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Quest Means Business
FIFA Accused of Whitewashing Report; Another Record on Wall Street; Russia's Growth Slows in Q3; European Markets Up; Crude Falls Sharply; Tomorrow Transformed: Virtual Wallets
Aired November 13, 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: Ah, they're ringing the closing bell. Good to start early, get the young ones on the balcony, learn about capitalism at
the heart of the New York Stock Exchange, and on a day -- Yes! Yes! Yes! They'll be a fourth one there. It's a record! The Dow is at a record on
Thursday, November the 13th.
Tonight, call it an erroneous whitewash, some would say. FIFA's report on World Cup corruption is slammed even by its own author.
Also, a new chapter for Amazon. It's publishing war with Hachette is over.
And transforming the business. Hasbro is looking to turn toys into movies.
We have a very busy hour together. I'm Richard Quest and, of course, I mean business.
Good evening. Call it a corruption investigation into the next host of the World Cup as it enters the realm of farce. Is it corrupt? Is it a
farce?
Well, football's governing body, FIFA, now appears to be at war with itself. An organization perhaps divided and in chaos. And all because
FIFA released a summary of a report that cleared Qatar and Russia of any significant wrongdoing in winning their right to hold the World Cup.
However -- and this is the point -- the man who actually carried out the investigation but didn't release the report says the version released
is a "distortion" of its findings. He says it's incomplete and erroneous. Serious accusations against FIFA, which published the report.
Eleven countries made the bids for the 2018 and 22 World Cup, and the statement FIFA released today accuses nearly half of them of some
wrongdoing. Have a look and see which countries we're talking about.
Now, they're the ones that were bidding. Now, of course, Qatar and Russia are the ones going for gold. They each won the right to stage, and
FIFA says that decision still stands. Qatar has welcomed --
(WHISTLE BLOWS)
QUEST: -- the report. Thank you. It says the report says the bidding process was not tainted, and Qatar supports sponsoring an African
football event for $1.8 million. FIFA said that created a negative impression -- in other words, a small difference, but nothing more. And
so, to Russia!
(WHISTLE BLOWS)
QUEST: Russia, there the investigators tried to look into Russia's conduct in the bid process, but FIFA admits it didn't get very far. There
were no e-mail recordings, the Russians said the computers that were used have been wiped and destroyed after the successful bid. So, Russia and
Qatar seem to be exonerated. Now, England, which led the case against --
(WHISTLE BLOWS)
QUEST: England is being forced onto the defensive, accused of trying to curry favor with FIFA executives. English officials sponsored a $55,000
gala dinner. The English FA has denied the criticism. And then, the United States.
(WHISTLE BLOWS)
QUEST: Thank you. The United States is clean in all of this, and so the FBI is assuming the role of the goalkeeper. It's announced it will
step up its own corruption investigation into FIFA. Those are the countries, that's the confusion. CNN's Don Riddell is with me.
DON RIDDELL, CNN SPORTS CORRESPONDENT: Thank you.
QUEST: What a business! You couldn't make this up, Don. You couldn't make it up.
RIDDELL: No, you really couldn't. And this situation certainly wouldn't exist in the real world, because of course, this isn't just about
what's happened today, this is about what's been going on for the last few years. FIFA appointing their own policemen and their own judge to look
into their own alleged misconduct.
QUEST: We need to -- let's dissect this. First of all, this report, the most damaging part about it is Garcia's comment that it's incomplete
and erroneous. He's basically saying they have misquoted him. But he doesn't say how.
RIDDELL: That's right. And he spent -- what? -- 18 months interviewing many senior FIFA officials. His report ran to about 430
pages. He actually wants the whole thing published. FIFA don't want that, so they boiled it down and condensed it into this 42-page summary today,
which he is very, very unsatisfied with.
QUEST: But FIFA must have known when they did the 42-page report exonerating Qatar and Russia that Garcia was going to be like the
proverbial jack-in-the-box, saying, oi! You got it wrong!
RIDDELL: Well, not necessarily. Critics would say that it's a bit late in the day for him to be calling out the whole process, because
actually, the process and the rules by which he conducted the investigation in the first place were far from satisfactory.
So, his hands have kind of been tied behind his back throughout the whole process, and he never said anything about it. But now, for reasons
we don't yet know at the 11th hour, he's saying hang on a minute, this process is flawed.
QUEST: Is the accusations against England just a good, old-fashioned bit of getting -- Blatter getting his own back to some extent, because
England led the charge against his last renewal. Is this just tit for tat?
RIDDELL: Well, quite possibly. I mean, England are, by their own admission, the biggest thorn in FIFA's side. They are the football
association who most consistently calls FIFA out on the way they run their business.
And so lo and behold, a report where people thought Russia and Qatar are under the most suspicion, somehow it ends up being England who are
embarrassed by this report.
QUEST: I always like in these situations to get sort of your expertise and experience in all of this. Because for those of us who don't
look at it that often or frequently, when you read this story today, having covered it as closely as you have for so many years, what was your
thoughts?
RIDDELL: Well, there were two stages to today. I wasn't at all surprised when the initial report came out clearing Russia and Qatar. Even
if there was any wrongdoing, I don't think people outside FIFA thought that they would actually hold them responsible.
But what really was surprising was Garcia's intervention. We don't yet know whether that's really going to change anything. FIFA, the
organization, still holds all the aces here. I'm not sure really that he has any power to actually get this report published.
QUEST: Stinks.
RIDDELL: It's -- yes, it does.
QUEST: Thank you.
RIDDELL: Yes. Can I ding your bell?
QUEST: No!
(RIDDELL RINGS BELL)
RIDDELL: Well, that's the ending of my segment. The bell's been rung. Good to see you, mate.
(LAUGHTER)
QUEST: Right. Michael Hershman is a member -- he touched the bell! Michael Hershman is a member of FIFA's independent governance committee and
a co-founder of Transparency International. He joins me now from London. Michael, does this stink to high heaven?
MICHAEL HERSHMAN, FIFA INDEPENDENT GOVERNANCE COMMITTEE: Well, it certainly continues to produce a cloud over the head of FIFA. FIFA can't
seem to drag itself out from under the suspicion of scandal.
QUEST: You -- you're being measured in your phrases, as I might expect, a man of your experience to be. But you have to admit, it's an
extraordinary situation when a truncated report is published, the longer report is not, and the man responsible for the investigation says it was
incomplete and erroneous.
HERSHMAN: We wouldn't be at this point if they published the entire report. I have called for the publication, Transparency International has
called for the publication. Many people have. But FIFA is somewhat reluctant to let the public see what Michael Garcia's entire findings were.
I might add, however, that the report, when I say to be published in its entirety, should provide for some protection for witnesses who came
forward. Their names should be redacted. But nonetheless, if the report was made public, we wouldn't find ourselves in this position today of
people questioning --
QUEST: Right.
HERSHMAN: -- the credibility of the report.
QUEST: We can go backwards and forwards, who said what, and this, but the reality is, FIFA won't care, and until the sponsors withdraw their
money, even though Emirates already has, until the others follow suit, nothing will change. We're a business program, Michael, and the rail
politic is, until the money speaks, nothing will change.
HERSHMAN: Well, I think you're quite right there. Although, I must say that FIFA has indeed changed. Many of the recommendations of our
independent governance committee were adopted by FIFA. But not all of them.
We recommended term limits, that was not adopted. We recommended independent exec -- ex co members. That was not adopted. So, the
compliance and governance process is still incomplete, and it really is up to the stakeholders. Sponsors, being stakeholders, should press FIFA for
complete reform.
QUEST: You're close to FIFA in the larger sense of the word, Michael, and I can hear viewers saying this evening, let's get it -- get down to
brass tacks here, as they say where I come from. What is it that we are seeing that FIFA doesn't. When FIFA looks at this, do they see the critics
as just a bunch of whingers who really don't see something they are?
HERSHMAN: Well, FIFA believes and has believed for many years that they deserve autonomy. That they are capable of self-regulation. They
have become an extremely powerful and independent organization. There is no governmental body, be it a law enforcement body or a regulatory body,
that oversees FIFA. It's clear now that FIFA cannot succeed at self- regulation.
QUEST: Right.
HERSHMAN: And somewhere, somehow, governments are going to have to step in, not to take away the complete autonomy from FIFA, but at least to
ensure that the compliance programs and governance standards are best practices. That has to be done for the good of the sport.
QUEST: Sir, thank you for joining us and your expertise and experience. We much appreciate it on QUEST MEANS BUSINESS tonight.
HERSHMAN: Pleasure.
QUEST: Markets, they closed with -- the closing bell rang just ten minutes ago. Another record high. Alison Kosik's with me from CNN in New
York. Alison, again, a record? What pushed it above this year? This day?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: This day? Again, a record. Walmart, believe it or not, helping the Dow pull of another record high.
Walmart reporting better-than-expected shares. We saw stocks dip in the red for a good part of the session today, but those better-than -expected -
- better earnings than expected certainly pushing the Dow in the green.
We also kept our eye on shares of Procter & Gamble. Those shares falling about 1 percent today. That's after Berkshire Hathaway it would go
ahead and buy Procter & Gamble's Duracell battery unit in a stock swap. Many investors interpreting this to show that Buffett -- Warren Buffett
would rather own Duracell than Procter & Gamble. Richard?
QUEST: And we thank you for another record one. Not that you personally were responsible for the record --
KOSIK: Too bad.
QUEST: -- but maybe you were, we --
KOSIK: Can I take credit?
QUEST: No.
(LAUGHTER)
KOSIK: Aw.
QUEST: Well, keep the studio warm. We'll be back next week. Thank you. Alison Kosik, who is in New York.
From the CNN Center this evening, it's QUEST MEANS BUSINESS. Western sanctions and cheaper oil are affecting the Russian economy. The question
is how deep and how far, and we'll discuss that in a moment.
(COMMERCIAL BREAK)
QUEST: Russia's economy is still growing for now. It's slowing, and new figures today don't yet show the worst of what's happening.
(RINGS BELL)
QUEST: Growth in the third quarter year-on-year is just up seven tenths of one percent. That slower growth, it was better than expected.
Apparently, the improved harvest cushioned the impact of falling oil prices and the Western sanctions over Iraq.
Now, Sergei Guriev is an economics professor at the Sciences study in Paris. He joins me now. We know -- we know that Russia is slowing. These
numbers confirm it. The real question is, and your estimation, how far do the sanctions bite still to come?
SERGEI GURIEV, ECONOMICS PROFESSOR, SCIENCES PO: Well, sanctions have already had an effect in the sense that while Crimea has become part of
Russia, eastern Ukraine is not yet part of Russia or may not be at all part of Russia in the coming future. In that sense, we see a slowdown in the
escalation of the conflict over the recent months.
But the sanctions have already made an effect on ruble, on growth, and the projections of Russian budget for the next year and for the three years
to come that Russia will be growing at 2.5 percent per year are definitely not going to be realistic.
So, we probably should expect zero or minus one percent next year. And therefore, they need to reconsider the spending and therefore, an
important challenge to Russian government: how to address the slowdown and lower incomes of Russian public.
QUEST: Right. Now, last night on this program, Andrey Kostin of VTB Bank described the bank as a hostage, being caught up in the geopolitical
situation. You either get killed or somebody has to bail you and pay you out. Why aren't business leaders making a stronger case to the government?
GURIEV: I think Andrey is right. I think his bank in particular is facing the very high cost of Western sanctions. In particular, his bank,
which is exposed to Western financial markets, will find a hard time roll over its debt over the next couple of years.
The same applies to, for example, largest Russian oil company, Rosneft, who needs to roll over something like $40 billion for the next
couple of years. And with the current sanctions, not even talking about possible future sanctions, this will be very hard to do.
Now, why they don't actually raise their voice against Russian foreign policy which costs them so much? Well, because it is dangerous, and we see
some Russian leaders who raise their voice are no longer in Russia, and some Russian leaders who even try to raise their voice are under house
arrest. So, this is a regime where you don't want to talk too much, at least in public.
QUEST: Right. So, the ruble has slipped, the currency is floating, the growth is slowing, there's likely to be more sanctions unless it
changes, and a worsening military situation. In this environment, do you believe Russia avoids recession or deepening recession?
GURIEV: Well, I think recession is very likely with the sanctions which are already in place. So, in a status quo scenario, sanctions don't
change, there are no more political disturbances, let's put it this way, no more foreign policy escalations. And even if oil price doesn't go further
down, then still, Russia is very likely to face recession next year.
But of course, if those risks that I mentioned realized, then the recession will be deepening. And yet, Russia still has reserves and the
floating ruble will cushion some shocks, mitigate some shocks. And in that sense, the disaster is not to come next year, probably next two or three
years rather than immediately.
QUEST: Well, since we're worried about what might happen in the next week and a half, we look forward to that, discuss it with you over that as
the time moves on. Thank you, sir, for joining us tonight from Paris. We appreciate it.
GURIEV: Thank you very much.
QUEST: On the question of oil, the price of crude slipped again. It's making life steadily harder for the oil producers, like Russia, but of
course is extremely good for countries which need to be net importers.
Europe's major markets pushed higher. The best gains were seen in Zurich, where the SMI gained the best part of 1 percent.
The price of crude in the United States has now slipped to less than $75 a barrel. And look at that dramatic -- dramatic -- fall, pretty much
since July of last year. If you want to know about why growth is so good in the United States and elsewhere that margin is one of the major reasons.
It's the lowest level it's been in four years, and the richest man in the Middle East is Prince Alwaleed bin Talal of Saudi Arabia. He says that
at this time, being so oil dependent is scary. Prices are falling to -- all year due to increased production in the US and Saudi.
The gut's likely to continue, and the prince has written to the government in Saudi, warning of the consequences. And he told John
Defterios what it would mean.
(BEGIN VIDEOTAPE)
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR (voice-over): From roads to housing, governments in the Gulf have gone on a massive spending spree
over the past few years. In fact, Gulf states are expected to spend more than $86 billion on infrastructure projects this year alone in what many
believe is a bid to stem political discontent.
ED MORSE, GLOBAL COMMODITIES, CITIGROUP: After the so-called Arab Spring, all oil and gas producing countries, whether they're in the Middle
East or whether they're in Europe, have had to provide more and more in the way of delivering goods and services to the citizens of those countries.
And therefore, their fiscal break-even costs, costs of running the government, have gone up.
DEFTERIOS: The Middle East currently spends around $240 billion in energy subsidies. But spending like this is not a problem for the petrol
states of the Middle East.
DEFTERIOS (on camera): Gulf producing countries have amassed savings of over $1 trillion, most of that coming over the last four years alone.
But if crude prices fall below $80 a barrel and hold there, the days of big-time spending may be numbered.
MORSE: These are countries that really can suffer tremendously. They're countries that have not taken advantage of the opportunity to
diversify the economy, and therefore has a disproportionately large amount of government revenue and trade flow revenue in the oil and gas sector.
DEFTERIOS (voice-over): In its latest outlook, the IMF has issued a stark warning to the region's oil exporters that now is the time to rejig
the balance sheets and cut energy subsidies. Iran needs a staggering $140 oil price to break even. Saudi Arabia needs a price just over $90 to
balance its budget. Qatar over $77. And the UAE around $70.
With all eyes on prices, economists say the decision by the Gulf oil producers, led by Saudi Arabia, not to cut supplies, is creating divisions
amongst the 12 countries of OPEC, with Gulf producers on one side and Iran, Iraq, and Nigeria on the other.
But if oil remains at $80 a barrel, all OPEC countries stand to lose billions of dollars. So, diversification and reducing the reliance on
crude is fast becoming a necessity, according to Saudi Arabia's Prince Alwaleed bin Talal.
PRINCE ALWALEED BIN TALAL, CHAIRMAN, KINGDOM HOLDINGS: As it stands today, 90 percent of our budget -- annual budget is dependent on oil. And
60 percent of our GDP is oil-based, which is very dangerous and scary. It's not correct. We have to diversify very fast.
And hopefully, this is an early warning for the government to really get the ship in order and begin proposing to the king some serious
alternatives for Saudi Arabia and to be less dependent on this commodity, which is oil.
DEFTERIOS: As Saudi Arabia looks to expand its non-oil economy by about 5.5 percent starting this year, it seems that many other oil
producers in the Gulf may also be looking to diversify.
John Defterios, CNN, Abu Dhabi.
(END VIDEOTAPE)
QUEST: Spending money. How -- what a wonderful thought. Well now, forget the cash and the plastic. Soon, there'll be no danger of losing
your wallet because there won't be any wallets. As Tomorrow Transformed, the way we pay thing will be convenient and secure. It will all be about
choice.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: You can think of it as perhaps another nail in the coffin of the traditional wallet as the number of retailers accepting Apple Pay has
grown on Thursday. In our series Tomorrow Transformed, we're going to examine the dramatic changes on how people pay for goods and services.
In other words, how plastic cards and PINs are being replaced even by smartphones and finger prints, never mind the cumbersome leather wallet.
Are they all destined to become just a memory?
(BEGIN VIDEOTAPE)
QUEST (voice-over): From paper to plastic, technology has revolutionized the way we pay. The credit card's magnetic strip changed
the point of sale with one swipe. Today, we are wading our purchases through the era of contactless payments with the help of an inbuilt chip
and antenna.
CHRIS KANGAS, HEAD OF CONTACTLESS PAYMENTS, MASTERCARD EUROPE: Contactless was founded on the principle of advancing convenience but also
achieving a high level of security. How can I move faster through a checkout line, how can I get into the Tube fast and easy?
QUEST: This advance in technology has paved the way for mobile payments. Starbucks, PayPal, and Apple offer digital systems that allow
retail store purchases with smartphones. Consumers can now rely on virtual wallets to negotiate their daily life without using cash or a card.
QUEST (on camera): The future will no longer be the smartphone in the palm of your hand. It may be something you wear on your wrist.
QUEST (voice-over): Barclaycard recently launched the bPay Band. It uses technology that can be built into other products, such as a key fob.
VAL SORANNO KEATING, CEO BARCLAYCARD: The consumers want the things that they carry and the thing that they wear everyday to do more for them,
including payments. As technology has given us more choices, we see more of a proliferation rather than a consolidation of payment types. It's
became an "and," not an "or."
QUEST: While new technology is making payments speedier, providers must convince shoppers that these transactions are safe. Apple Pay uses a
fingerprint sensor to validate purchases.
KANGAS: Biometrics is becoming a real part of transactions, which is something totally new in the world of payments at a mass scale.
QUEST: Whether it's a wristband using the wearer's unique heartbeat or a fingerprint scanner embedded into a card, added security features and
ease of use will be crucial to winning over customers with different needs.
KANGAS: Different places around the world have different attitudes about making payments. Imagine having your credentials stored somewhere in
a Cloud, in a server that's in a secure place. And maybe you're using your biometrics in a way that conducts the payment based on your unique physical
attributes. So, I think it's about choice and creating options for everyone.
QUEST: In the end, whether card or cash, the smartphone is changing the way we pay as Tomorrow is Transformed.
(END VIDEOTAPE)
QUEST: Which all, of course, raised the question in the office, we were talking about earlier, with all this smart card, wearables, credit
cards, what is the role of cash? @RichardQuest. Is cash dead, or is there still -- is it just old fogies like me that still like to have a few
dollars or pounds in my pocket just in case, because let's face it, if it all goes wrong, you'll need your cash.
When we return, a scuffle that forced readers to wait for the books. That scuffle is now over. It took seven months, the publisher of books by
Stephen Colbert and others has finally buried the hatchet with Amazon, and I do mean Hachette.
(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.
A new audio message that purports to be from the leader of ISIS has been posted online days after he's thought to have been wounded in a
Kurdish airstrike. The person on the tape claims to be Abu Bakr al- Baghdadi, and calls the international coalition against ISIS a failure. CNN cannot confirm the authenticity of the recording.
The medical charity Doctors Without Borders says it will hold trials of experimental Ebola drugs at treatment centers in West Africa next month.
The drugs are being rushed to the trial stage faster than usual due to the urgency of the situation. Ebola's now killed more than 5,000 people in
West Africa.
The FBI says it is picking up the pace of its investigation into senior FIFA footballing officials. It comes after football's governing
body summarized a report by its own corruption investigator, and the summary said it showed that neither Qatar nor Russia broke any rules in
their bids to host the World Cup. But, the man who wrote the report said FIFA's announcement was a distortion of his findings.
Russia has denied NATO's claim that it has crossed into Eastern Ukraine. A foreign minister spokesman said none of its military forces
were in that region. Against that, Ukrainian officials said there was a constant movement of Russian troops at the border.
I have little doubt you've heard of J.K. Rowling and James Patterson, authors of course, and both published by the publishing house Hachette.
Those authors and others at Hachette may be breathing a little easier this evening because a very nasty, very public battle between the publisher and
the biggest name in bookselling, Amazon.com, has ended. A senior media correspondent Brian Stelter joins me now from New York. This was a
disagreement, Brian, over the amount of money and the price at which Amazon sold books and therefore pushed down. So, who gave in? Is Amazon going to
pay more?
BRIAN STELTER, SENIOR MEDIA CORRESPONDENT: This is, you know, mainly as you're saying, we're talking about e-books, and it seems like both sides
found something to be happy with here. What's most important for Amazon and what they've really emphasized today is that this new deal with
Hachette, you know, after many months of fighting, will have financial incentives to keep the price of e-books down. Basically, the new contract
encourages Hachette to keep the price of e-books lower. Amazon struck the same deal with another publisher, Simon & Schuster last month. So Amazon
says it's making progress for what it wants, which is lower prices for e-books. Now at the same time, Hachette and Simon & Schuster both now have
control over their prices. So, yes, there are some financial incentives to keep costs down - to keep prices down - but let's say Hachette has some
really popular book that's selling like hotcakes. They can raise the price or lower it at their whim now.
QUEST: Good. Which begs the question, I mean, regardless necessarily of the details of this particular case - who in the larger scheme of things
where Amazon receives opprobrium for the way in which it behaved - the pressures it's putting. Who won?
STELTER: You know, these publishers feel Amazon has way too much power, and they're not walking away from Amazon. Think about when this
deal was struck - right before the start of the holiday shopping season. So Amazon knew they had Hachette in a bind here. I think in any case like
this, Amazon's going to come away feeling a lot like a winner, even if Hachette can live with this deal. Even if Hachette comes away feeling like
they've come out well, Amazon is by far the dominant location to buy books all around the world now. And that's going to be true and that's going to
make publishers uncomfortable even though they're able to reach a deal.
QUEST: We thank you for your dubitation. Thank you, sir, this evening.
STELTER: Thank you.
QUEST: Brian Stelter joining me from New York. A toymaker and a movie studio hope they can transform their futures and they want to do so
by teaming up. It would put the Transformers and Shrek - the two franchising coming together under one roof. Hasbro is the maker of
Transformers toys is reportedly in deals and talks to buy DreamWorks. That's the movie studio that owns Shrek and Kung Fu Panda. And as you can
see what happens if you put them altogether, you start to get some extremely weird connotations and combinations. The deal would give Hasbro
a film platform to leverage this remarkable and twisting stable of characters which also includes My Little Pony, Mr. Potato Head and GI Joe
and - that one.
As for DreamWorks, the marriage would allow the chief exec Jeffrey Katzenberg to sell his company at a potential premium. The stock's risen
more than 14 percent just on the news today. It would also allow DreamWorks to compete better with Disney's formidable line of characters
based on hit movies. CNN's Paul Lamonica joins me now to talk about what could be a storybook marriage. Paul, if this were to go ahead - if - and
we'll ask for your views on whether you think this is a deal that's really going to happen. Doesn't this go against what DreamWorks was set up? If
you bear in mind the original DSK (ph) DreamWorks and how they all came out of Disney and elsewhere, it was against this sort of thing.
PAUL LAMONICA, CNNMONEY: Yes, exactly, and that's an interesting mix and match of characters you have there - Optimus Prime and Shrek - it's
pretty funny. I think though that the deal does not make a lot of sense. When you look at Hasbro in particular, a lot of their most popular toys are
already based on licenses from film franchises. So Transformers - there's already a successful series of Transformer movies not made by DreamWorks
Animation. Star Wars is a huge license for Hasbro, and that's owned by Disney. So if I were Bob Iger, I wouldn't be too thrilled to see Hasbro
potentially exploring a deal that would make Hasbro a competitor to Disney instead of a partner. So I think there are many stumbling blocks to this
deal happening. And when you look at how the stocks did on Wall Street today, DreamWork Animation shares were up but they were well off their
highs by the end of the day. Hasbro fell more than 4 percent. So I think Wall Street doesn't think this deal makes any sense.
QUEST: It may not make sense, but if I hear what you're saying, the way it's moving, it's moving in the direction of completion - or at least
happening. And with that in mind, what do you think drives this deal?
LAMONICA: I think if the deal were to happen, DreamWorks Animation, it's no secret, that it's a company that needs probably a bigger backer.
DreamWorks has struggled since it went public with consistency. Shrek and Kung Fu Panda, Madagascar you mentioned - those are strong franchises, but
they've had a series of flops lately and this is not a company that has the same successful track record as Disney and Pixar which Disney owns as well.
So I think DreamWorks obviously wants a buyer and that's why Japan's SoftBank was reportedly in talks not that long ago to buy DreamWorks as
well. That deal fell apart. So I think with Hasbro, you have to be careful. The deal could fall apart here as well.
QUEST: Paul Lamonica. A deal that may happen and may fall apart. Thank you for joining us, sir -
LAMONICA: Thank you.
QUEST: -- from New York. Now, proving of course that we are just all over the biggest points in the economy, whether it's media companies like
Hasbro and Hachette or Amazon, to the biggest technology companies in the world - Cisco - and industrial companies like the General Electric. You're
going to hear from both next - the CEO of Cisco will be with me after the break.
(COMMERCIAL BREAK)
QUEST: Cisco shares finished more than 2 percent higher on Wall Street after its latest quarterly report. It's the maker of hardware for
the communications network. The bits that run the internet has said sales crept up to $12.2 billion. Now that was better than the market had
believed. Looking ahead, the chief exec John Chambers has been saying it will continue to be a battle to grow. It's a tough environment for the
tech at the moment, and the chief exec joins me now from San Jose in California. And it is always good to have you, Mr. Chambers, on "Quest
Means Business" to put this into perspective, sir.
JOHN CHAMBERS, CEO, CISCO: Richard, it's a pleasure. Please call me John that way I won't feel older and formal, and you and I've known each
other for a very long time.
QUEST: Well, John, God love it - lovely to have you on the program. Now, we can talk about your results `til the cows come home, but to a
certain point, what they're really telling us and what your statements have said is the difficulties for all tech companies at the moment to find
growth, to amortize growth and then to make it profitable growth.
CHAMBERS: Well, Richard, it says perhaps part of that at the top line. But if you dissect it and break it into pieces, we saw the U.S.
business grow 12 percent not counting service providers. We were one of the few companies that saw Europe grow 6 percent, and Southern Europe,
Richard, actually grew 20 percent. We had segments of our business like data centers growing at 15 percent, security growing at 25, wireless
growing at 11. And while we have a couple of headwinds, overall our business looks very good and I think that's what the market also
interpreted from our position.
QUEST: You have been extremely critical in the last few days on the question of net neutrality, John. This is the idea that all internet users
should be equal. And you suggest that net neutrality if enacted, or at least enforced, could hinder development. But surely we want a situation
where internet users are equal. Not he who pays gets better.
CHAMBERS: (LAUGHTER). Richard, I wish it were that simple. Let me if I can take the discussion up one level. It doesn't matter if you're
talking with Chancellor Merkel in Germany, Hollande in France, the President Cameron the U.K., Modi in India, President Pena in Mexico - every
country is about to become a digital country. That allows you to grow your GDP faster, it allows you to create jobs, it allows you to have smart
buildings, it allows you to do health care and education differently. You've got to build an infrastructure to do that which means broadband has
to be pervasive. So rather than dealing with the transaction - my parents are both doctors - don't focus on the symptom, i.e., net neutrality
concepts - focus on what is the underlying issue. You've got to get broadband built out. If you do not allow carriers to be able to get a
reasonable return on their investment, there will be no broadband build out. And in the U.S., we have grown our broadband -
QUEST: Right.
CHAMBERS: -- remarkably fast over the four or five years that have preceded this. Now for us to go to a voice regulation mentality of the
1950s, it makes no sense at all. It'd be a tremendous mistake for our country. Let's find a way we allow everybody to participate in the network
and have fair access to it, but also when you deal with your doctor by video, you don't want the video going down when the doctor says you've got
a problem. Or you're driving your car -
QUEST: Right.
CHAMBERS: -- over the internet or mining equipment, and all of a sudden because they internet is blocked with people watching videos, etc.,
your car wrecks. You have to deal with what the underlying issue here - it's about GDP growth, it's about the future of the countries.
QUEST: Well, if we're talking - let's stay with this big policy issue because it's fascinating, John, --
CHAMBERS: Sure.
QUEST: -- the other big issue in your area of course -
CHAMBERS: It is.
QUEST: -- at the moment is secrecy, privacy and the ability of internet, you know, what is the right role where government can demand
information from either ISPs or technology companies. Recently you'll be familiar with the statement from the head of British intelligence who says
companies involved in tech - modern technology - need to help more. They need to play a greater role in helping the authorities. Do you go along
with that?
CHAMBERS: Well, Richard, we abide by all rules and regulations everywhere in the world. Having said that, we're not a service provider.
So I've never been asked to give information to any government in terms of content or information about customers. What is important is government
has realistic views in terms of how they protect their country - I understand that. But I tend to be more one of privacy and security go hand
in hand, and that companies should not participate - other than when it's required by law in terms of that type of information.
Taking the bigger picture back, if you really look at where we're going as a company is we're going to become the number one company in
security. And to do that, we want every citizen and every individual to know that their information is confidential. So, I'm more of the European
view on this one in terms of privacy being such an important part of companies' and individuals' future.
QUEST: John, we need to have you into the studio or I need to come to visit you in San Jose where we can discuss these big issues face to face in
much more detail, sir. Thank you very much. Now, General Electric, another massive company on the industrial side - General Electric is
spending half a billion to search deep into the sea for new energy sources. The company today opened an ambitious (R&D) center. It's in Brazil. It's
the first one G.E.'s built in Latin America. The company has high hopes for what it can do in the field of finding energy deposits. The senior
vice president is Mark Little. He joined me from Rio, and I needed to find out why G.E.'s putting a center in Brazil.
(BEGIN VIDEOCLIP)
MARK LITTLE, SENIOR VICE PRESIDENT, GENERAL ELECTRIC: Brazil is a very important country for us. We probably do about $5 billion in sales
here. We have very important customers who need very significant technology. So we came here to be close to those customers, to work with
them, to create the technology that can get them more oil and gas, can make their airlines more productive, can make their railroads more efficient.
Great set of things going on here.
QUEST: G.E. is the company in transformation at the moment, and the way in which the consumer goods part has been sold off, but the new focus,
if you like, not - maybe not new - the greater - focus for G.E. How would you describe the Brazil - the Brazil project - in that greater focus?
LITTLE: Sure. We're shifting from being a company that was strong in financial services - more than half of our earnings came from financial
services - to a company that is still strong in financial services but it's heavily weighted on the industrial side. So you will see in the very short
term G.E. shifting to more than 75 percent of our earnings coming from the industrial side. Brazil has a strong industrial base, they have the
fundamentals to grow it, they have aspirations to get much stronger to invest in technology, and all of that plays right to where we want to go.
QUEST: It's funny we still use the word `industrial side' and we talk about `industrialization' and things like that, when, you know, companies
have big machines and people hitting things with hammers and large smelting pots. But really today's G.E. is a world apart from that, isn't it? When
you say industrial, you're talking about something different.
LITTLE: We're talking about things that people need that are fundamental - infrastructure kinds of things, machinery and devices that
can help them do that, services that help them get what they need. And when we talk about industrial things, we don't just mean machinery and
machinery-related services. We mean things like what we call the industrial internet. And by that we mean the internet that -- where
devices are connected. They can communicate, we can gather large amounts of data from them. We're betting heavily on software analytics. We built
a great center in San Ramon, California, there's an extension of it here in Brazil. We're developing local solutions for the oil and gas industry for
example. And those same solutions can go over into the health care space, into the aviation space - you name it. This industrial internet is a new
side of G.E. and a very important side for us as well.
(END VIDEOCLIP)
QUEST: Now, fascinating. You had Cisco and G.E. talking about the future. Well there was a time when this was not just an everyday
disposable item, but a high-tech material And as you're going to hear in a second, it made the difference between life and death. How the mass-
production of Kleenex helped save soldiers' lives in the trenches of World War I - the war of invention.
(COMMERCIAL BREAK)
QUEST: We almost take these for granted. It's the simple - some people might suggest - humble tissue that is nearly weightless and meant to
be thrown away. A century ago it was a very different kind of wonder material. This week, our series, the "War of Invention." We're looking
at the products that are only here today because they were invented, they were conceived, they were created, they were manufactured. Their life
began in World War I. Back then this was the material that could help save lives on the battle field. Paula Newton has the story of the ordinary
household product, the Kleenex, that did extraordinary things.
(BEGIN VIDEOCLIP)
PAULA NEWTON, INTERNATIONAL CORRESPONDENT FOR CNN BASED IN CANADA: Sheet by sheet, box by box, year by year, a global brand a century in the
making.
THOMAS HEINRICH, AUTHOR AND HISTORIAN: The Germans started using gas in 1915.
NEWTON: It was a new threat on the front lines of Europe - poison gas. Governments on both sides raced to find a way of protecting the
troops.
HEINRICH: They came up with the idea of developing sanitary tissue of some kind and they did this over the course of summer 1914. They called it
cellu-cotton.
NEWTON: `They' was Kimberly-Clark, at the time a paper company headquartered in Wisconsin. As the war broke out, they were trying to
diversity. Cellu-cotton came just in time.
HEINRICH: The gas mask filter material that Kimberly-Clark developed ended up being specifically geared towards gas. The Germans called this
G76 that was intended to make people vomit inside their gas masks. And this material that Kimberly-Clark the developed was specifically designed
to prevent that from entering the gas mask.
(SOUND OF GUNFIRE)
NEWTON: The war gave Kimberly-Clark a new product and purpose. But when the war ends -
HEINRICH: Kimberly-Clark sits on virtual carloads of this cellu- cotton stuff. They're trying to figure out what to do with it. Kleenex started off as a make-up remover in 1923.
NEWTON: Kimberly-Clark played into the hands of a newly health- conscious post-war generation. Kleenex was marketed as skin-friendly, even celebrity-friendly. By the late 1920s though it was clear the market was
heading in a new direction.
HEINRICH: They figured out that most people didn't use Kleenex to remove makeup. Was a lot more people that used it as a disposable
handkerchief.
NEWTON: And so at last in 1929, the first ever box of Kleenex facial tissues.
HEINRICH: Within really a matter of six months, they redeployed the entire marketing campaign. Really this is the product that carried
Kimberly-Clark through the Great Depression of the 1930s. Was a very reliable profit-maker for the organization.
NEWTON: From one box to a billion-dollar business.
GARY WRIGHT, KLEENEX SITE MANAGER: Our facility is about 33 acres under roof here. We produce close to a million cartons of Kleenex a day
out of here.
NEWTON: This mill in Connecticut is just one of 21 Kleenex sites worldwide.
WRIGHT: When the pulp comes in to the facility to when it can go out on a truck as a finished product would take about 45 minutes. You know,
you don't have to buy Kleenex. People need and want to have it in their home.
NEWTON: The marketing machine that began in the 1920s is still going strong as Kleenex faces more and more competition.
HEINRICH: I think the marketing genius really of Kimberly-Clark was that they were the prime movers. They were the first ones to introduce
these products. That made it possible for them to introduce their brand name as a generic name into the America consumer vocabulary.
NEWTON: A small piece of everyday life written into language and history. Paula Newton, CNN New York.
(END VIDEOCLIP)
QUEST: Magnificent and another example of necessity being the mother of invention. A "Profitable Moment" next.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." On this program we told you about the accusations and the denials and the report from FIFA that says
that there was nothing wrong with the way Qatar and Russia got the World Cup. Well I'm not qualified to say one way or t'other whether or not
everything was aboveboard, in ship shape and bristle fashion. What I do know is that when the man who does the investigation says that the final
report is erroneous and doesn't reflect that which he found, then something smells. And that really is all you need to know about the FIFA debacle
tonight - something smells. I don't say that -- the man who wrote the report does. 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) hope it's profitable.
END
