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Quest Means Business
Battle for Iraq; ISIS Annual Reports; ISIS's Organization; Ukraine to Call Unilateral Cease-Fire; Russia Says Gas Decision Not Political; US Markets Rally; Europe Stocks Mixed; Fed Decision Announced; Analyzing the Fed; Amazon Launches Smartphone; Music Royalty Row
Aired June 18, 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)
PAULA NEWTON, HOST: The end of the day on Wall Street, and it's a comeback worthy of a World Cup winner. On the pitch, bulls firmly in
control. It's Wednesday, the 18th of June.
Islamists attack Iraq's biggest oil refinery as fears grow over the advance of the ISIS militant group.
The US Fed cuts its growth forecast, but it's still upbeat.
And the US patent office tells the Washington Redskins that's not a trademark, that's a racial insult.
I'm Paula Newton, and this is QUEST MEANS BUSINESS.
Iraq says it's managed to fight off militants who attacked a major oil refinery as the battle continues for control of the country. Iraqi forces
say they killed 40 ISIS fighters in the town of Baiji, about 225 kilometers from the capital, Baghdad.
Now, the Baiji refinery has had -- called it very close. It normally produces about 170,000 barrels of gasoline per day. Now, north of Baghdad
in Kirkuk, Kurdish security forces, meantime, exchanged fire with ISIS militants. A Turkish official has told CNN his country is aware of foreign
construction workers in the city being kidnapped.
Now, the brutality of ISIS has been well documented, not just by the media, but by the terror group itself. Since 2012, it has released annual
reports, which outline its operations, which include about 1,000 assassinations, 4,000 bombings last year alone in Iraq.
It even tells donors where their money has gone. Then, there are the details of international funding efforts. ISIS openly solicits donations
from all over the world.
Now, yesterday, the Iraqi prime minister accused Saudi Arabia of funding radical groups, a claim the Saudi government today denied. ISIS
also has a considerable social media presence and has tapped into the power of mobile social media.
It's had its own Android app, which was available in the Google Play Store, spread and gather its own information. So, how has ISIS grown so
quickly? Nigel Inkster, the former chief of UK intelligence for Britain's MI6 told me that collaboration is the key.
(BEGIN VIDEOTAPE)
NIGEL INKSTER, FORMER ASSISTANT CHIEF, MI6: ISIS in isolation have the potential to be seriously disruptive, but operating on their own could
certainly not have achieved what they have done within the last few days.
The reason they've come so far so fast is that they've been working in conjunction with a wide range of Sunni groups who are disenchanted with the
politics of Iraq post the American departure. And that is what has proven the catalyst, which has really enabled ISIS to achieve what they've done.
NEWTON: And perhaps with the help of those groups, who as you say, are disaffected with the Nouri al-Maliki regime, they have funding, a
political structure, a military structure, a social media campaign. We are talking about more of a sophisticated group, perhaps, then we were led to
believe existed in the last few months. How do we counter that?
INKSTER: I don't think there are any easy answers in the short term. Obviously, the first thing to do is to prevent ISIS from achieving their
current objective, which is to make it as far as Baghdad. And thereafter to try and retake some of the territory that has been lost.
But this is something that really has to be done by the Iraqi government and the Iraqi forces and, to the extent possible, without
further sectarianizing a conflict that has already acquired a significant sectarian characteristic.
So, I don't think there are any quick and easy answers here. The first thing, obviously, is to stem the immediate hemorrhage, and then to
work out how you push back. But I think a lot of the need in dealing with ISIS is to recover relationship with some of the disaffected Sunni groups.
And it's not clear to me at the moment that the Iraq government has much of a strategy for doing that.
NEWTON: I wanted to ask you in your capacity as a former MI6 assistant director, we may be looking at a point where airstrikes, with the
US help in Iraq, are imminent. Do you have any concerns about that kind of draft list of possible targets that the US is drafting at the moment that
they say they have?
INKSTER: Airstrikes are always a blunt instrument, even with precision-guided weapons, and inevitably, there will be some collateral
damage in terms of civilian casualties. So, this may be something that is necessary to do, but I think it needs to be thought about very carefully.
(END VIDEOTAPE)
NEWTON: And that's a significant comment from a person who's been detailing that intelligence for so many years.
Now, the security situation in Iraq has been drip-feeding its way into the markets. Looking at the price of a barrel of Brent crude oil, over the
last ten days, the trend clearly upwards. There's a fear exports could be hit later this year as demand climbs during the US and European summer.
Now, Russian stock markets have risen after Ukraine's president says he will order a brief unilateral cease-fire to allow pro-Russian
separatists to lay down their arms. Now, it comes after a phone call between Mr. Poroshenko and Russian president Vladimir Putin.
In an exclusive interview with CNN, Russia's energy minister says the decision to cut gas supplies to Ukraine wasn't an attempt to destroy the
country.
(BEGIN VIDEOTAPE)
ALEXANDER NOVAK, RUSSIAN ENERGY MINISTER (through translator): Of course it's not true. I'd like to remind you that the Russian president
warned about the crisis on April 10th by sending a letter to the leaders of 18 European states who receive Russia gas via Ukraine.
Back then, we called for consultations with the EU and Ukraine to discuss possible problems caused by the debt. To me, the current situation
is designed by Ukraine, which has shown a complete unwillingness to compromise.
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Are you seriously suggesting there's no political dimension to this, this beef with
Ukraine over gas. It was when Ukraine's pro-Russian president, Viktor Yanukovych was overthrown earlier this year that Russia raised the gas
price to Ukraine by 80 percent. That's a political price, isn't it?
NOAVK (through translator): First of all, I'd like to say that Russia didn't raise the price. Russia was acting under an existing signed
contract. That's why there's no politics in this situation, just a dispute between two business entities: Russia's Gazprom and Ukraine's Naftogaz.
CHANCE: Let me put it this way: there's a possibility now there could be a unilateral cease-fire on the ground in Eastern Ukraine, that the
situation could deescalate. Do you think if that happens, there might be a better atmosphere between Russia and Ukraine to agree on other issues, to
agree on a gas deal?
NOAVK (through translator): Russia's position now is that further negotiations are only possible after Ukraine pays off its debt, a debt that
has grown by $2.2 billion during the negotiations, and which stands at $4.5 billion in total. And we are only talking about payment for an already-
delivered product.
CHANCE: How concerned are you that this dispute is having an impact on Russia's reputation as a reliable energy partner? Do you accept that
this kind of dispute forces countries in the European Union to look elsewhere for sources of gas, for sources of energy?
NOAVK (through translator): Of course, there might be a situation when Russia is accused of causing additional risk to European countries
regarding the transit of gas through Ukraine, but I'd like to say that such a situation would only occur if the Ukrainian side illegally takes gas
without paying for it. That's why it would be unfair to the reputation of Russia and Gazprom to suffer.
(END VIDEOTAPE)
NEWTON: Now, the Federal Reserve has just announced its latest thoughts on the US economy, and apparently, everyone liked what they heard.
We got to a multiyear high on the NASDAQ, a record high on the S&P. Alison Kosik is here, now, to kind of parse it with us. I have yet to see such a
bold and impressive reaction to basically her just repeating what she said months before.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, exactly. But you didn't mention, less than 100 points away, I'm talking about the Dow, from
Dow 17,000, so we're back on Dow 17,000 watch. Anyway, we'll put that on the shelf for now.
What the Fed said about inflation and interest rates, that's what moved the market higher, Janet Yellen indicating inflation is not at a
level that's a concern.
And on interest rates, no surprises there from the Fed, and that's just fine with Wall Street, the Fed indicating that it's unlikely to raise
interest rates until 2015. The central bank, of course, tapering its bond- buying by $10 billion a month to $35 billion.
Now, what the Fed did do, though, is slightly downgrade its forecast for GDP this year, but it was, actually, was more optimistic about the job
market. So, it's those positive things that the Fed mentioned about the job marker and about the economy improving that we saw investors latch
onto, Paula.
NEWTON: Alison, in terms of this whole picture, though, now, can the bulls really hang on this long? What is the sentiment now? We were all
waiting until today. The Fed doesn't have much more to say. Where are we going?
KOSIK: Well, it's anyone's -- of course, it's anyone's guess, but we're seeing momentum as higher, just because investors are pretty much
looking for the next catalyst to move the market in a different way.
Now, what could sort of throw a wrench in the momentum is what happens in Iraq. If things heat up even more, you could see stocks pull back on
fears about how the situation in Iraq could wind up. So, it's always the market looking for the next catalyst, and unless there's a catalyst, we
could see the market move higher. Paula?
NEWTON: Sounds good, Alison, thanks for the update. Appreciate it. And in Europe meantime, it was a mixed picture as investors traded
cautiously ahead of that Fed announcement. The FTSE and Germany's DAX closed a fraction higher, while shares in Paris and Zurich fell. I'm sure
that picture will change drastically tomorrow.
Still to come on QUEST MEANS BUSINESS, if the Fed raises interest rates too quickly, economic growth could stall. Raise them too slowly, and
it could lead to yet another debt bubble. We look at that delicate balancing act, up next.
(COMMERCIAL BREAK)
NEWTON: The Fed says the US jobs market is picking up, but it isn't, in fact, to full health just yet. Policymakers say they expect unemployment
to drop to 6 percent in 2014, closing in on their target. But they say growth for the year will be lower than previously expected because of the
bad weather in the first quarter.
Now, the Fed expects the economy to grow between 2.1 and 2.3 percent this year, the accelerate to 3 percent in both 2015 and 2016.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIRWOMAN, US FEDERAL RESERVE: Once we begin to remove policy accommodation, it's the committee's current assessment that even
after employment and inflation are near mandate-consistent levels, economic conditions may for some time warrant keeping the target federal funds rate
below levels the committee views as normal in the longer run.
(END VIDEO CLIP)
NEWTON: Now, we managed to get a better sense of when Fed officials expect interest rates to go up by joining in the dots. Stay with me, here.
This is the Fed's so-called "dot plot." There's one dot for each member of the Open Markets Committee.
Now, it shows the prediction of where he or she thinks the Fed's key interest rate will be by the end of each year. Now, in March, Fed watchers
noticed the dots creeping and raising every so higher, raising speculation about a rise in interest rates. Some fear that would stunt economic
growth.
On Wednesday, the Fed's projections for 2015 and 2016 went up, but interest rates are expected to stay unchanged through the end of the year.
And that is going to be good news to many people watching those rates.
Now, Robert Shapiro is the former undersecretary of commerce for economic affairs and an advisor to the IMF. I asked him what stood out for
him in the Fed's announcements.
(BEGIN VIDEOTAPE)
ROBERT SHAPIRO, FORMER UNDERSECRETARY OF COMMERCE: The most interesting thing is the Fed's view that there is really no significant --
no economic significance to the 1 percent contraction in the first quarter. They are interpreting this as entirely anomalous. It has not affected
their forecast, for example, for 2015 and 2016.
So, they do not see an economic cycle weaker than they had seen before. They don't see it as evidence of that.
And that's, in fact, encouraging. The rest of it was expected. The fact is that no one thinks the economy is either strong enough nor
inflation strong enough, except for a few kind of ideologues on the right, that interest rates have to go up.
And no one thinks that the economy is so weak that we would have to interrupt the tapering process, which certainly, had that happened, would
have sent a strong message to the markets that the Fed saw the economy as significantly weaker than it had before.
The fact is, that's not the way they're interpreting the first quarter decline, and I personally think they're exactly right.
NEWTON: And so, we'll say that no news is good news, but having said that, I think you and I both lived through the harsh winter here.
(LAUGHTER)
NEWTON: It was incredible. I'm sure that that's worked into the data there somehow, some way. But you have to be worried, here, given the
geopolitical volatility that we're going through right now, that this is still a very fragile economy.
SHAPIRO: Well, of course it is. It's not only a fragile US economy, it's an even more fragile global economy. And what I worry about, and I'm
sure what the Fed worries about, are shocks from abroad.
I think the Fed is going to be even more sensitive to that, since this was the first Fed meeting in which Lael Brainerd joined as a Fed governor.
She wa formerly undersecretary for international affairs at the Treasury, and Stanley Fischer as vice chair, who was formerly the head of the Bank of
Israel.
So the fact is, they're getting more input from people who are particularly sensitive to international developments, of which there are
many, that could keep them up at night.
(END VIDEOTAPE)
NEWTON: Still to come on QUEST MEANS BUSINESS, Amazon is getting into the phone business. We'll explain what's behind their move. That's up
next.
(COMMERCIAL BREAK)
NEWTON: Amazon has conquered online shopping, it's challenging Netflix and Spotify with its streaming video and music services, and now,
yes, it's taking on the Google-Apple smartphone duopoly.
Chief executive Jeff Bezos, could he look more triumphant there? He launched Amazon's first smartphone, dubbed "The Fire." Business
correspondent Samuel Burke is here with the details. I am so glad you're here. I need another phone like a need a hole in the head.
(LAUGHTER)
NEWTON: Why does this company think they can make this work?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: He may look very triumphant in that picture, Paula --
(LAUGHTER)
NEWTON: Look at him!
BURKE: -- but I hope that he and Amazon have taken a walk through the scrap heap, because so many other companies have tried this and ended up in
the scrap heap. Nokia, remember that company?
(LAUGHTER)
NEWTON: No, I don't.
BURKE: Nokia was the leader with cell phones. Then, it was Motorola.
NEWTON: Motorola!
BURKE: And then, of course, your own Canadian BlackBerry --
NEWTON: Oh!
BURKE: -- they ended up in the scrap heap.
NEWTON: You're turning the knife, Samuel! Oh, my goodness!
BURKE: And don't forget about Google. People thought Google was so smart for buying Motorola's headsets, and then they've dumped them, too.
So, I really hope Amazon walked through that scrap heap and thought about it carefully.
This phone, it seems like it's a great piece of hardware. It has a 3D display, that's been done before, but maybe not to this level. It has hand
gestures, so you can more your hand, and that will make it move. Eye movement tracking, so you might be able to scroll with your eyes.
But a lot of this stuff, Paula, it's just not that amazing. They have a 13 megapixel camera. Who cares? The Nokia Lumia has 41 megapixels.
Some say, well yes, but you can take a photo and it automatically uploads to the Amazon Cloud storage, an unlimited amount of photos.
So what? Who cares? I'll save you the $200 for a phone, Paula, and tell you, download the Flickr app for free, owned by Yahoo!, I'm giving
them some free advertising. But it's free and it does the same exact same thing. So, you can tell, I'm a little bit skeptical.
NEWTON: And you make a good point about how crowded this space is right now and what is going to drive that consumer to get rid of the phone
they have right now and change completely to an Amazon product?
BURKE: Not just get rid of their phone. Get rid of their plan, they have to break the contract. And are they going to get rid of the operating
system? Is someone really going to want to switch from an iPhone operating system, IOS, then to Android?
And this is just another Android system. It has its own overlay on top of it. But even Samsung, they're nervous. They don't think that just
using Android will be enough for them. So, it leaves people a bit confused.
I was sure, and so many of the analysts I talked to said this isn't about the phone, this is about the streaming services, and so many people
bet that we were going to have free access to stream as much as you wanted and not have to pay data.
So far, we don't see that as part of the announcement. You do get Amazon Prime free for one year, so you can stream their music service,
which is similar to Spotify, their movie services, which is similar to Netflix. But you'll still have to pay those data fees, and those are
expensive.
That is a big hurdle for people to come over right now. I may not listen to songs on my phone if I'm going to have to pay all those data
fees. So, I thought maybe they were going to have free data on this phone, and I, like many analysts I spoke to, were wrong. So, very surprised.
NEWTON: We have to point out, the stock is up, nearly 3 percent.
BURKE: Yes.
NEWTON: Amazon has had its struggles over the last few months, few years. Is this going to do anything for that Amazon Prime services, for
that upgrade? They really want to make Amazon absolutely essential to all of those online transactions that we do.
BURKE: Well, I guess the real question is, will a lot of people want to give up their Netflix account for one of these Amazon Prime accounts?
Yes, it's free, so it might pull them in.
But still Amazon Prime does not have the big hits that Netflix has, like "Orange is the New Black" and "House of Cards." And at the end of the
day, people want to be in on the conversations about the hit shows. So, this will not be enough. They'll also need some hit shows.
NEWTON: That's actually an excellent point, in terms of trying to drag in those people who are doing the video streaming. Thanks so much,
Samuel. I know you've been following this for weeks, so thank you for that report.
BURKE: I hope we don't end up in the scrap heap like those other ones.
NEWTON: It's happened before, what can I tell you? We'll take one for the team. Thanks, Samuel, appreciate it.
Artists like the Arctic Monkeys and Adele could disappear from YouTube in a matter of days over an argument about royalties. Now, as Samuel was
just saying, that streaming of both video and music, now also important. YouTube is planning to charge users to watch music videos without ads, and
the company is shutting out independent artists who refuse to sign onto their new service.
Now, the Worldwide Independent Music Industry Network accuses YouTube of bullying. I asked the network's chairperson why she's going after
YouTube so strongly.
(BEGIN VIDEOTAPE)
ALISON WENHAM, CHAIRWOMAN, WORLDWIDE INDEPENDENT NETWORK: That's what the record companies that we represent said, quite simply. They run little
business, some quite large businesses. They represent thousands of artists across the planet.
And all of a sudden one day, they received phone calls and letters and e-mails saying that if they didn't sign a contract within a couple of days,
their product would be -- their artists would be blocked from YouTube. So, I think that you can quite rightly call that intimidation, threats,
bullying, whatever you want to call it.
NEWTON: And your accusation is that they are doing this in order to basically elicit very favorable terms. You think too favorable terms from
the people you represent.
WENHAM: Yes. We don't get involved in the contract terms, but we do know that independent music doesn't -- is not cheap music. These guys out
there, these guys and girls all over the world, they find and discover artists and they bring them to market, and consumers all over the world
love them.
So, there's a counter argument to say you should be paying them more because they don't have the buffer of a big company and a nice office and a
car, often. But you look at artists like Arctic Monkeys or Adele or Bon Iver. These artists define the independent music that we're trying to
protect.
NEWTON: Streaming and these kinds of services, streaming that kind of music from independent artists, and from established artists, the industry
is growing in leaps and bounds. By any estimation, it is going to be the only way that many of us listen to music and are introduced to new music
going forward. What is at stake here if these disputes can't be reconciled?
WENHAM: Well, I think YouTube will go to market with an incomplete catalog, and if that's their commercial choice, then good luck to them.
But I think other streaming services have made the decision to pre-license everything, and they're doing extremely well, and we're very happy with
them.
So, there is choice for the fan. There is choice for you to see them. And you see, the independent music lover is often quite adventurous, quite
clued up, quite canny. So, they're going to know. They're going to know very quickly if the service is flawed.
NEWTON: But then, why don't you just let it be? Let the chips fall where they may?
WENHAM: We are. We are now, because we've invited YouTube to discuss the matter with us. They've declined to do so. I mean, we would love to
get back around a table with them and try and explain --
I think there's been an error of judgment here about the independent sector. I think YouTube may think there's three major record companies and
everybody else is desperate for a deal.
NEWTON: And that's not the way it is.
WENHAM: Not true.
NEWTON: And in terms of YouTube's side of things, though, they say look, we have signed independent producers, independent artists, and we've
signed them, and they're happy to sign with us.
WENHAM: Obviously, every company has to make its own commercial decision, and YouTube is an important platform, no one is denying that.
But there are other streaming services out there -- Spotify, Deezer.
And I think that the independents that I represent are longterm players. They protect their artists, they partner with their artists, and
they don't want to see the music that they produce cheapened in any way.
(END VIDEOTAPE)
NEWTON: Now, we reached out to YouTube for their response to all this, and here's what they told us. "We're adding subscription-based
features for music on YouTube with this in mind, to bring our music partners new revenue streams in addition to the hundreds of millions of
dollars YouTube already generates for them each year. We are excited that hundreds of major and independent labels are already partnering with us."
And we should say, in fact, that that response has been pretty much the same for several months from YouTube. And watch this space. As we
were just saying, that music streaming, that video streaming, a huge issue for so many companies. We'll have more, actually, on that from T-Mobile in
tomorrow's show.
Now, when we come back, questions of skin color can arouse strong passions. Find out why an American football team has lost the legal battle
over its name. That's next.
(COMMERCIAL BREAK)
NEWTON: Welcome back. I'm Paula Newton, and these are the top news headlines we're following this hour.
Iraqi prime minister Nouri al-Maliki says security forces are on the rebound and will defeat a powerful Sunni insurgency. The latest fighting
is threatening a critical part of Iraq's economy. Islamist militants attacked an oil refinery in Baiji, triggering fierce clashes with security
forces.
Ukraine's president says he will order a brief unilateral cease-fire to allow pro-Russian separatists to lay down their arms. His office says
the government is preparing to implement the plan as soon as possible. The announcement came after a phone call with Vladimir Putin.
In an exclusive interview with CNN, Russia's energy minister said the decision to cut gas supplies to Ukraine was not politically motivated.
The king of Spain has formally stepped down, opening the way for his son to take his place. Juan Carlos signed a law of abdication at a
ceremony in Madrid. Prince Felipe will now -- who's known as Felipe -- will now be the sixth when he is -- he'll be the sixth King Felipe when he
is sworn in as king on Thursday. His wife, Letizia, will be the first commoner to become Spain's queen.
A brilliant goal from Australia's Tim Cahill was not enough to stop the Netherland's winning their second group game in the World Cup. The
Dutch won 3-2 with the help of a goal from Captain Robin van Persie. The game between Spain and Chile meantime is now in the second half. The score
right now is - get this - 2-nil Chile.
The U.S. Patent Office says the term "Redskin" is disparaging to Native Americans, so it's refusing to all the Washington Redskins' NFL team
to trademark its name. Now, without legal protection, the team could find it harder to prevent counter-fitters from using the name, and the decision
adds to mounting pressure for the franchise to finally change its name. Jesse Witten is a lawyer involved in the case challenging the Redskin
trademark. He joins us now from CNN Washington. I mean, how much of a significant victory is this given there has already so much pressure for
this team to finally change its name?
JESSE WITTEN, PARTNER, DRINKER BIDDLE & REATH: There's been a ton of pressure, Paula, and this latest development is an exciting development
that we've worked on for many years, and it is going to add to the momentum and to the public outcry in increasing awareness that the team name of the
Washington NFL football team really is a relic from a different era and it really does need to change.
NEWTON: You know, they say that they're appealing the decision. Do you think it will offer a lot of material damage to their team? I mean,
they could still go ahead and, you know, make all the trademark merchandise that they want to.
WITTEN: They announced today that they are going to appeal it. I want to clarify what the ruling today was. Today the Trademark Trial and
Appeal Board which is component of the U.S. Patent and Trademark Office cancelled the trademark registrations of the team. It doesn't mean that
they have no more protectable in trust. That would require further litigation between the team and people who try to sell merchandise that
uses the team name and logo. But what it does mean is that some of the benefits of having a federal government trademark registration wouldn't be
there. In other words, it would be more difficult for the team to protect its mark and there's a possibility that in future litigation, courts might
rule that it's not protectable.
NEWTON: OK, but the fact remains they're appealing, it means their -
WITTEN: Yes.
NEWTON: -- trademark stands in the meantime. The owner of the team says, 'No way. We are never changing this name.' As you said, there's
already been so much pressure from the U.S. President on down. Are you confident that you're going to get anywhere with this in the coming months
or years?
WITTEN: Don't know what will happen in the coming months and years. There's been an unbelievable movement as you point out, Paula - President
Obama, more than half of the members of the Senate, the Native Americans from all over the country - many different tribes and national
organizations including the National Congress of American Indians are really speaking out.
In some small way, our trademark litigation is contributing to a much bigger effort. I don't know what will happen. I think that - you asked
about the team owner. You know, he's a super fan. He grew up being a fan of the team. He has attachments to the team, but I'm hopeful that he like
so many others will eventually reflect on this and realize that this is just no longer a term that we should use anymore.
NEWTON: Yes, and as you say, this will continue to go on unless the fans themselves decide that it's time to change the name. It may take a
lot more from your side. Thanks so much for your time. We appreciate you explaining this ruling to us.
WITTEN: Thank you.
NEWTON: Now, with billions of dollars in back payments on the line, why American Airlines is cutting four of five flights to Venezuela. That's
next.
(COMMERCIAL)
NEWTON: All right, we've got a "Business Traveler" update for you. American Airlines is the latest international carrier to sharply reduce its
flights to Venezuela. Now, the airline says it is owed at least - get this -- $750 million. And I can tell you that's not money they can spare. It
says that the government has blocked that money. American currently flies to Venezuela 48 times a week from three different U.S. cities. After July
1st, that will be cut to ten per week - all from Miami.
Now, American Airlines isn't the first to take this sort of action. Air Canada, Alitalia and Lufthansa have as well, and it's estimated the
Venezuelan government is withholding about $4 billion from airlines in total. Now, the discrepancy is that tickets were sold bolivars, but
airlines want to take the money out of the country in dollars - and that goes against Venezuelan currency control laws. Now, Jason Sinclair is with
the International Air Transport Association. He's been dealing directly with the airlines and says this money belongs to carriers.
(BEGIN VIDEOCLIP)
JASON SINCLAIR, IATA: It's important to note that this is money that's never belonged to the Venezuelan government. These are funds that
the airlines have generated over the past years and belong to the airlines. And it's made it very difficult for the airlines to continue operating in
Venezuela. Certainly if - if the airlines are operated in a country where they can't get paid, it's very difficult for them to continue operating
that market.
NEWTON: But Venezuela hasn't been that stable for quite some time right now. What have the airlines done to make sure it didn't get to this
point? Because right now it is the civilian population and the businesses in Venezuela that are going to suffer because these flights have all been
cut.
SINCLAIR: Absolutely. Every country in the world benefits greatly from American activity. One of the things that IATA, and one of the things
that IATA's most concerned about is what would happen to the Venezuelan people and the Venezuelan economy if air activity was further eroded. This
is why we've called them and its federal government to release these funds. IATA has sent - our director-general and CEO, Tony Tyler - has sent
Venezuelan President Nicolas Maduro three letters now - one last year and two this year asking for a meeting between IATA and the Venezuelan
government in order to reach a prompt solution for the airlines.
NEWTON: But what prospect do you have that this is actually going to resolve anything? I mean, to me this seems a bit of mismanagement on the
part of the airlines and, quite frankly, where have you guys been involved sooner? We're talking about $4 billion and now airline service already cut
by so many carriers to Venezuela?
SINCLAIR: Right. Well, again, we've made public statements throughout last year and this year as well. And what we've wanted to do is
raise awareness about what's happening. There've been a series of meetings between the airlines and the Venezuelan government - different ministries.
We've asked for the Venezuelan government to release these funds and that's what the Venezuelan - that's what airlines - need in order to continue to
operate in Venezuela.
NEWTON: Have you had any reaction at all from the government that gives you any hope this will be resolved in the next few months?
SINCLAIR: We've sent three letters to the Venezuelan president and up until now, unfortunately, we haven't received a response. We are hopeful
that the Venezuelan government will release the funds that belong to the airlines. They're having proposals. Unfortunately, these proposals have
been for money that's considerably less than what's owed to the airlines, and there aren't guarantees in place. There -- what the Venezuelan
government is offering are payment plans over the next two years to pay the money at a considerable discount to what is owed to the airlines.
NEWTON: And what's your worst-case scenario here in terms of what would happen? The carriage is already down so far, so there are really a
huge cut in flights. It's very difficult to get to Venezuela now.
SINCLAIR: Right, I mean, this is why we sounded the alarm about what's happening in Venezuela at the beginning of last year. We're very
concerned what would happen to Venezuela if air activity is further eroded in the next couple of months. We've seen about half of the 24 airlines
that fly to Venezuela have reduced capacity over the last couple of months. Two of them have dropped service entirely. And it's because of the
Venezuelan government is preventing the airlines from collecting the money that belongs to them.
Certainly if - certainly if an organization or a company is operating somewhere , they can't be expected to operate without being paid for their
services. This is why the airline have had to make a difficult decision of reducing capacity or even stopping to fly to this country.
NEWTON: Time for a look now at the weather. Jenny Harrison is at the CNN International Weather Center. Jenny, I really thought we would not
hear more about this severe weather in the United States. I mean, the pictures have been oh so terrifying and set to continue through more
cities.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Yes, unfortunately it is actually, Paula, yes. Hopefully perhaps not with the
same level of devastation that we saw certainly on Monday. Let me just start with that. This is a picture from Pilger, that town up there in
Nebraska, and just look at this. Because it just gives you an idea what swept through this particular town. Sixty percent of the town looks like
this. That is how much building they've got to do, and obviously a dreadful situation. Two people were killed as well was these tornadoes
came through. And unfortunately there's more of the same really in the offing for the next 24 hours certainly.
Monday, Tuesday, Wednesday and then on into Thursday. That is when we expect to see more of these severe storms, but hopefully not quite as
severe. But Monday and Tuesday alone you can see some of these symbols here. Actually there were 69 reported tornados, over 400 reports of wind
damage and over 200 reports of damaging hail. That is how severe these storms have been. In the last few hours those storms working their way
again across the Midwest. You can see these yellow boxes across the Central Plains as well. That is indicating the threat of some severe
thunderstorms, and this red box of course - that is a tornado watch. So there's some very strong thunderstorms within that area that could go on to
produce a tornado.
Not been a good day again at some of the major airports because of this weather, and likely to be the same as well on Wednesday - Thursday
even. This as you can see is what is going on right now. See the current airport delays. I can tell you that Chicago and Newark have had delays all
day long. This is pretty much the pattern, as I say, as we go through Thursday and possibly into the first part of Friday.
Severe storms across these Northern areas. This is where across the eastern half of the U.S. are some very hot, moist air in place, and that is
what is feeding these thunderstorms. It's a little bit below average out towards the West, but again you can hear a few more showers and
thunderstorms could well impact the region. All this area in the orange is where there is a threat that there could be some of these severe
thunderstorms. Large, damaging hail again, strong, severe winds and maybe again one or two tornados.
It's a generally fairly unsettled picture, but a lot of the rain that you can see, that is those popup afternoon and evening showers and
thunderstorms becoming a little bit more widespread as we head into the latter part of Thursday. Temperature-wise on Thursday, not as hot as
today. Thirty-two though in Washington, D.C., 28 in New York and 34 in Atlanta and Dallas.
Meanwhile in Europe, again, here you've had some severe thunderstorms across southern regions through the Med and some reports have been coming
in. In fact there was even a water spout that was reported off the coast in Italy. Remember that is exactly the same as a tornado but it is forming
over water and stays over water, and then also in Sofia and Bulgaria 4 centimeter damage hail. So that again doing some damage. Widely scattered
showers from Northern to Southern Europe. Severe storms across the Southeast. Any bright spot is the Northwest - some very nice weather
there. High pressure in control - some good sunshine, good temperatures.
But the warnings across the Southeast Europe in particular you can see are pretty widespread. Again, as I say, maybe not tornados but again some
very heavy rain, severe winds and maybe some hail. You can see most of the rain is across the eastern half of Europe.
And as for temperatures on Thursday, a very nice 23 in Paris, 22 Celsius in London. Now, from that, let's just quickly have a look at the
final match today. Of course there's already in progress - you know about that, Spain against Chile. But we have got another match of course later
on today at 6 p local time, so just over - what - an hour and a quarter away. Twenty-six Celsius is the likely temperature for Cameroon against
Croatia. Not such a great forecast potentially. We could have some rain and some thunderstorms - it is after-all coming from Manaus. Paula.
NEWTON: Yes, we all expect it to be hot and sunny, but when you show me the threat of lightening, that's a different story all together. So
we'll keep our fingers crossed that these matches get underway safely. Thanks, Jenny, appreciate it. Still to come on "Quest Means Business,"
we'll explain how, yes, a marshmallow gun - I've been hit with one of those - led to the White House initiative to boost manufacturing.
(COMMERCIAL)
NEWTON: The maker movement has reached the Whitehouse. On Wednesday, President Obama hosted the Whitehouse's first Maker Faire. Inventors
showed off products created using a new generation of manufacturing tools like 3D printers and laser cutters. Now, the Whitehouse hopes the Faire
will spur creativity in American business and in students.
Now, the event is partially inspired by this moment from 2012. Take a look at this. Fourteen-year-old Joey Hudy showed off his new weapons
system to the Commander-in-Chief of the U.S. Armed Forces. All right, it is a marshmallow cannon, and I've been hit with a marshmallow gun. It
doesn't hurt but it's pretty impressive. Take a look at this.
(BEGIN VIDEOCLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Oh1 Let's look at - let's go look at the marshmallows, see what happened.
(END VIDEOCLIP)
NEWTON: Just a little tip there, President, you call in the presidential dog to then mop up the marshmallows, we've been there before.
Now, brilliant.org called Joey one of the ten smartest kids in the world and Intel recently hired him as its youngest intern ever. He joins me now
from Washington. Joey, I hear a repeat trip to that White House today. What was going on there today and what was so exciting?
JOEY HUDY, NAMED ONE OF "10 SMARTEST KIDS" BY BRILLIANT.ORG: A lot of stuff was going on today. It was a - a general Maker Faire. There's a
whole bunch of makers being there, showing off what they're doing. A couple of my friends, Quin including was there. I was showing off Fuzzbots
- those robots like him that he built and a whole bunch of other things.
NEWTON: And in terms of what excites you about this - I mean I was just looking at that cannon. I mean, what really thrilled you about being
to - being able to invent something like this? Do you have the marshmallow cannon there with you?
HUDY: No, but I have a marshmallow actually. It's right here.
NEWTON: (LAUGHTER).
HUDY: That was the marsh -
NEWTON: Oh, so you didn't get the presidential dog to come in and eat it the way I did last time?
HUDY: No.
NEWTON: Darn. And so what really these days - I mean, what's really affecting you these days? Because I know that you have been very
passionate about being an innovator and an inventor. I mean, what do you see on the horizon that impresses you?
HUDY: The same thing it's always been - being able to take my ideas and actually make them into reality. It's having the idea in your head and
then turning it into an actual object is what I love about making.
NEWTON: Now, you are the youngest intern ever at Intel. Can you tell me a little bit about what you do there?
HUDY: My title's Weara - Project Development Wearables Department. But recently I've been working on more non-wearable things like the LED
cube is what I've been currently working on is a 10 x 10 x 10 RGB LED cube.
NEWTON: And what will that - like what - what do you hope that invention will do going forward?
HUDY: Right now it just lights up and we have five different patterns loaded up onto it. In the future we're hoping that it'll be able to be the
hookup to a 3D scanner, and have it live-feed the scanned data to the cube so you can see what the scanner is seeing.
NEWTON: All right, Joey, I'm going to put you on the spot. I'm a mom and I want advice from you. How do I get my kids interested in science?
HUDY: Take him to the Maker Faire.
NEWTON: (LAUGHTER). It's as simple as that, is it?
HUDY: Simple as that.
NEWTON: What do you think they will see there that'll really excite them?
HUDY: It might be the small electronics, it might be a ardreo (ph), it might be a flame thrower, it might - it depends - it might even be
sewing. There's all that stuff there. There's cooking even.
NEWTON: Cooking even. I'd get very excited about them learning how to do that.
HUDY: I know, right?
NEWTON: (LAUGHTER). Joey, thank you so much and best of luck with everything going forward. I'm sure we're yet to hear a lot more from you.
Appreciate it.
HUDY: Thank you very much.
NEWTON: 'Bye. Now, as millions of students around the world revise for - revise for exams for this generation, cheating - yep - has never been
easier. Now, in the old days, this over here is what you were allowed into an exam. It was a pencil. Yep, that's it. Now you can apploy (ph) -
deploy - enough technology to ace an exam without even trying. Smart pens, smart watches like on this mannequin, Google glasses and a smart hoodie -
yes, a smart hoodie. This can send test simply by rolling - text that is - just by rolling up the sleeve or pulling on your hoodie. This is
definitely cheating.
Taylor Ellis runs the Testing Center at the University of Central Florida Business School. He joins me now. I mean, I'm shocked. What's
wrong with the good old-fashioned pencil? Why don't we just keep it at that? I used to be allowed - sometimes - some kind of reference book and
my pencil and my calculator.
TAYLOR ELLIS, UNIVERSITY OF CENTRAL FLORIDA BUSINESS SCHOOL: Well, we go ahead and allow - we provide students with pencils and paper to take
their exams with. So that's still in effect.
NEWTON: But why aren't we more savvy about being able to really - are they going to learn anything more from having this technology in during the
exam?
ELLIS: Well the question is, is what do you do with the technology? If you're using the technology as part of the exam versus using the
technology to beat the exam questions.
NEWTON: And how much of that are you seeing right now? Are you seeing students getting much more sophisticated about how they beat the
exam?
ELLIS: Yes, they are definitely getting more sophisticated, and it depends on the testing environment. Some are easier to be more
sophisticated in than others.
NEWTON: What are some of the most outrageous examples that you've seen?
ELLIS: The most outrageous example I saw was somebody with a full- sleeve tattoo and on the inside of the left arm was a blank spot in the tattoo. So it changed every time the test changed.
NEWTON: (LAUGHTER). Now that I would say is low tech and is that the lesson of this - students will try and outsmart the exam. I mean, they've
got all these gadgets these days to try and help them. But at the end of the day, they don't need all these gadgets. You need to stay one step
ahead of them at all times.
ELLIS: Yes, I mean, at the end of the day, if they'd spend as much time studying the material as they do trying to figure out how to get
around it, they would do just fine on the exams.
NEWTON: And tell me something from someone who has some insights - why do you think - because you just made an excellent point. If they just
spend as much time studying as they spend trying to figure out how to cheat, why do you think they still have that motivation to cheat at the end
of the day?
ELLIS: Well, I think it comes down to the end result. We've moved away from thinking to multiple choice, true/false questions versus think
about the problem, come up with the solution. It's tougher to test that way or grade those, but you do get a better feel of what the student knows
about the subject matter.
NEWTON: Well it is true that for all of us who've had that sinking feeling in the pit of their stomach before an exam. Once you do get
through it, it builds character. So hopefully we'll find a way to get that message through to students in the meantime. Thank you very much for
joining us today, appreciate it.
ELLIS: OK, you're sure welcome. Thank you.
NEWTON: Thank you. Now, the game between Chile and Spain is nearly over. Chile is leading 2-nil - yes, I said Chile is leading 2-nil. If
Spain loses, its World Cup dreams are absolutely finished. Alex Thomas is with us now live from Rio. OK, how did this happen? How did they get into
such a hole?
ALEX THOMAS, CNN SPORTS CORRESPONDENT: I'm still in shock, Paula, --
NEWTON: (LAUGHTER).
THOMAS: -- so I can't give you any analysis right now. But what I can tell you is I'm sitting here in front of Rio de Janeiro's Maracana
Stadium, arguably the most famous football venue on the planet. But of all the historic nights this venue has ever seen, none will quite match the
football story we're seeing unfolding before our very eyes. Spain, the most dominant force in international football for the last six years are
just seconds away from elimination at the hands of a Chile team that they've never lost to.
In ten previous meetings stretching back to 1950 when, quite nicely and succinctly and typically, the tournament was last here - held here --
on Brazilian soil. Chile leading 2-nil, Spain already having already lost their first group match of this World Cup - a 5-1 hammering at the hands of
the Netherlands. So it means that we left on nil points - no points - with one - no points -- it's not a Eurovision song contest, -- this is how blown
away I am I can't even get my facts straight. That we left on no points with one game remaining, and it's be Spain and Australia going home early
and it'll be the Netherlands and Chile already with their places booked in the knockout round.
NEWTON: OK, now you did do a fabulous job. We do not want to really rip off Chile here. This is a great event for them. I mean, wouldn't you
want to be in Santiago right now? But what is at stake for them now? I mean, what does it mean for a team like that to be able to knock out Spain?
THOMAS: Yes, hugely important for Chile. They have had good teams in the past, but you have to go back many, many years for their last sort
of golden generation, if you like. But there's real excitement about this team. They were very, very impressive in qualifying, and as I speak, you
can probably hear the roar behind you. It will signal to you that the referee has blown the final whistle.
The unthinkable has happened - Spain the team that won their first ever World Cup title four years ago in South Africa in the middle of a
purple patch, their most successful ever era and really a team packed full of players that have been setting the standard at club and international
level for so long now. Out of this tournament, so many people thought, yes, they could defend their title. They can't. Just two games -
NEWTON: Wow.
THOMAS: -- their World Cup, and they are out of this event. Extraordinary stuff here, Paula.
NEWTON: Alex, I can't see it but I can hear it. Ruben (ph) Cani is on fire with this. And, Alex, thanks so much for that update. We will
wait for more post-game for you. Appreciate it. Now, after the break, also another magic moment from Australia's Tim Cahill, but it wasn't enough
to beat the Netherlands in the World Cup. We'll have highlights from the best games so far.
(COMMERCIAL)
NEWTON: Well we already told you about Spain's shocking World Cup exit. That wasn't the only drama in Brazil today. Earlier, the
Netherlands beat Australia 3-2 in one of the best games so far. A spectacular goal from Australia's Tim Cahill made it 1-1 in the first half
- a brilliant volley that came off the cross bar. Australia then took the lead from a Apountie (ph) but the Netherlands came back quickly thanks to
Robin van Persie and Memphis Depay. This has not been a let-down at all in that World Cup. This -
END
