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Quest Means Business
Investigating the Russian Plane Crash; San Francisco Votes on Airbnb; Taxi Industry Fights Back on Uber; Sparking Winter Tourism to NYC; Tesla Stock Rallies after Results; Mixed Session for European Markets While U.S. Stocks Close Higher; Activision to Buy Candy Crush Maker; Google Plans Drone Deliveries by 2017; Saudi Economy under Pressure; Profitable Moment. Aired 4-5p ET
Aired November 03, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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RICHARD QUEST, CNN HOST: Veterans ringing the closing bell at the New York Stock Exchange. The market is higher toward the closing bell. Oh, that's
what you call an honorable robust, one of the best on Tuesday, November the 3rd.
Tonight Egypt's tourism minister promises an honest, straight forward and independent investigation into the Metro Jet plane crash.
Voters in San Francisco could close the door on Air BNB.
And Activision satisfies its sweet tooth. $6 billion for something called Candy Crush. I'm Richard Quest live from London where tonight I mean
business.
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QUEST: Good evening. Tonight there is a new clue in the crash of Metro Jet flight 9268.
A U.S. official is telling CNN a military satellite detected a heat flash in midair just before the Russian airliner was lost over Egypt's Sinai
Peninsula. Now it would suggest some form of catastrophic in-flight event. I mean explosion is the word that comes to mind. Whether or not you're
talking military is another matter. A missile has pretty much been ruled out by all the military experts.
Interfax, the Russian news agency is reporting uncharacteristic sounds on the voice recorder that recorder is being analyzed at the moment with
Egypt, Russia, France, Germany, and others. It might explain why the pilots didn't send an emergency signal, if there was a sudden emergency - sudden
explosion, either by detonation or by say for example fuel tank explosion.
Now Egypt's Tourism Minister Hisham Zazou, told me the Egyptian authorities are guaranteeing a straight forward investigation.
(BEGIN VIDEO CLIP)
HISHAM ZAZOU, EGYPTIAN MINISTER OF TERRORISM: Two black boxes was retrieved. Today they're starting the committee on the findings out of this
black box. So the activity to know exactly what happened started today in Cairo with all the stakeholders around there. So I expect in the coming
days I hope something will transpire out of these investigations.
QUEST: Are the boxes being read in Cairo or are they going somewhere else to be read?
ZAZOU: No. They are in Cairo because that's the (Chicago) agreement where the place the accident took place; the country in charge takes care of
this.
QUEST: Right. But -- so Egypt has the technology for decoding or downloading the information from the black box?
ZAZOU: Yes, it does. And the other stakeholders like Airbus and Ireland where it was registered, the aircraft, everybody and the Russian side are
there in Cairo witnessing all this happening.
QUEST: There are reports U.S. satellites say that they saw a heat flash, an explosion. Do you know anything about this?
ZAZOU: No, sir, I don't. And this way off trying to put things in a certain fashion. I'm not too happy about. Do not rule also a mechanical or a
technical default. Do not rule it out.
QUEST: A difficult question to ask you, but I'm going to ask you straightforwardly. Can you assure us that the investigation will be
independent, without political interference and will be designed purely to find out what happened? And if - and if the roads lead somewhere
unpleasant, then so be it?
ZAZOU: Definitely so, sir, at least from the Egyptian perspective. I guarantee that from the Egyptian perspective. Honestly, straight
forwardness, independent, very academic in that sense. And whatever findings come out, Egypt will declare it.
QUEST: Even if they are unpleasant for Egypt?
ZAZOU: We can't hide anything, sir.
QUEST: Let's talk about the question of security at Sharm. Even before we know there are questions of whether an explosive device could have been put
on that plane at Sharm. Are you looking into these allegations in Sharm?
ZAZOU: Well, what I can tell you is in the past few years, actually the past two years we heightened our security measures. We're revising it all
the time among all the relevant party, ministry of defense, interior. Even like the British Ambassador in Cairo. Always in contact with us. And we
received the delegations very openly from all over, security delegations to ensure that we are up to date with whatever needed to ensure the safety,
welfare of our guests into the country. This is taking place all the time until this very day.
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QUEST: So you haven't felt the need to up that or increase it in the last 24, 48 hours?
ZAZOU: We're revising it, reviewing it all the time, whatever needed for additional thing that takes place. Until now, we're in conformity with all
the -- our guests from whatever source markets we receive guests from. They're accepting the measures that we have at the moment.
QUEST: All right. Now on to your business. The numbers were just coming back on there, the numbers have been very strong in Egypt. Are you worried
that this is going to cause people to stay away?
ZAZOU: Worried on the short-run because the media is handling this issue that happened a couple of days ago, this plane crash, and this of course
might deter people from taking a decision now. On the longer - or shorter or longer term, I'm not worried because I believe the findings hopefully
will be to our favor. I hope so. And in that case we move into the recovery as fast as we can.
(END VIDEO CLIP)
QUEST: So as we wait for some definitive answers, we're slowly learning more about the victims. So far Russia says 19 of them have been identified.
Matthew Chance has this report from St. Petersburg. I beg your pardon. We'll have that report for you in a little bit later.
First of all we go to Barbara Starr at the Pentagon. And Barbara, we have seen in the last few moments, the last hour or so reports coming out of no
explosive residue, or no explosive on the bodies of those who have already been forensically examined, of those passengers. Does that - I mean are
they talking here about detonation explosives versus say an explosion or burns from, say, a fuel tank?
BARBARA STARR, CNN PENTAGON CORRESPONDENT: You know, I think that's a really good question, Richard, and it brings us back to what you know
better than anybody. In these situation, you know early information is early information. They really have to go through the investigatory
process, look at all the forensic, and really conduct a thorough look at all of this. And it can take weeks, if not months.
What U.S. officials are telling us is they want to know what happened, because they want to figure out is there -- is there in fact some
structural safety, mechanical issue in this type of Airbus aircraft that nobody is aware of, and they need to know, of course, to continue to keep
Americans' sky safe.
Alternatively, if indeed it was some sort of terrorist act perhaps and nobody knows, they want to find out as fast as possible who is behind it.
Who had the capability to tamper with an airplane, get a device on board whom might have done it? Where was it put on board? Because, again, it
comes back to keeping everybody safe, all airliners, all skies. This is the big driver. And right now we are seeing, as you point out, very early
reports. But I think you'd agree, there is a lot of work to be done here.
QUEST: Yes, absolutely huge amount. And it starting to look as if no one aspect, cockpit, voice data reporter will be conclusive. It's going to be
the classic air investigation jigsaw. But Barbara, is the U.S. playing a role in all of this? Now of course they are entitled to (inaudible) fact
that they were the manufacturers, the U.S is the state of manufacturer of the engines, but this at the moment is an Egyptian-Russian led operation
which is as it should be with the French and the Germans. Are the U.S. feeling left out?
STARR: Well, the White House said today they had offered any assistance to the investigators. They haven't taken them up on any of it yet. Absolutely
right, of course. The U.S. National Safety Transportation Board would have the so-called right to look -- to get into the investigation because the
engines are manufactured in the United States.
Behind the scenes, perhaps the question is and we don't know the answer, are U.S.-Russian, and Egyptian intelligence services right now behind the
scenes sharing any information about potential threat streams, about potential dangers, about potential security problems. That would be one
area in which they could coordinate if they decided to. And of course the civil aviation authorities of all the countries involved. What do they know
about potential problems.
Is there anything in the history of this aircraft that some other civil aviation authority would look at and go ah-ha. We've seen something a
little bit like that. We have something to offer that you might want to look at.
QUEST: Barbara Starr who is at the Pentagon for us this evening. Barbara, thank you.
STARR: Thank you.
[16:10:06]
QUEST: As QUEST MEANS BUSINESS continues tonight. The taxi industry, it's rallying for a last ditch fight against Uber.
Whilst Air BNB is spending billions to fend off tighter regulations. It's the sharing economy. Is it under a threat or is it to be have a big boost?
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QUEST: QUEST MEANS BUSINESS in London tonight.
The sharing economy is facing a major test in San Francisco. A vote is under way that could force a crackdown on Airbnb. Now valued at $25
billion, these are the painted ladies, the famous houses in San Francisco. Airbnb operates in more than 190 countries, and there are signs of trouble
in its very own backyard.
According to the latest, the San Franciscans are voting on something known as proposition F. That would restrict every homeowner to a maximum of 75
days a year of short-term Airbnb style rentals. Remember, many places have restrictions of three months or six months. But this would put a general
restriction in San Francisco of 75 days a year.
To put this in perspective of why this is so relevant, there are at least 10,000 properties, 10,000 for short-term rental in San Francisco. And you
can pretty much guarantee some of them are unauthorized by local ordinance or by lease.
The city faces a major housing shortage, and there are serious questions about lower and middle classes being forced out, especially from expensive
areas like where the painted ladies are. The critics say Airbnb is keeping landlords from renting out the properties full time because they can make
more money on short-term rentals.
But if Prop F passes, the biggest impact would be on Airbnb as well. Also it would hurt VRBO, it would hurt parent company of Homeaway and Flipkey
owner by Tripadvisor. It's going to be a major ordeal.
Protests have turned fiery in the city by the bay. On Monday, a group of activists stormed Airbnb' headquarters. They chanted stop the evictions,
stop the greed.
Joining me now is Dale Carson, he's the co-founder of Share Better San Francisco, a coalition that is supporting the measure. As you go into this,
Mr. Carson, where does the voting look like it's going to go? Have you got it in the bag?
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DALE CARSON, CO-FOUNDER SHARE BETTER SAN FRANCISCO: I wish we had it in the bag. Airbnb is spending $10 million to defeat proposition f. That's about
25 times more than we've been able to raise.
And they're spending that money, and they're trying to defeat Prop F not so much because of the limits it puts on individual homeowners renting extra
rooms or renting the entire place while they're away for the summer, but because Proposition F says if Airbnb continues to list units that are not
registered with the city and units that are illegal, Airbnb gets fined.
And that is - that goes right to the heart of their business model. Airbnb has 7,900 hosts in San Francisco. But the city has only registered 700 of
them. So we have an enormous problem.
QUEST: You've got this problem. And here is the difficulty that critics like yourself face. Whilst you may have legitimate concerns against Airbnb
and its ilk, the reality is with travelers, and in many case homeowners, it's very popular. So how do you square that circle to allow a certain
level of Airbnb-ery but at the same time deal with the issues that are clearly very real.
CARSON: Well, we do allow a certain level of the activity. I mean we -- Proposition F does not ban someone from renting an extra room.
It doesn't ban someone from renting the entire house. It simply says as the current law requires, you must be registered with the city. That
registration number is supposed to appear on your ad with Airbnb. But there is nothing in the law that prevents Airbnb from listing unregistered units.
You know we have classes of units that are prohibited by the current law from being used as short-term rentals. For example, if a unit has been
developed with public affordable housing funds, and is intended to remain a below market rate home or apartment, it's not supposed to be rented on a
short-term basis.
Airbnb lists them anyway. Airbnb will list units over the options of the property owner. And when property owners call Airbnb and say I don't want
this going on in my listing, take down the listing, cancel the bookings, Airbnb refuses to do so. So we've got to give Airbnb some skin in the game.
We have to give the city an ability to hold them accountable for some of the activity that they're doing.
QUEST: Airbnb of course, and I've done numerous stories with them say listen, we are merely the middlemen. We are merely the -- we protect
obviously homeowners against damage. We have insurance policies for that. We obviously are quite keen to be conscientious in the way we go about our
business. But at the end of the day, we are the peer to peer middleman between the renter and the homeowner.
CARSON: Yes, I know that's the image that they like to project. But the reality is much different. They are actively recruiting people to list
their homes and their units on Airbnb. Just last night, Richard, they held a meeting at their headquarters inviting potential new hosts to come in and
learn specifically how to evade San Francisco regulations and to evade a landlord's objections. Now that is not a passive platform that's just out
there trying to help the middle class and help middle class homeowners. That's a company that's aiding and abetting illegal activity. And it's got
to stop.
QUEST: Sir, Mr. Carson, thank you for joining us. We'll talk more about this as it develops. It's one thing in which we can be certain is not going
away.
While Airbnb tries to fend off tighter regulation, Uber is beefing up its war chest to see off the competition.
The ride sharing firm is looking to raise another $1 billion in funding. Uber's being challenged by companies with similar business models. We are
familiar with Lyft. You're familiar with Gett. And now there's the established taxi industry doing all it can, thank you, to fight back.
Karhoo is set, remnants of yahoo, Karhoo is set to launch a taxi comparison app next year. The startup is working with operators here in London and New
York.
The firm is gaining speed. It's raised $250 million so far. The Karhoo Chief Executive, Daniel Ishag is with me. Good to see you, sir.
DANIEL ISHAG, CHIEF EXECUTIVE, KARHOO: Thank you for having me, Richard.
QUEST: So what is your -- where are you different? I mean you are a comparison. So let's say I want to go -- when your - when your gadget is up
and running, I want to go from here to Heathrow Airport tomorrow. Why is yours different to say Uber or getting a black cab outside?
ISHAG: Well, Karhoo is really a game changer. It brings together both private hire and licensed taxis in one convenient app, enabling the
consumer to have more choice than they've ever had.
[16:20:10]
QUEST: So what will it show me? It'll show me the price of a private cab? It'll show me the price of a - of a
ISHAG: Exactly. We have all the brands you would expect. In England we have everyone from Addison Lee to Com Cab, as well as your favorite local
operator.
In New York we're coming out of the gate with over 28,000 cars, which is unprecedented, including 10,000 yellow and greens.
QUEST: And what do I then just select which one I want and then the order goes through?
ISHAG: Yes. You have the choice to not only pick the nearest car to you but the brand that you want at the price that you want. One of the fundamental
other differences is we also allow pre-booking not only once, but you can book your next five cars for the next five days you so choose.
QUEST: And what about surge pricing? Our old friend, surge pricing. Are you going to be involved in that? And if you're not, what about if some of the
companies you're dealing with are involved in surge pricing?
ISHAG: We only offer fixed pricing giving the consumer absolute clarity. We're completely transparent.
QUEST: So you're an aggregator really - you're an aggregator rather than a provider in your own right.
ISHAG: Absolutely. We do not operate a network of cars. And because we don't operate a network of cars, it enables us to partner.
QUEST: Hold on. So now we're getting back to the sort of Airbnb, peer to peer. You're the man in the middle.
ISHAG: We are - well, yes, in many ways. We only operate with licensed accredited fleets, enabling the consumer to have as much choice possible.
But the real big benefit of what we is do is we can add hundreds, if not thousands of cars at a time at the flick of a switch, as opposed to a peer
to peer network which has to add cars one by one.
QUEST: Can you compete with an Uber that raises a billion? You've got 250 million.
ISHAG: The fact that we're coming out of the gate with over 200,000 cars with three to five-year choose exclusivities is absolutely unprecedented.
So the answer is absolutely. We offer freedom and choice, and that's what it's all about.
QUEST: Will you still -- in three years' time, you'll either be much wealthier than you are now or you won't be in business. But will you come
back and took me anyway?
ISHAG: I very much look forward to it. Thank you for having me Richard.
QUEST: That's the deal. From ride sharing to iconic New York cabs.
Why the Big Apple says tourists should come fill the streets when they're covered in snow. Quest Means Business.
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QUEST: Now look at that. Sight of New York where we'll be back tomorrow. Central Park in the autumn colors. This is a live picture by the way of New
York at this hour. And when you think of Thanksgiving and Christmas, not surprisingly, this is the time to be visiting in New York, New York at this
time of the year.
But when you dream of a holiday in the dead of winter, a lot of us probably think of a beach in Barbados or skiing in the mountains. Well, now New York
wants to be right at the top of the list at the worst time of the year. At the world travel market in New York -- London, New York tourism chiefs have
been listing the joys coming to New York at the time of the year when this isn't there.
For instance, first of all, cheaper hotel rooms. Now, if you want a room at the Waldorf in November, it's $612. You come in February, $342. And there
is a certain beauty, maybe an elegance to Manhattan in the snow, provided it is not so much snow that you can't go anywhere.
And the Guggenheim, the Met, all the big museums. More elbow room at the sights and museums. So this is why New York and company, NYC & Co is
starting a new campaign which they're beginning in February to visit the Big Apple. I asked the man whose got the job of marketing what tourists
stand to gain by coming in the chilly season.
FRED DIXON, CEO, NYC & COMPANY: The hotel rates can drop on average 22%. So it's a good time of year to come to New York, particularly if affordability
is on your mind. Because you have a great experience in the city, and it's more accessible, it's a little bit less crowded.
QUEST: But anybody who's traveled knows that the natural forces of economics bring down airfares and hotel rates during the shoulder season.
So what can you bring extra to that as part of a campaign?
DIXON: That's a great point. And it's really all about inspiration for us. That's what we at NYC & Company focus on is inspiring travelers to come to
New York and to fall in love with New York and come back often and explore widely. So we're really focusing on all the special features of New York in
the wintertime that we know from living there. The coziness, the hidden gems, the access that you can have to the museums when they're less
crowded. It's quite a big idea. And we're really having a great time launching this week. It's getting great response.
QUEST: Some people might arguably say you don't need to sell New York, Fred. It's the world's most famous city maybe after London. You don't need
to sell New York.
DIXON: Yes, it's a great thing to be able to say about your brand.
QUEST: Yes.
DIXON: But the truth is is that it's a very competitive globe, as you know. Tourism is big business. Destinations around the world are investing
heavily. And New York, like London has been well-positioned for a long time. But we have to make sure that we stay - that we stay that way.
QUEST: How concerned are you that aside from the shoulder season which you're promoting now, in many parts of the rest of the year, it is becoming
exceptionally expensive to be in New York. Fares are going up, but hotels are through the roof.
DIXON: Yes, well we've had an enormous development pipeline for a hotel product. So it's actually kept the hotel rates somewhat on balance compared
to other parts of the world. We've added 40,000 hotel rooms in the last seven years. The demand has kept up with the supply. So rates have held
pretty well. But all in all, New York is more accessible and really more affordable year-over-year than it has been in quite some time because of
that influx of new hotel inventory.
QUEST: There is something rather delicious talking to the head of NYC & Company, whilst in London at the World Travel Mart.
U.S. automakers are rolling out some impressive sales figures while the misery continues for Volkswagen.
We're going to talk about that as QUEST MEANS BUSINESS winds its way on a Tuesday.
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RICHARD QUEST, CNN HOST: Hello. I'm Richard Quest and there is more QUEST MEANS BUSINESS in just a moment. When Activision satisfies its sweet
tooth, it's got a $6 billion buy. And in Saudi Arabia, the impact of cheap crude goes beyond the oil industry.
Before that, this is CNN. And on this network, the news always comes first.
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(BEGIN VIDEO CLIP)
QUEST (voice-over): A Pentagon official is telling CNN that a U.S. military satellite detected a midair heat flash from Metrojet Flight 9268.
The Russian airliner plunged, crashed into Egypt's Sinai Desert on Saturday. It killed all 224 people on board. The new data suggests a
catastrophic event occurred before the crash.
A former Uber driver in India has been sentenced to life in prison for raping a female passenger. The incident in New Delhi last December sparked
protests and caused the trial to be fast tracked.
UNIDENTIFIED MALE: (INAUDIBLE) society that we all are safe. And if we are going to commit anything wrong, then it will be handled like this.
QUEST (voice-over): The Iraqi politician Ahmad Chalabi has died at the age of 71. Chalabi was a strong advocate for the 2003 U.S. invasion when
Saddam Hussein was in power. And he supplied intelligence to the U.S. about the Iraqis' supposed weapons of mass destruction. That intelligence
was later discredited.
Israeli lawmakers have approved a law that imposes minimum 3-year prison sentence for stone throwers. Supporters say it's necessary to deter
Palestinians from using rocks as weapons.
Those convicted will have their state benefits removed. If they are children, their parents' benefits will be halted. Critics say the law will
only inflame an already tense situation.
Yemen continues to take a battering from Tropical Cyclone Chapala, which hit the country earlier on Tuesday. It's the first tropical storm on
record to make landfall in Yemen. There are concerns the heavier rainfall could lead to landslides.
(END VIDEO CLIP)
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QUEST: Now we have a variety of earnings in to CNN at this hour.
(BEGIN VIDEO CLIP)
QUEST (voice-over): Tesla Motors has reported a third quarter adjusted loss of --
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QUEST (voice-over): -- some $75 million. That's around 58 cents a share. Revenue is up 33 percent to more than $1.2 billion. The stock is higher in
after-hours trading.
And Detroit's Big 3 look like they've just had their best October sales performance in some 14 years. The three of them have all put out initial
numbers.
Look at that, for last month. And we're seeing double-digit growth compared to this time last year. Ford up 13 percent. Chrysler up 15
percent. General Motors up 16 percent. And the shares of all three ended the day higher.
So how did the market and the broader market close?
Up just half of a cent. But look at this. We're nearly 18,000. I'm guessing and somebody will tell me before I finish, we're only a couple
hundred off an all-time high now, which just proves what happened in the summer was a summer blip in many ways. Up 90-odd points, 17,918, 18,000,
who knows, by the end of the week.
Paul La Monica joins me.
Paul, when we look at these numbers from the car companies, start with Tesla.
Still making a loss but they don't really mind that, do they?
PAUL LA MONICA, CNNMONEY DIGITAL CORRESPONDENT: Not at all. I don't think investors are too concerned just yet about the amount of money that Tesla
is losing because it's still a relatively young company.
The stock, the reason it's probably up after hours is because the deliveries, the number of cars that Tesla will deliver by the end of the
year, their guidance is pretty much in line.
And Wall Street had started to worry because Elon Musk had talked about the possibility that the Model X, the hot new SUV, they might not be able to
meet demand. It looks like they probably will.
And they also said that the Model 3, that's the quote-unquote "cheaper" Tesla that is going to be coming out in a few years, they're going to
unveil it in March of 2016. So we'll get a first look what that car will look like.
QUEST: And when we then factor in the three automakers, double-digit growth, Ford up 13 percent, Chrysler 15 percent, GM 16 percent, is that
predicated to continuing by low interest rates, better economic growth, more employment or are there other factors, new models, sexier cars?
LA MONICA: I think you do have it's a combination of both. Obviously low interest rates have helped from a financing standpoint. But because gas
prices have remained so low, that has fueled, if you will, bigger demand for larger cars and trucks -- Jeep from Chrysler, in particular, really
strong sales there.
And it's not just Detroit's Big 3. Honda, even though it's got a bit of the scandal because of the Takata air bags, sales were up almost double-
digit there. And you did have double-digit increases at Toyota and Nissan. The only major auto company that didn't do well in the U.S. was Volkswagen.
QUEST: Right. But was that because of.?
LA MONICA: The scandal? I think that is certainly part of it, even though diesel vehicles are not nearly as popular in the United States as they are
Europe. And Volkswagen is not really a leader in the U.S. market the way those other companies are.
QUEST: Paul, we need to finish. I want to show the Dow Jones again if we may. It's up two strong days in a row; 18,000 is around the corner and it
begs the question, we know -- well, with the strong view of Fed rates going up. But this market seems, seems -- and you disagree with me -- to have a
momentum.
LA MONICA: The market definitely has momentum. Whether or not that is maintained, I think a large part of that is going to depend on that jobs
number we get on Friday. If we get a good number, I don't know how the market is going to react. The Fed could then finally raise rates and that
might freak people out.
But hopefully good news will mean good news for the markets. Hopefully we get a good jobs number on Friday and the rally continues regardless of what
the Fed does next month.
QUEST: Come prepared on Friday to say yea or nay for a Fed rise.
LA MONICA: I will be here. And it sounds like you will be back as well.
QUEST: I'll be back. I'm flying back to New York tomorrow. Paul, thank you.
Mixed day for the major European markets. Paris and London managed just modest gains. Frankfurt and Zurich closed, they were just basically flat,
quite literally flat, if you look at those numbers.
Two European banks fell on more bad news from the region's lenders. Standard Chartered announced it is cutting 15,000 jobs, Standard Chartered
down nearly 6.5 percent. The company -- the bank announced a third quarter operating loss, although UBS posted better than expected profits. Now the
traders focused on its admission it would take longer to reach profitability because of the host of headwinds.
So as a result, both of them, one obviously down in the U.K. -- in the London market, the other in the Swiss market. But the fascinating part
with these banks, of course, is it just compounds what you and have I been talking about over the last few weeks --
[16:40:00]
QUEST: -- whether it was with BNP, Paribas or it was at Barclays or the other banks.
Candy Crush: now I'm not a devotee of Candy Crush, I can't actually say. I must be the only person in this building who hasn't played it. Everybody
else is sort of obsessed and addicted to it. And now Candy Crush itself has a new owner, who has paid an extraordinarily large amount of money.
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QUEST: In the last hour, Zynga, the maker of the game, FarmVille, says its chief financial officer, the CFO has stepped down. Now David Lee only
joined Zynga last April. He joined from Best Buy. Zynga's chief accounting officer will take over in the interim. It's an extraordinarily
short period of time.
FarmVille, of course, you'll be well aware, has had its difficulties in the question of which way is Zynga going to be going in the future.
Quite a very different tale with Candy Crush, which is King. The company that makes Candy Crush costs $5.9 billion. That's what the gaming company
Activision Blizzard is paying to take it over.
Now Activision is best known for video games like Guitar Hero and Call of Duty. It didn't and doesn't -- until now -- have much of a stake -- I do
love these noises -- in the mobile game business until now.
Shelly Palmer is host of "Shelly Palmer Digital Living," joins me now from New York.
UNIDENTIFIED MALE: Delicious!
QUEST: Thank you, Mr. Palmer.
Am I the only person who doesn't play Candy Crush?
SHELLY PALMER, HOST, "SHELLY PALMER DIGITAL LIVING": Yes.
QUEST: Fine. I'm glad we cleared that up.
(LAUGHTER)
QUEST: This is a large amount of money.
It is overvalued for what they're buying?
PALMER: No, I don't think so.
You know, Richard, 475 million mobile users monthly, where else do you find it?
How do you buy it and what should it cost?
If you look at where other tier 1 tech organizations have spent their money and how they've thought about mobile and what a mobile future looks like,
if you need a mobile strategy and if you need to have a big mobile footprint really quickly, this is probably the right price or slightly
overpaying for something you can't build organically.
It does a couple things for these guys. It gives them a --
[16:45:00]
PALMER: -- predominantly female casual gaming audience. So it's a bigger market. It gives the a gigantic mobile footprint. And although the price
seems pretty steep, there are those, including myself, who say that's what it should cost because that's what they're willing to pay.
QUEST: Right. But it's so predicated on the game had the -- one thing we have learned in the digital era is that merely because you've got a hit
today, the longevity for the next iteration isn't necessarily there.
PALMER: By the way, past performance is never an indication of future performance in any business, especially entertainment.
But in practice, these guys are in a position with a large mobile footprint and a really good gaming organization. They've built a yellow brick road
to Activision Blizzard that says, if you have got a great game idea, come to us. We've got cash. We've got distribution.
And so, yes, it's about the next hit. But they're certainly positioning themselves to take advantage of anything in the marketplace that could make
them some money.
And they don't necessarily have to home grow that hit, Richard. They can go buy it.
QUEST: You're getting poetic, following yellow brick roads.
Why has David Lee gone from Zynga?
FarmVille is in a certain amount of trouble.
But to join a company in April and then leave now?
PALMER: Well, know when to get out. By the way, the definition of a rich genius versus a broke genius, a rich genius is six months ahead of their
time. A broke genius is two years ahead of their time. Timing is everything.
Zynga could have been King. Rovio could have been King. As it turns out, King Digital is King Digital.
Why did he leave?
You should ask him.
(LAUGHTER)
PALMER: At the end of the day there is only one casual gaming company that was worth $5.9 billion today and we know who they are.
You know who they weren't?
They weren't Zynga and they weren't Rovio. You can fill in the blanks yourself.
QUEST: You are a hard man, Mr. Palmer, when you have got your teeth into something. And I can't be the only person who has never played Candy
Crush. Shelly Palmer, joining me from New York.
Buyers are in the air at Google, it's the sound of an approaching fleet of drones. Google says it plans to start using drones in the next couple of
years.
It says -- Google's phrase -- "We hope we could be operating a delivery service with our wing vehicles by 2017."
I love the phrase wing vehicles as opposed to motor vehicles.
A Chinese company called DJI accounted for more than two-thirds of the consumer market for zones. Kristie Lu Stout went to Shenzhen to meet the
man behind the drones.
(BEGIN VIDEOTAPE)
(VIDEO CLIP, "SOUTH PARK")
KRISTIE LU STOUT, CNN ANCHOR: From being coveted by Cartman on "South Park" to crashing on the lawn of the White House, if you see a drone, it's
probably made by DJI. The company behind the distinctive Phantom is the leader in consumer drones, with an estimated 70 percent of the market.
But what you might not realize is that this industry pioneer is based in China.
UNIDENTIFIED MALE: We base our technology and our manufacturing and our R&D here in China because everything is much more accessible. Yes, quicker
developed product.
STOUT: Being based in China has its advantages. DJI can design a part in the morning, drive to it a nearby factory and have it manufactured that
afternoon.
STOUT (voice-over): And looser regulations than the U.S. mean it is simpler for DJI to get their drones in the air in China.
UNIDENTIFIED MALE: It is easier to go out and just test and fly here, whereas if you're in the U.S., you do have to get -- you have to get
licensing and all that to be able to do things commercially; that is one of our advantages.
STOUT (voice-over): The U.S. has begun allowing a limited number of companies to test commercial applications for drones. The U.S. is also
DJI's biggest market.
But according to one analyst, being a Chinese company could prove to be a problem.
UNIDENTIFIED MALE: It kind of blocks them out little bit from getting involved in any government projects because, for example, NASA is
prohibited from doing any work directly with DJI. So in the commercial world, where we'll see more and more aircraft being developed, the
disadvantage there is for DJI.
STOUT (voice-over): DJI has a commanding lead in the consumer drone market, making it one of a new wave of Chinese companies that are global
giants. And DJI says it is down to the company's history of innovation.
UNIDENTIFIED MALE: We've innovated with our Phantoms, with our Grown line, with our professional seminal (ph) line of equipment. And that just -- it
comes down to us being seen not as, you know, a Chinese company but as an international player.
STOUT (voice-over): Kristie Lu Stout, CNN, Shenzhen, China.
(END VIDEOTAPE)
QUEST: Saudi Arabia is feeling the squeeze as oil prices stay low; that much is happening throughout the economy. And so it's not only the oil
sector that is having troubles.
[16:50:00]
QUEST: We'll talk about that in a moment after you've enjoyed a moment to think about "Make, Create, Innovate."
(MUSIC PLAYING)
(COMMERCIAL BREAK)
(MUSIC PLAYING)
QUEST: Cheap oil is good for drivers and for car companies. It's not so good for Saudi Arabia. And the consequences are going beyond the oil
industry as growth in the private sector, excluding oil, slowed last month. It's now at its lowest level since 2009.
I beg your pardon.
John Sfakianakis is with me here.
My apologies for mangling your name; I tried.
JOHN SFAKIANAKIS, REGIONAL DIRECTOR, GCC, ASHMORE GROUP: You did great.
QUEST: You are the regional director of emerging markets at the investment firm, Ashmore; former chief adviser at the Saudi Ministry of Finance.
What is really happening within the Saudi economy as they battle this lower revenue but maintain spending?
SFAKIANAKIS: For sure, it's not always good news to see your main revenue going down by 50 percent. But having said that, Saudi Arabia is far more
resilient than people make it be from the outside.
QUEST: But there is no noticeable effort to cut back yet. I mean, there has been -- the government has made noises about it. But they're not
actually started to cut back on welfare, on spending, anything like that.
SFAKIANAKIS: Welfare, they cannot do it. They need to maintain the social safety net because we are in post-2011 Arab Spring; that has to be
maintained.
At the same time, the private sector is dependent on government spending. And they cannot just stop spending. Saudi Arabia is far better off than
many other countries and emerging markets -- Brazil, Russia, Nigeria, they still have huge reserve, more than 100 percent of GDP. And the lowest
debt-to-GDP in the world.
QUEST: So where is the strain in the economy coming?
SFAKIANAKIS: It's coming out of the oil price decline and people's perceptions outside that Saudi Arabia is done. What I'm saying is that
Saudi Arabia is far more resilient today than they were back in the 1990s, when they had far less foreign reserves and far less capacity to spend.
QUEST: So they can keep this, I mean, we're $48 a barrel or $45, $48 today.
They can keep this up for some time, you say, before the pain really hurts?
SFAKIANAKIS: Absolutely. They can do it for five, six years. They can still borrow from the international market.
QUEST: So where do they continue to hope the price goes?
Where will they be happy when the price settles?
[16:55:00]
SFAKIANAKIS: You know, this is a debate.
Does Saudi Arabia want to have oil at 40 and 50 to take out shale?
I heavily disagree that Saudi has the intention to take out shale. What Saudi Arabia wants to do is to have market share and then supply and demand
to take its fault and to control markets. Saudi Arabia wants to be --
So what price do they want, in a word?
There is no price right now. Whatever the market wants.
QUEST: Good to see you, sir. Thank you for --
(CROSSTALK)
SFAKIANAKIS: Great to see you.
QUEST: -- nice to see you.
We'll have a very "Profitable Moment" after the break -- QUEST MEANS BUSINESS.
(MUSIC PLAYING)
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment": I spent the last two days at the World Travel Mart here in London. It's an industry that arguably employs
more than 10 percent of the world's population. It is a vast industry in its own right.
But there is no overriding issue at the moment besides, of course, the usual sustainability, the question of COP, the question of environmental
issues, all of which will be dealt with.
But if you're looking for a single issue in the tourism industry, none really exists except one thing: where will China be in the future. Take a
look at the numbers and they are absolutely extraordinary.
As the Chinese middle class start to travel, they are going to be everywhere at all times. And the country that manages to unlock the
Mandarin key and unlock the future for the Chinese tourist, that is the country that will make the money.
And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see
you in New York tomorrow.
END
