be the biggest IPO in history.
The company is Alibaba, and the company executives are now on the road hoping to convince investors that it's worth $24 billion, or at least that
slice of Alibaba that's going to be sold off. When Alibaba goes public next week, it will outdo some of the best-known IPOs so far. It could beat
Visa's, the Visa IPO, which was $17.9 billion. That was the biggest at the time, $18 billion.
Facebook, the most recent, was $16 billion IPO. The company's now worth $200 billion. When you look at GM, $15.8 billion, that was the GM
that was refloated after, of course, the bankruptcy. Kraft, $8.7 billion, and UPS seems almost like small change at $5.4 billion.
Paul La Monica is the assistant managing editor of CNN Money and joins me now from New York. Paul, the sums involved are huge. The nature of
Alibaba probably justifies it. But will they get the price?
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: I think there's a very good chance. There is a big sense of excitement about this company.
Obviously, the online market in China really just the beginning stages, so that's why, I think, you have all this fervor for this stock.
You mentioned the $24 billion that they're going to raise. They may be valued at more than $160 billion. That's just not even assuming any
premiums, so they might challenge Facebook on day one.
QUEST: And, of course, Yahoo! has a stake in that and will be receiving some of the funds. And it's not a huge float of the total stock
in issue that they're actually sending out, is it?
LA MONICA: Exactly. And that is always a risk with just about any IPO. You do have to be aware of the fact that many companies, when they go
public, they only sell a small chunk, so you do have that scarcity factor, and I think that's why the stocks of these hot tech companies often go much
higher on their first day of trading.
QUEST: Right. We need to put this into context, though. Because Alibaba, as the eBay, Amazon, and Google of China, is probably more
susceptible than most other companies to the, some might say, mischief- making, other would say the industrial policies of the Chinese government. Why is that not being more reflected in the price?
LA MONICA: I think one big reason why that isn't happening is that there are other examples already of Chinese internet companies trading in
the US that have so far not really had that many problems.
Another rival, JD, which Tencent, one of the other big Chinese tech companies has a stake in. That stock has done extremely well since it
debuted earlier this year. Baidu, the search engine that many people refer to as the Google of China, has been a phenomenal success since it debuted
in the US many years ago.
So, I think if Alibaba were the first Chinese tech giant, you'd have more questions about it. But we've been here before.
QUEST: Paul, some viewers may well be asking, the US markets are the deepest and most liquid, and that's why you tend to get a lot of IPOs in
here. But for such an important company, a Chinese company, to be doing its principle float in the United States, arguably seems a bit of a rum
deal.
LA MONICA: Yes. I wouldn't -- I'm not sure I'd go so far to say it's an embarrassment for Hong Kong, but it certainly is a blow to that exchange
that Alibaba did not trade there, that they're going in the US instead.
And the big reason there were concerns about corporate governance. Jack Ma has a -- pretty much big control over Alibaba --
QUEST: Right.
LA MONICA: -- and that's the reason why they're trading here, because there were concerns about that in Hong Kong about his control.
QUEST: Paul, thank you.
LA MONICA: Thank you.
QUEST: We'll talk next week. We'll talk more about the strike price. Not only the strike price, the launch price, plenty more to talk about.
Twitter is taking a big step towards getting into e-commerce. It's adding a "buy" button to the tweets in your feed. The button, which was
rolled out today for select brands -- music artists, charities -- it's embedded into the post. It will allow us to make a purchase within a few
taps in the app.
Twitter says they hope to make shopping from mobile devices convenient, easy and, hopefully, even fun. It's going to be such a busy
week. We've got Alibaba, you've got Twitter and its "buy."
And tomorrow, you've got Apple, which joins the throngs with a payment system of its own. It's one of the many new products the company's
expected to announce tomorrow. Apple shares continued to tumble on Monday, down more than a half a percent following a terrible performance last week
on the even of Apple's big event. Samuel Burke with this report.
(BEGIN VIDEOTAPE)
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT (voice-over): There's a nasty cloud hanging over what's supposed to be Apple's biggest event in
years. Last week, nude photos of female celebrities whose accounts were hacked went public, in part because of weak security measures on Apple's
iCloud. The news helped pushed Apple's stock down nearly 5 percent, wiping more than $25 billion off the company's market value.
The last time Apple unveiled a completely new product was the iPad back in 2010.
STEVE JOBS, FORMER CEO, APPLE: What this device does is extraordinary.
BURKE: It's been four very long years since then, and investors are eager for CEO Tim Cook to finally deliver the first brand-new device under
his helm.
Apple stock has seen major ups and downs since Steve Jobs' death, as iPhone's market share has declined from 18 to 11 percent with the rise of
Google's Android. On top of that, iPad sales have begun to stall, falling 16 percent year-to-year.
The clock's been ticking as tech watchers have waited and waited for Apple to deliver its first wearable technology. Rivals like Samsung leaped
ahead with not one or two, but six different smart watches, with other offerings from start-ups like Pebble and giants like Motorola.
Now all expectations are for Apple to finally deliver an iWatch at Tuesday's event, as well is iPhones with larger screens. The hack of naked
celebrity photos, though, has overshadowed what was meant to be Tim Cook's long-awaited moment in the sun.
Security concerns couldn't come at a worse time, analysts say, as many predict Apple's also about to launch a mobile payment system.
LA MONICA: The recent snafu with iCloud and celebrities' photos being put all over the web, you might have some skeptics saying hey, do I really
want to trust Apple with my daily financial transactions if they can't keep Jennifer Lawrence's naked photo from going all over the place?
BURKE: Only Tuesday's events will reveal if Tim Cook's new devices can match expectations and overcome the clouds hanging over Apple.
Samuel Burke, CNN, New York.
(END VIDEOTAPE)
QUEST: And Paul La Monica, who you saw in Samuel's report and we were talking to a moment or two ago will be, of course, helping us understand
all the machinations of the iPhone announcement when it happens on Tuesday.
Let's take a look at the markets and how the Dow Jones finished. Bearing in mind the deep political and geopolitical uncertainty, that very
sharp fall in the afternoon, which largely recovered by the close of business. Still, the market was off 25 points by the end.
The European bourses, they traded in a suitably robust fashion, two up, two down. But the gains and the losses were marginal, bearing in mind
the deep worries that were taking place. Sterling lost ground dramatically against the euro and the dollar, and that, of course, is largely as a
result of what's been happening with the Scottish referendum.
When we come back in just a moment after the break, it's time to step up. The vice president of the ECB tells me Europe's governments must do
their jobs and get the eurozone growing.
(BEGIN VIDEO CLIP)
VICTOR CONSTANCIO, VICE PRESIDENT, EUROPEAN CENTRAL BANK: We have done our part, but the president explained quite clear that other should
also do their part.
(END VIDEO CLIP)
(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.
For the first time, a majority of voters in Scotland in a poll said that they will vote for in favor of leaving the United Kingdom. It was a
survey published by YouGov, and it showed 51 percent of voters are in favor of breaking away. The referendum takes place in ten days.
Ukrainian president Petro Poroshenko says 20 Ukrainian prisoners of war have now been freed. They were liberated as part of a cease-fire
agreement signed with pro-Russian rebels last Friday. Despite a truce, mortars and artillery shells have continued to fall on cities in eastern
Ukraine.
The European Union has approved a new round of sanctions against Russia in response to the Ukrainian crisis. Ahead of the EU Council,
Herman Van Rompuy said the new measures would come into effect in the next few days.
It's now six months since Malaysian Airlines Flight 370 went missing. Family members of the 239 people onboard are still seeking answers.
Investigators will resume their deep water search for the jet in the Indian Ocean later this month.
Buckingham Palace has announced that the Duke and Duchess of Cambridge are expecting their second child. The royal family's not saying when
Catherine is due. Her next child will be fourth in line for the British throne behind the first son, George.
It was a week or so that the ECB unveiled its latest sweeping stimulus plan. And now, the ECB's vice president tells me there is still more that
the central bank can do. Victor Constancio says as long as it's legal, the ECB will consider new plans to help the eurozone economy. I asked him if
the bank was quickly running out of ammunition.
(BEGIN VIDEOCLIP)
VITOR CONSTANCIO, ECB VICE-PRESIDENT: We have said quite clearly even in July in the press conference that the president -- President Draghi --
said that we are not excluding preride (ph) any instrument that we see as a legal and we deem now our remnants(ph), and of course this means that there
are indeed as you say further tools that we can use.
QUEST: The President seemed almost frustrated when talking about the fiscal component.
CONSTANCIO: Yes.
QUEST: He - I mean, I've seen the President speak numerous times on this. But there was almost - and I use that word `almost' - an
exasperation. Look, we could only do so much with monetary policy. Structural reform and fiscal part must play its role and it's not. I think
that's fair, don't you? The way - putting it like that?
CONSTANCIO: Yes, I think it's a fair description of what he said and what he had already had said also in the Jackson Hole speech, and it's
important. But we must make a distinction there or two quantifications. First is that of course if we are talking about growth, then it's clear
that monetary policy cannot do it alone and needs the help of other policies. But if we are talking about inflation, inflation is indeed the
responsibility of monetary policy and we cannot shift that responsibility to others, and monetary policy is effective to really to influence
inflation. Although we've had the policy's help, that is certainly welcomed.
The second remark is that of course there is no bargain with the other policies because we care about the independence of the -
QUEST: Right.
CONSTANCIO: -- ECB.
QUEST: Right.
CONSTANCIO: And so we have done our part. But the President explained quite clear that others should also do their part by doing
structural reforms and finding any possible fiscal space to help in the situation we are.
QUEST: And where do you stand on this, Mr. Vice-President? What's your gut feeling for - I mean, never mind the numbers - what's your gut
feeling for what it's going to take -
CONSTANCIO: Yes.
QUEST: -- to turn European growth in a non-inflationary way `round?
CONSTANCIO: Well, it requires structural reforms. Let me underline that the strength (ph) countries in the periphery have done a lot since
2011 in particular, and that has been reflected in the adjustment that they were able to achieve, and now they are growing again. And if we take the
OECD analysis of the implementation of structural reforms, now these strength (ph) countries are the best performers since 2011, so we expect
that other countries more close to the center of Europe will also do reforms that will help to increase potential growth in Europe. That's very
important.
(END VIDEOCLIP)
QUEST: Now that's the vice-president of the European Central Bank. And the ECB is in an extremely unusual situation. It's launching what
amounts to quantitative easing - a loosening of monetary policy. And it's doing so a month before the U.S. is set to end its bond-buying program. I
asked a veteran of central banking world, Arminio Fraga, the former head of Brazil's Central Bank whether you can imagine or whether he remembers such
a time of de-coupling and disparity between the major central banks at different points in the economic cycle.
(BEGIN VIDEOCLIP)
ARMINIO FRAGA, FORMER CENTRAL BANK GOVERNOR OF BRAZIL: This is the first major divergence we've had in a - what has been a - tough, difficult
recovery and where central banks have moved beyond any imaginable degree of the loose policy. So it may signal that we're approaching the end of this
`everyone pedal to the metal.' It may actually be good that some countries go back to normal, having zero rates is - has side effects. So, you know,
just things are moving along.
QUEST: Is it dangerous that we're in this situation?
FRAGA: I think so because zero rates all over the place lead to complacency, they leave people to search for yields and therefore to take
too much risk and in the end, we know that we've seen this moving. You know, in sort of a little bit of a bubble machine again and we have to
watch it.
QUEST: Because not only do they take too much risk, when rates start to rise - as they will -
FRAGA: Then comes the hangover.
QUEST: Well, more - I mean, if you want a hangover, -- bam - hit you in the head with a mallet.
FRAGA: Yes. A bad one. Indeed, indeed. So it's a - it's a new phenomenon in many ways - you're right. And we're learning there's a bit
of learning by doing.
(END VIDEOCLIP)
QUEST: `Learning by doing.' From learning by doing to learning by giving. One of the world's most prestigious universities has just received
its largest-ever donation. Harvard is to get $350 million from the Chan family in Hong Kong. They run a venture capital firm called The
Morningside Group. The money is to fund Harvard's School of Public Health. Harvard's president said this gift was more than just a simple cash
donation.
(BEGIN VIDEOCLIP)
DREW FAUST, HARVARD PRESIDENT: There are acts of generosity that stir something fundamental within us, there are acts of generosity that raise
our sights, and there are acts of generosity that send signals to the world - signals that echo long into the future. This gift sends such a signal.
It tells the world that this is a public health moment.
(END VIDEOCLIP)
QUEST: A public health moment -- $350 million. The Harvard School of Public Health will be renamed in honor of T.H. Chan. The dean said the
money would go towards fighting threats like the Ebola virus that we're aware of course has now killed more than 2,000 people and which in many
cases is said to be out of control. Still to come as the Italian media boss Pietro Scott Jovane cuts back his newspaper and magazine business.
He's reviving an iconic New York bookstore. We'll be talking to him after the break. "Quest Means Business."
(COMMERCIAL)
QUEST: Today there's confirmation that the mobile revolution isn't just for the texting teens. A new report from Nielsen shows adults between
the age of 50 and 64 are spending more time watching videos online than ever before. (RINGS BELL). I think I'm in that group. And as users move
to mobile, newspapers are scrambling to follow. The Milan-based RCS MediaGroup is trying to get in front of the trends. It's the company
behind newspapers like Spain's "El Mundo," Italy's "Corriere Della Sera."
RCS's MediaGroup's chief exec Pietro Scott Jovane has cut 800 jobs, shrinking the magazine business - the part and beginning of a plan to cut
nearly $300 million in costs over three years. All of this comes at a time when of course it sometimes seems that newspapers - whether it's the
"Journal" owned by Murdoch, of course you've got "The New York Times," the family business, you've got "USA Today" with Gannett where of course there
have been major layoffs and a restructuring and a potential to split the business. And you've got Jeff Bezos buying "The Washington Post." Pietro
Scott Jovane joins me now from New York.
Sir, we know this change, this revolution is underway between, if you like, digital and print, but you're not telling me this is just about
finished are you? Or maybe you are.
PIETRO SCOTT JOVANE, CEO, RCS MEDIAGROUP: Well no, I - well first of all thank you very much for inviting me to your show.
QUEST: Yes.
JOVANE: It's an opportunity, you know, to share our thinking. It's first of all a topic of generations. The older generations of course
prefer paper, they tend to find the, you know, the broad newspaper as an easier way to grasp the news in a broad way and in an effective manner.
And then of course we have to engage with the new generations. You said it just before - it's online, it's on mobile, it's on social network platforms
--
QUEST: Right.
JOVANE: -- and that's exactly where we're pointing. So -
QUEST: And the key here of course which nobody - I think you'd have to agree - nobody has quite found the golden key to unlock the revenue
streams from digital subscriptions. Yes, Murdoch's done it, D.F. Keys'(ph) done it with the newspaper, but nobody's got the Nirvana yet. Is that
fair?
JOVANE: Well, you know, if you look at the digital paid content strategy which is basically getting user on the, you know, on the Web and
on the tablet to pay, the tablet works out to be a very effective way of connecting with users. They are particularly used to paying and they tend
to buy more content as time goes on. The Web is a different game. You have to, you know, raise what is called a pay wall in a way for, you know,
users to pay after a certain number of articles. That is something we launched in Spain. It's turned out to be very successful and it has
allowed us to transfer a lot of the Web users - those on the desktop - to the tablets.
QUEST: How then, within this ambit of greater cost savings or at least cost control, how do you also prioritize content? Anybody can put
together an aggregated journal or an aggregated online magazine, and I know, sir, with such journals like "Mundo" and "Corriere Della Sera" where
you spend fortunes on quality journalism. So, as the chief exec, how are you balancing the need for quality journalism with revenue and costs?
JOVANE: Well we're helped by the readers and by the users. They look for quality. And especially if we look at how successful the traditional
newspaper brands - the ones you were mentioning - "El Mundo," "Corriere" or "Gazeta" - have been and transforming from being pure paper to successful
digital brands. It proves that users still prefer to connect with the best brands for news because they trust them. And on this I think we are
therefore facilitated in our process of going from paper to digital. So we still focus very much on quality, on the best journalists and of course on
the best platforms. Because the users expect the news to be accessible, and the easiest way possible, the fastest way possible, no mistakes
allowed.
QUEST: Ah. And I still like going to a bookstore to hear the crinkle of the page, and thankfully you're resurrecting an iconic one.
JOVANE: Well, the news is out today. We've - for those that, you know, have either live in Manhattan and New York and have - or traveled -
Rizzoli Bookstore recently on the 57th Street, there's always been the most, should we say, historic bookstore you would want to travel to, go to,
spend some time and speak to the people there and purchase books. And it was closed back in April. It was a decision by the landowners, you know,
to transform it to something else.
QUEST: Right.
JOVANE: We had to close. But we saw in the closure actually an opportunity to connect with the newer generations and the creators and
we've now decided to announce that we'll be opening the new store in - should we say - north of Madison Square Garden area -- Parks or Madison
Square Park -- area on Broadway, and we'll be opening -
QUEST: Right.
JOVANE: -- in spring 2015.
QUEST: A quick question - quick final question. Sir, when you read a book or at least book content, are you online, on tablet or do you like the
crinkle of the page?
JOVANE: My personal preference is go to a fantastic bookstore - we have now one in New York -
QUEST: Ha, ha!
JOVANE: -- and get help in finding the best book, feeling it, touching it and smelling it.
QUEST: Ah!
JOVANE: It's a fantastic experience of course.
QUEST: Sir, more than one person on "Reading for Leading" has pointed out that it's the smell of the book that's important. Thank you for
joining us. Very important (inaudible). Thank you very much indeed. Now -
JOVANE: Thank you.
QUEST: Now, excellent. It's fascinating.
TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: Yes.
QUEST: Absolutely fascinating the number of people @richardquest - the number of people who still say, `Yes, I do read on tablet, but I still
like the crinkle of the page.'
SATER: Yes. Except for the books that have been stored in the boxes down in the cellar for months. It's a difference to know (ph) but they
still work the same, right?
QUEST: OK, right.
SATER: It's nice. Nice to have you and the sacred business bell -
QUEST: Don't touch the bell, don't touch the bell!
SATER: I will not.
QUEST: Don't touch the bell!
SATER: Be still my heart. Let's talk business travel.
QUEST: Off you go.
SATER: Shall we? Across Europe, we're looking at a storm system moving into the coast of Portugal. Notice into Spain - thunderstorms
firing up over the Pyrenees in the south areas, southern areas of France, southwest as well. Another round of storms will be found dotting the skies
across southeastern countries. But, to the north - an area of low pressure pushing out of Scotland's been spinning over the North Sea. Last week,
severe flooding in southern Sweden. This weekend it was southern Norway. As this continues to spin, we'll probably find ourselves looking at
additional heavy rains. Not much on radar at this point, well we're going to get down again. Areas of eastern Spain, southern France, southwest as
well, the thunderstorms'll fire up. And this is where we're going to find probably the greatest threat for maybe severe weather take you overnight
into your Tuesday morning. So, again, in the Pyrenees may be some large hail and damaging winds, not just a level one but a level two.
No big troubles flying anywhere. Look for heavier rain a mentioned in the southeast - Sophia - maybe a scattered shower for a 15-minute delay. A
cool, refreshing autumnal air mass sliding in back behind this front for the Low Countries into Germany, parts of Poland as well. Twenty-four in
Paris - I think you're going to remain dry for the next 24 to 48 hours.
In the U.S., not just rain in the Southeast, but it's been the Southwest. And thanks to the Canadians, with love, we get our own little
shot of autumnal air. First good taste of dry, cooler air mass sliding in. But it's been the Desert Southwest where they're in need of rainfall in
California, but we're getting it in areas of Phoenix - a deluge of rain in seven-hour periods. Seven hours - get this. The amount of rain - five
times what they typically pick up for the month of September alone - 84 millimeters, monthly average is 16.
Now, a couple of things I've got to show you because when you look at Phoenix, obviously there's thunderstorms on the way, but what preceded this
heavy rainfall? Take a look at this extraordinary time lapse video. You're going to see it here. The southern areas of the U.S. - the
Southwestern desert grit. There it is, Richard. The sandstorm, the haboob, making its way towards the camera, reducing visibilities to zero in
a short amount of time - extraordinary. Man motorists had to wait a good 30 minutes.
What is this, Richard? The first possible travel delay due to snowfall for the season, and it comes from Edmonton and Calgary, and this
is the powerful force behind the new refreshing air mass that will find us scattered showers in areas of the Ohio Valley. So we've seen a lot of it,
we figure record rainfall, we've seen the desert sandstorm moving across Phoenix, and now our first possible delay due to snowfall in Canada.
QUEST: When does hurricane season come to an end?
SATER: End of November.
QUEST: End of November.
SATER: Yes.
QUEST: Perhaps some snow by then. Thank you.
SATER: Nice to have you here.
QUEST: Thank you, sir. Now, when we come back, a second American basketball team owner is selling his stake after making potentially racist
remarks. My next guest who will join me says business leaders need to stick to facts and keep their opinions to themselves. It's a lesson in
leadership after the break. "Quest Means Business."
(COMMERCIAL)
QUEST: For the second time this year, a team owner has left the U.S. National Basketball - the NBA - because of racist remarks. It's Bruce
Levenson. He says he'll be selling his controlling stake in the Atlanta Hawks because of offensive language used in an e-mail he sent in 2012. Now
let's just look at that e-mail. In the e-mail, he describes a central issue of his franchise. The main reason for season tickets - these very
profitable season tickets - was so low, he writes the main reason because, "My theory is that the black crowd scared away the whites and that there
were simply not enough affluent black fans to build a significant season ticket base." But he goes even further. "When I hear some people saying
the arena's the wrong place, I think it's code for there are too many blacks at the games." Finally, he said he wanted white people to feel
comfortable and that the kiss cam is too black."
Levenson will be selling a team in financial dire straits. According to "Forbes," the Hawks are valued at number 27 in the NBA and have made a
loss for the last five years. Mark Murphy is the founder and chief exec of "Leadership IQ" joins me now. Mark, good to see you, sir.
MARK MURPHY, CEO, LEADERSHIP IQ: Good to see you, Richard.
QUEST: The core issue here, we can put to one side whether he's racist or not in his own views. We don't know. But the core point here is
you have a chief exec who had perceived a problem. What did he do wrong?
MURPHY: The big issue he did wrong is that if you think of every conversation as basically having three levels - facts, interpretations and
reactions. What he did was he kind of skipped over the facts and went to the interpretations and reactions. If he had said, you know, in the e-mail
if he said, `My unscientific poll says there's 40 percent of the audience is black.' Well, if he had said, `You know, we just did some market
research and here are the facts that we found - here are some statistics,' every company on earth does demographic analyses. But he took it a step
further. He left the facts - didn't have many to begin with - and lived in a world of conjecture and interpretation.
QUEST: But when I read the e-mail, and I read it in its entirety, there were certainly ill-chosen sentence. I'm sure you've read the e-mail.
MURPHY: Yes.
QUEST: But the fundamental point as a chief exec he was making is we've got to do something to get higher spenders, and I don't believe that
the demographic we're currently appealing to is that demographic.
MURPHY: If he had said - so the first half of what you just said - I believe we have to get higher spenders at the audience. When he said in
the e-mail, for example, that our food and beverage sales are down. Or the Thrashers, the hockey team, made more money off of concession sales than
the Atlanta Hawks did. That's all factual, and in that area he's actually quite safe. When he takes it the next step, it wasn't the fundamental
premise, it was the next step that got (inaudible).
QUEST: Pause there for one second, though, -- pause there. CNN's Martin Savidge spoke to chief exec of the Atlanta Hawks and - Steve Koonin
- and asked him what led Levenson to sell his stake in the team.
(BEGIN VIDEOCLIP)
STEVE KOONIN, CEO, ATLANTA HAWKS: You know, it's an investigation and the investigation was coming to an end. In the NBA, rather than fight,
Bruce said `I am putting my interest up for sale and I am walking away.'
MARTIN SAVIDGE, ANCHOR AND CORRESPONDENT FOR CNN BASED IN ATLANTA: And that's exactly what it sounds like - that `I'm just walking away' -
that there's no real repercussion for him. He sells the team but he'll make money.
KOONIN: He will make money - that is an outcome of this. I do think there's significant repercussions for him. I don't think we'd be sitting
here tonight talking in our practice gym, and I don't think people would know the name Bruce Levenson. It wouldn't - I think people would not have
the feelings and emotions that they do about Bruce. And I think there are severe repercussions, and I think he is paying. You know, we only thing we
all have in our life is our reputation, and his was damaged today by him. Not by anyone else.
(END VIDEOCLIP)
QUEST: The - it was damaged, some arguably would say destroyed. What you're saying is it didn't need to be this way. Even if his analysis of
the issue was right.
MURPHY: If he had written the memo and said, `Listen folks, here's the demographic analysis, here's the spend, here's where we're low, here's
where we're high' and left it there, he would've actually been OK. The -
QUEST: But somebody somewhere along the line would have had to raise that question of the demographic in the auditorium -
MURPHY: Well -
QUEST: -- in the arena.
MURPHY: Yes -
QUEST: And somebody might've had to come to that same conclusion.
MURPHY: Somebody might've come to the same conclusion, but if you had done it in a private conversation as opposed to the e-mail - and this is
kind of the big lesson for CEOs - you are very much a political leader. So when you write this stuff down and the e-mail was actually sent from his
iPad, it wasn't - it didn't spell - you know, capitalization, the `i" was all lower-cased. It was a hastily-written e-mail. He closes it by saying,
`I know I'm rambling here.' A CEO as a political leader, does not have the opportunity to write an e-mail that closes with `I know I'm rambling here.'
It's not the day and age we live in. You're not allowed to do that.
QUEST: That's fascinating. That's really the (inaudible) of it. Thank you, sir.
MURPHY: Thank you, Richard.
QUEST: I appreciate it. Thank you, sir. Now, some news just coming in CNN. The former fund manager for SAC Capital, Mathew Martoma has been
sentenced to nine years in prison. He was found guilty of charges related to insider trading earlier this year. SAC Capital is run by the Wall
Street giant Steven Cohen. Prosecutors said Martoma made around a quarter of a billion dollars for the company as a result of Martoma's actions.
When we come back in moment, well, having just heard about the money he made, although he is off to prison - so it's arguably how profitable it
was - but we'll have a "Profitable Moment" after the break. (RINGS BELL).
(COMMERCIAL)
QUEST: Tonight's "Profitable Moment." Well, it didn't take long, but it got there in the end. The large lady's about to sing, the house is on
fire, the chickens are home to roost. Doesn't matter which analogy - in Scotland and the United Kingdom, the referendum is going to go right down
to the wire, and already the effects are being felt in the international markets. The pound is suffering, there are business concerns. What
happens if Scotland votes to cede from the U.K.? What happens indeed. It'll be the decision of the Scots and no one else. And that's "Quest
Means Business" for tonight. I'm Richard Quest at the CNN Center. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's
profitable. I'll see you tomorrow.
END
