P&L: Why Fake News Is A Global Problem

Thank you David so much for being here and sort of helping us understand how big of a problem the proliferation of some of this fake news is on a global level. Certainly, Lisa, my pleasure and thank you pim um.

You know, in terms of looking at the current election cycle, two thousand and sixteen, we didn't see the rise of this sort of unverified content being put out onto the social media, and if we went back to two thousand twelve, we were in a situation here where social media was really at a point where the size of their audience

was outstripping that of traditional news organizations. However, four years further down the road, things obviously have massively changed, and we're now in a situation where organizations such as the Pew Center have said that of their survey respondents recently, about forty percent of them are roving relying upon social media as being their primary information source. However, social media organizations bend over backwards to say we're not news organizations,

were technology companies. Well, the fact of the matter is the size of their audience is now larger than traditional news organizations. They are in effect news organization because their audience treats them as such. However, given the fact that they're now adults, they don't wish to take on the responsibilities that would fall traditionally to a news organization, which means they don't they would want not enjoy the protections

of the US Constitution as a news media outlet. And they will also say that they would be subject to libel laws. Well, was where I was going to go with this, because we all recall the libel uh suit that was filed against Vice. Was this That's what I beg Gawker was a director of Facebook. Peter Teal, yes, who funded that lawsuit, and its not the only lawsuit

that Pete that Teal and other billionaires have funded. So clearly, if people are concerned about a free press, people are concerned about having proper information, and if proper information is what is necessary to have an informed electorate that can make proper and appropriate choices in elections. Liberal democracy needs

an informed electorate. Misinformation cuts right at that route. I want to play the devil's advocate because in your comments you're basically saying that the facebooks and the twitters of the world really ought to So the implication is that they really ought to police what's getting distributed and understood as truth. At the same time, isn't the onus on the consumers of this, I mean, isn't it to sort

of seek out the verified information? And I mean, by how do you how do you make sure that the twitters and facebooks of the world aren't de facto censors and becoming you know, uh and viewed frankly as as the man or sort of be viewed as in bed with a particular political party in going after you know, another side. I mean, this sort of edges into a

pretty scary territory. Yes, we we are relying upon an informed electorate to basically exercise their judgment, but at the same time, we look at how social media sites have developed their algorithms they're programming is developed in such a way as to show people what it is that they already like. The idea being if the dogs reading the

dog food, give them more dog food. And from that standpoint, we've seen the creation of basically filter bubbles in terms of people basically sharing information with their friends and they're basically just given more of the same. They're not given a contrasting point of view. There is nothing that as individuals requires them to be fair and balanced in terms

of what media they consume. There is a concern here which I think we have to look were the corporate advertisers who have been looking at using social media as a channel increasingly because that's where the audiences migrated. Were the advertisers from the standpoint of concerns over their own brand reputations, not wishing to have an ad served next to a piece of news that is fake or false

or hateful or misleading. You know, there could be a move here by advertisers essentially, Sarah say, yes, social media maybe a lot of noise, but it's not something we used to identify with. Why because we've spent you know, billions of dollars building our reputations and We're not going to see it sold away for something that basically gives the way the truth or debases it. Didn't that already

happen with pripe Bart. Wasn't there an a distributor that removed it's uh its services from bright part calling it hate speech? It was last week there was there was something like this. I mean it is there are There is starting to be some pushback, but it'll be curious

to see whether it will be. I was actually in a meeting recently with a fellow who was in charge of WPP Group, very large global advertising agency amongst the largest, and he was the one who is simply indicating that this was a likely response to fake news coming off of the selection, that he would basically go out and council the global advertisers that they work with to say, look,

focus on reliable sources of media and information. You know, from that standpoint, social media, like any other organization, has to pay bills, and if they don't get any money from advertisers, I think their tune will change. Well, let

me just give you the detail here. The bright Bart example that you just offered a Lisa it was app nexus and they deactivated bright Bart News after an audit of the site's content determined that it violated the Advertising Networks Code of Conduct banning hate speech and great hate speech. But I didn't say fake speech. And one David, how long have you been covering the technology industry more technology sector of going back before the change the millennium? Okay,

so consequences responsibilities? Do technology companies have a great track record when it comes to the social consequences and responsibilities? Because if they want those press uh freedoms, then maybe they're going to have to change the way that they charge. This is very true. And if we go back and look historically a technology companies, they tend to have a shorter lifespan, if you will, than than other companies. But one thing that people have noted more broadly is that

the lifespan of corporations has been contracting. But arguably one would say technology companies lead in this regard. Typically there has been a disposition on the part of managements whre in early stage investors and technology companies essentially to build them for sale, basically passed the buck on to somebody else, the acquirer, to have the acquirer solve the problem. Some of the concerns that they have been in the case of social media companies, is being concerned about how fickle

the demographics of their audience was. Certainly we've seen early age demographics going from say fifteen to twenty four have been migrating away from Facebook, have been migrating more towards things like Napchat. Obviously, we'll see how well that does with its I p O. But nonetheless, the audience is fickle, and from that standpoint, one would argue that there is a hands off attitude in order to maintain an audience.

And so as a result, you know, this kind of disregard, if you will, for the niceties that news organizations need to follow have certainly led social media organizations Facebook at al to wander far afield Um. Now I want to turn our attention to the fate of Italian banks. We have Jonathan Tyson is our senior banks analyst for Bloomberg Intelligence, joining us from London. Jonathan, there is a referendum scheduled

for December the fourth. What does the referendum in Italy mean not only for the government but for the future of Italian banking. That's good, good morning. I think the referendum per se was clearly Mario Renzi um the prime minister, the prime minister looking to consolidate his position or have

an exit strategy. And in terms of what it means for the sort of wider economy and the banks, um, if it's a no vote and Renzy does walk, then quite clearly all of the things the Italian banks, mostly via UNI Credit and Monty Pachy, where most of the people are looking at the moment they're trying to do, they get set back. Confidence dwindles. We've already seen, for example, a five billion euro fifty year bond that was issued very recently by itaally that's now trading at eighty five

cents in the euro. So it's fallen in a very few weeks. When they issued it, I think it was like two point eight three percent or something around there. And you wonder, who would you know lend their money for fifty years. Well, so, I mean we we've seen

hundred year bonds in Europe. Certainly, sometimes you do look at it and think, two people believe that the Eurozone crisis has gone away, and if anything, as very little is achieved, we're getting further right um politically across Europe and there are so many questions unresolved, with so little action and resolution in the banks. Um, it's very hard to see this not dragging into two thousands and seventeen

and beyond. Well, okay, so the Italian banks have been in trouble for a while that there is are a number of them that are looking for some kind of solution that may, if possible, include some kind of government bailout. Again, that's not necessarily possible under some of the recent rules that have been implemented. But can you walk us through the direct mechanism by which the banks will suffer in

a no vote for the referendum? In other words, walk us through kind of Is this a matter of yields on an Italian government bonds, blowing out any of their holdings, losing a lot of value, borrowing costs for them, you know, ballooning. Is that sort of the mechanism by which this will lead to trouble for them? No? Not really, I mean

that is that's amcillary, that's part of it. Because the Italian banks owned several hundred billion of government bonds, So clearly yields blowing out means that the unrealized gains in those bonds are disappearing, and Italian banks include that in regulatary solvency, so it's unhelpful. But that's not the problem. The problem is that the banks have got several hundred

billions of non performing loans. They've got two hundred plus billion of the very worst sort of loans, and Monty Pasky, which is the poster child for everything that's bad and needs addressing in Italy, they are trying to raise up to five billion and are flowed tens of billions of non performing loans. And we need proof that there is actually a secondary market for the sale of non performing loans, because it's not just Monti Paski. Uni Credit is the

largest bank in Italy by assets. They've got tens of billions,

multiples of what Monty Pasky has. So if we lose confidence, if the market takes a step back and doesn't understand the direction politically and regulatorily of Italy into two thousands and seventeen, it's very hard to see how Monty Patsky and then Newny Credit, which has, by the way, a strategy day one December where they're going to try and articulate how many billions of new capital they need and how they're going to get it if we get the

no vote, and there is significant fallout even from here because things have already moved. The problem remains, how on earth does Italy address it's bad loans, Jonathan the the introduction of a sort of a bad loan bank. Hasn't that been considered? And have US institutions such as Goldman Sachs and JP Morgan. They have indicated that something might

change if indeed that referendum gets the no vote. As you describe, well, the problem is that you can't have state aid, and because Italy has been very very slow in applying bailin enforcing its banks to take its medicine um the the bailing rule effectively kicked in for Italy at the beginning of two thousand and sixteen. One of the problems they face is that, unlike many other markets, a lot of the bond or the debt funding that the banks have is actually held by retail bond holders.

So the last thing really that you want for the Italian bank system is to have a bail in from here, because suddenly you've got a lot of retail investors and retail deposit holders who will lose significance amount of money. At that point you've got a proper liquidity crisis for

the bank system as well. So unfortunately that the bail in should Montypasky struggle to raise its five billion and if it doesn't manage to use the securitization guarantee from the government to offload its nonforming leans, I think bailing is what people begin to think. At that point, you're a retail bond holder and some of the other small Italian banks, what do you do with your money and

what happens to liquidity? And as we all know from two thousand and eight, when you get a significant liquidity problem, it becomes a capital problem very quickly. When we're already concerned about the solvancy of the Italian banks, Jonathan real quick Is any of this price into the market currently that a no vote will be the presiding one? Oh? Absolutely? I think the mark is well aware, um that this

will be the case. And the fact is that you've got France at the moment, you've got what happens with Brexit. So is it priced inadequately? I don't know, But as we just said, um, you've got a five billion, fifty year bond away and it's four and fift cent and two to three weeks. The market is clearly very aware of this, It just doesn't understand what the real number needs to be. Lisa A. Bronwitz. Something else happening today taking place in Dallas, A T and T is said

to reveal its new online video service. Of course, A T and T the owner of the video streaming service direct Tv. Now it's the country's time pay TV producer, and we know that they also want to get into the content business. We don't know exactly whether A T. T will receive a regulatory approval for their pending Uh they're pending acquisition, um is it? Uh? This is a good introduction though, for our next guest, because A T.

T has been behind this this venture. Couldn't go as the co founder and the general manager of Crunchy Roll. And by the way, it makes me hungry, though, well okay, couldn't you. You've got one, You've got one follower there already already because of the name. Tell us what is what is crunchy role and then maybe just explain the relationship between you and A T and T because they're they're part owner. Sure, thank you for having me. Crunchy

Role is a anime streaming service. We bring the latest shows out of Japan and we stream it to eight different languages, including English, Spanish, French, Portuguese, Italian, German, Arabic into a hundred sixty different countries. We have millions of viewers and a lot of paid subscribers. Our relationship with A T and T. They are an investor along with the Trending Group into Outer Media, which is a digital media venture UH company, and that is a majority investor

into crunchy roll. Um. I want to talk a little bit about the demand for viewing anime or sort of a Japanese form of hand drawn or computer animation. How much has it sort of gained in popularity away from Japan. I mean, I know that it has been popular for years in certain um, in certain circles, but you know, is it proliferating more? Absolutely? We think this is just the early innings and there's a lot more demand and

a lot more popularity to be had. What we've seen is that there's a lot of misconception about what is anime and generally animation. Anime is a medium for a using storytelling, just like live action is a medium and within that medium there's a lot of diversity. There's a lot of different genres within that medium, including romance, horror, sci fi, comedy, action, drama, you name it, and there's

just so much rich storytelling, amazing characters. I think that's what draws audience into it as has been very much under the radar for a lot of years, but I think that's because it's mostly the fans who are into it were really in the know, And what we're really seeing now is that the fan base has grown and there are the millennials today and they're uh figuring out new ways to access this content, to engage with its content,

and making it even more popular. Can you explain the financial background for Crunchy Role in the context of advertisements, but also in the context of you can have your own YouTube television channel now and I believe that you can watch a lot of these types of programs in another format. How does crunch your role figure into this? How do you make money? Absolutely? So, we're still really early innings into digital media and we're still learning a lot.

But I think one thing that we've learned and that's been valuated across other different businesses in this space is that it takes a lot of capital to be able to make investments to create premium truly premium content, and premium content is what gets people to really engage and to get ultimately people to pay and subscribe to your content because you've got general discussion boards and forms about

each individual character and episode. That's right. So the difference here is that comparing UH for example, us to other services, there are a lot of services that are in the digital space that are basically something for everyone. What we're trying to be is we're trying to be everything for some people, the most passionate fans. And what we've seen is that with really passionate fans, for them, it's not just let's watch a video and and let's watch a

show and let's come back later. Once they engage with the show, they're absolutely engaging with everything else. They're going going to the community, they're they're engaging in forums, they're transacting by buying merchandise and figures around the shows they're watching. They're going to physical conventions. They're just doing a lot more things and and creating a lot more engagement and hopefully a lot more opportunities for monetization. How big is

the online market for viewing anime right now? We have many millions of viewers over the US as well as the rest of the world. We think that there's still a lot more potential. Ultimately, we think that anime is one of the ways that millennial audiences really want to engage with digital content, and they really embrace it, and and they really can relate to a lot of characters, a lot of the stories are being told, and they

think it's a lot of fun. You know. I want to bring up something we talked about earlier in the program. We were talking about social media of sites um and whether they ought to be getting involved in some of the conversations and preventing speech that might be their hate speech, or you know, if there's something that veers into some kind of inappropriate territory. I mean, do you guys have some kind of approach to that. I think that's an

amazing and very relevant topic. So with animation, what we do is we we take everything that's on air on TV and we rebroadcasted and we self title it into multiple languages. But what we have seen is that animation is amazingly diverse, and there's a lot of storytelling around empowerment, around growing up, around a lot of these themes that are anti boling around Uh, really, how do you develop yourself and find your own perspective as a as an individual?

And how do you do that with friends? So we think that the content is amazingly empowering and not just towards one demographic or one audience. It captures an entire sp a froum of perspective in in terms of not just male, but female, various other gender or sexual orientations, all of those things. So it's it's an amazing diverse medium for storytelling and empowerment. Couldn't you graduated from UC Berkeley with honors? You've got a Bachelor of Science and

Electrical engineering computer science, also be an applied mathematics. Does anyone question like, you're working with cartoons? Does that? How does that go down? So I had this, Uh, I had this debatement with myself many many years ago. I think, you know, the path was either academia or go into

working with animation. And I think the great thing about animation is we're able to bring through crunch real amazing story telling that touches people touches many millions of people in meaningful ways, and I think that's ultimately very impacting and very very rewarding for me personally as well as to be able to reach so many people and and

we would impact so many lives. Kuno, co founder and general manager of Crunchy Role, coming to us from San Francisco talking about UH, the movement of anime to the United States. This is Bloomberg. Wait, Wait is that a black sweater? No? Do I want to get that microwave? Wait we have to be on the radio. Oh, yes, that's right. I'll stop shopic. But one person who may

go back to shop in. Christian mcgoon, CEO of Amplify Investments and manager of the Amplify Online Retail et F, is here in the studio to talk about what we know so far about how well UH stores did on Black Friday. Of course, as we just heard from Greg Jared in the Bloomberg news room, it's unclear whether we have a better sense from maybe Cyber Monday than we do from Black Friday. But Christian, thank you so much

for being with us. I want to start out with how much do we really know already about Black Friday, there was that UH National Federation of National Retail Federation that came out saying the average spending per person was down slightly dollars per person from more than two last year. How accurate is this? Yeah, I think it's fairly accurate.

Big data is now emerging in the retail scene. It's less about opinions and it's more about gathering all these streams of data into quick analytics, and I think that's correct. I think consumers haven't spent as much so far this year.

I think it's probably due to the fact that these UH deals have been extended before Black Friday and even after Cyber Monday, so I think there's less urgency to go out and make your purchase on that single day or wait for for for Cyber Monday today, and that's impacting I think some of the swiftness of the sales, but I think they're still going to be there, and it's clear the big winner here is online retail versus

brick and mortar. Christian, I wonder if you could just tell us a little bit of your background, going back to claim More and the exchange traded fund industry, and then the creation and the manager of this new amplify online Retail et F symbol I buy. Yeah. So I've been involved in the et F industry since the early two thousands and done about sixtiesome funds in the United States, and uh, this particular fund, the online Retail et F, I buy. It's kind of it's coming out day, so

to speak. It's the first time it's been out during the holiday shopping season, and you know, it's a way to actually take advantage of not only the seasonal trend, but it's really kind of a change in the whole retail and environment. Uh, the amount of sales in online retail is growing at about a annualized pace versus brick and mortar, and that's a trend many investors don't have exposure to into the in the traditional brick and mortar

exchange traded funds out there. So I buy offers that focused exposure and to as like it's a holiday so to speak, Well because I was sorry, but just because I was looking at the the companies that are in the the e t F D I buy, Okay, etc. It's like a major position pet met Express one eight hundred flowers Overstock Neutral Systems hs N. What is the rationale for why some companies go in and why some don't. Yeah,

so there's a hard and fast rule. A company has to have seventy percent of their revenue coming from online retail sales. So if you don't meet that seventy percent threshold, you're not in the e t F. So Best Buy had a bright spot with online sales. Walmart and their acquisition of Jet got dot dot dot com has had a bright spot and online sales, but it's not seventy of their revenue. The ETF really wants to have companies that are exposed the majority of their revenue to that

online trend. Uh. So, yeah, I believe it or not. PIM Amazon is not even in the top ten holdings here. But when you look at these companies like Etsy or pet Meds or eight hundred Flowers, Uh, they've had some unbelievable performance. A lot of it has been fueled, we believe, because they're available online and that segment is just growing markedly. How concerned are you about their share falling markedly when the biggest retailers figure out how to better sort of

uh negotiate their their transactions online. Yeah, it's clear that you know Walmart, for example, is you know, doing some strategic acquisitions. I think, um where the e t F could benefit is some of the merger and acquisition potential. So some of these UH companies will get taken out by these broad based retailers that are brick and mortar

because they have to. I think these companies will benefit because of the consolidation that's going to happen in the physical space, whether that's in terms of employees or or square footage. But I think these companies not only should benefit kind of this growth. We're only doing eight percent of all sales online right now. Estimates are that goes to ft by thirty so we're seeing a global trend that's much more than one single day, and I think this et F and the company should stand to benefit.

I want to thank you very much for coming in and giving us a look under the hood of I Buy the new Amplify Online Retail e t F. Chris Jim Magoon is the chief executive of Amplify Investments. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter

at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio