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Quest Means Business
Maduro Closes Border with Brazil Ahead of Planned Aid Deliveries; Trump and Kim Jong-un to Start Second Summit with One-on-One Talks; Pope Francis Calls for Concrete Actions to Confront Clergy Sexual Abuse; Former Trump Associate Roger Stone Makes Court Appearance; Police in Chicago Say Jussie Smollett Staged Attack; Brands Pull YouTube Ads Over Child Abuse Fears; Nike Shares Fall After Basketball Star's Shoe Breaks; Tesla Shares Fall 3 Percent After New Model 3 Criticism; As You Sow Company Unveils List of Most Overpaid CEOs; Movie Companies Vie for Oscar Glory. Aired 3-4p ET
Aired February 21, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: We are an hour away from the close on Wall Street and the day has turned rather nasty. Look, the market
has been down just by up to maybe 50 or 60 points throughout the session, but in the last two hours or so, an hour-and-a-half, it has fallen sharply.
We are going to watch it most carefully because a 50/50 split that we've seen throughout the course of the day, now a preponderance of selling, lots
of red and just one or two in the red, including McDonald's in the green and these are the reasons and what is moving the market.
It's a wave that's going on that could be causing the market to fall. The top level trade talks, this time they are in Washington. Tesla shares are
taking a knock over the problem with its Model 3, and Nike falls near the bottom of the Dow after a wardrobe of malfunction with painful
consequences.
We are live in the world financial capital, New York City, spectacular, but chilly day on Thursday. It is the 21st of February. I'm Richard Quest. I
mean business.
Good evening, tonight, Donald Trump is calling for competition, not protectionism in the race two roll out the next generation of wireless
technology. The President's hard line on Huawei's 5G technology seems to be softening. The President alluded to Huawei when he tweeted earlier, "I
want 5G and even 6G technology in the United States as soon as possible. American companies must step up their efforts or get left behind." And
this is the bit. "I want the U.S. to win through competition, not by blocking out currently more advanced technologies."
This is a very interesting tweet, and it tells an interesting story. Mr. Trump's fears about falling behind in the 5G race regardless of whether you
stop Huawei by blocking it seems to be well founded. Here is the list of the top five patent holders of 5G technology. And you've got Samsung South
Korea at the top number of patents, more than 12,000. You've got big hitters from China, South Korea and Europe -- Huawei, Ericsson, of course
is Sweden, ZTE from China.
But the only big American player is Qualcomm and Qualcomm is currently being sued in the United States by the Federal Trade Commission, the FTC
over antitrust issues concerning a merger. It does not make pleasant viewing. So Donald Trump's call for faster 5G rollouts are being echoed on
Capitol Hill.
U.S. House Republican, Greg Walden says it's time for the U.S. to step up its efforts to roll it out and compete.
(BEGIN VIDEO CLIP)
GREG WALDEN, U.S. REPRESENTATIVE, OREGON, REPUBLICAN: We want to see faster world development and we want to see better service, and we need
America to lead in the global race on 5G deployment, reaping economic benefits and transformative services for all americans.
(END VIDEO CLIP)
QUEST: Now, we wanted to join in the conversation on this crucial point. It is, get out your phones, cnn.com/join. Who do you think will win the
global 5G race? Is it going to be the U.S.? Or will it be China? We've already got two in there. South Korea. Where will Ericsson and Sweden be
in there? On the screen you see it's the United States, China, Europe which would include Ericsson of course, or South Korea? Who is going to
win the 5G race?
Vote now, you will see the results as you vote and we will discuss them throughout the course of the next few minutes. Now, Huawei -- the founder
of Huawei says U.S. cannot crush the company, and the sales figures show it is gaining grounds over its rivals in the smartphone market.
Now with 5G on the way, CNN's Samuel Burke in London reporting on the opportunity for Huawei and its rivals.
(BEGIN VIDEO TAPE)
SAMUEL BURKE, BUSINESS AND TECHNOLOGY CORRESPONDENT, CNN (voice over): High above the streets of London, a once in a generation internet upgrade
is taking shape. Telecom giants like BT, are rewiring the city with super- fast 5G.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: We are seeing speeds of up to one gigabit per second.
BURKE (on camera): Put that in context, what does somebody usually have now?
UNIDENTIFIED MALE: Well, that's more than 10 to 20 times faster than the average speed that they are getting today so this is fiber broadband like
speeds on your mobile device.
(END VIDEO CLIP)
[15:05:01]
BURKE (voice over): So fast that 5G promises connectivity for a new age of infrastructure, where devices like factory floor robots, self-driving cars
and delivery drones can communicate with each other.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: That's going to mean millions more connections connected to the internet and as an opportunity to us, that remains a very
large and exciting one.
(END VIDEO CLIP)
BURKE (voice over): Cashing in on the opportunity, China's Huawei. The company is the biggest maker of telecommunications equipment. In Europe,
it's conquered nearly 40% of the market, dominance that's caught the attention of rivals.
(BEGIN VIDEO CLIP)
MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES: The United States has also been clear with our security partners on the threat posed by Huawei.
(END VIDEO CLIP)
BURKE (voice over): The U.S.' gear could be used the Chinese government to spy and is urging allies to ban Huawei from their 5G network. Australia
has already obliged. Germany and New Zealand are considering doing so as well.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: The risk that if Huawei were by the Chinese government crack the code on that phone, they wouldn't think twice about saying, "Of
course, we'll do it."
(END VIDEO CLIP)
BURKE (voice over): Huawei has denied its equipment poses any security risk and has said the U.S. call for a ban is politically motivated. When
it comes to 5G equipment, America doesn't have a heavy weight global competitor.
BURKE (on camera): Broadcasting 5G across a city like London takes a monumental engineering effort. The 5G antenna is heavier and uses more
power than previous generations, plus it emits additional radiation. This is the equipment that BT and operators around the world are relying on
Huawei for.
BURKE (voice over): BT was one of the first companies out of China to use Huawei equipment in their networks.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Over the years that we've worked with Huawei, we have not yet seen anything that gives us cause for concern and we continue to
work with all of those relevant bodies to answer all the questions that are being asked right now.
UNIDENTIFIED MALE: BT may say, "Oh, we haven't seen any evidence of anything. They wouldn't. That's the point about good espionage, you
wouldn't see.
(END VIDEO CLIP)
BURKE (voice over): The U.K. is weighing its own ban on Huawei for 5G. If it follows the U.S., BT's plans to build 1,500 sites like this one by the
end of the year could be in jeopardy.
Samuel Burke, CNN, London.
(END VIDEO TAPE)
QUEST: Shelly Palmer is CEO of the Palmer Group, always helps us understand what is happening with this issue. Good to see you.
SHELLY PALMER, CEO, PALMER GROUP: As always.
QUEST: Firstly, the President's call when he says, we should compete instead of blocking. We must -- the U.S. must get its own expertise and
world leading in 5G and 6G. He's right.
PALMER: Well, you can say that so much more easily than you can actually do it. What's the policy or what are the government policies that will
enable that? In China, the reason they're far ahead and the reason that South Korea is far ahead is the governments of those countries have gotten
seriously behind the technology, they have cleared the way for the towers to be built and placed and financed and they are looking at their roads and
they are looking at their infrastructure and the new infrastructure they are building is 5G compatible or ready to be 5G compatible.
And so we don't have any of those policies in place. If I needed right now to put up all of the towers I need in the island of Manhattan, I would have
years of legal battles ahead of me as I try to put them where they need to go.
QUEST: That's the execution of the operations of it. but that doesn't explain the lack of R&D.
PALMER: I don't think that's the issue.
QUEST: A lucent -- look, let's remember poor old lucent. Let's go with poor old lucent. It was great --
PALMER: Back in the day.
QUEST: Gets lost or gets spin-off from AT&T, parent company of the network. It then splits, it then goes to Alcatel. It's nowhere near the
old bell labs which led the way.
PALMER: There is no question you are correct. But R&D comes in a lot of flavors and the innovation we are talking about, 5G is a standard. It's a
technical specification. A bunch of engineers have got to get together and agree, once and once they agree, then it's continuous innovation and
continuous improvement, and I am sorry to disagree with the President, we can compete. Yes, China is ahead. Yes, South Korea is ahead. Many
countries could be ahead.
QUEST: He says he can't.
PALMER: We can compete.
QUEST: But.
PALMER: No, the "but" is we need government policies that will allow the technology to become adopted because in our capitalist system, we need to
put it out there to pay for it for putting it out there.
QUEST: Right, then you've got Qualcomm, which is the only near competitor.
PALMER: Yes.
QUEST: And that is enmeshed, of course, still trying to deal with its merger issues with the FTC.
PALMER: That's exactly right. Look, at the end of the day, once again, I said this is more of a policy problem than is a technology problem, from
the technology, Richard, I have to tell you, in the United States, you never count us out technologically. There are just aren't -- it's not
place in the world things get done, but we need to set up a culture and we need to set up a political climate where we can actually innovate.
QUEST: So if you take the starting point as the President's tweet, what has to flow out?
[15:10:02]
PALMER: Well, the first thing I'd want to see from the government, if you are going to make that statement, then tell me what are you going to do,
government, to pave the road for us? I want to use CV-to-X, cellular vehicle to everything communication over 5G unlicensed. I want all of the
-- Ford's already announced they want to do it.
So will the highways speak to the cars? Will the street signs talk to the cars? Will the buildings talk to the cars? Where will the towers go?
Where will the sensors go? How are we going to plan our infrastructure in the United States so that we can take full advantage of the amazing
capacity of 5G both from bandwidth and from the very short latency that allows us to do a lot of computing external to our devices.
QUEST: Is Huawei the menace that the Vice President and the administration says it is?
PALMER: So you ask five people you can get five answers. We, meaning, we the large we do not trust Huawei because people feel -- the argument is
that it's an agent of the Chinese government and that the Chinese government wants to spy on us. Therefore, they will use that technology to
do it. It's a valid, logical argument. Whether it's true or not, that I do not know.
QUEST: It's a trust issue then, isn't it?
PALMER: It's purely trust.
QUEST: It's trust -- but the British say trust and verify, to paraphrase, and they describe it as a manageable risk.
PALMER: It's not a manageable risk. If you believe bad things will happen, nothing will prevent that. You have to trust your partners. And
if the partner is trustable, you're good.
QUEST: You're not going anywhere.
PALMER: Okay.
QUEST: I mean, don't leave.
PALMER: Of course not.
QUEST: I mean, for the next few minutes. Stay where you are. We will back with you later in the program.
According to those of you voting at cnn.com/join, most of you think China will win the 5G race and the rest of you is split between Europe and South
Korea. The United States came in last. And China's answer to Google's search engine, the giant Baidu is set to release its results after the
bell. It's less than an hour left in the trading day and the markets are racing towards a negative close. Despite today's drop, the Dow remains
just 4% away from its record highs. It has recovered significant grounds since fears over the Fed rate hikes sent stocks lower a few moments ago.
Yesterday, the Fed's Vice Chair, Richard Clarida told me that rates may not move at all this year.
(BEGIN VIDEO CLIP)
QUEST: So, when the market looks and the top plot suggests --
RICHARD CLARIDA, VICE CHAIRMAN, FEDERAL RESERVE: Oh, yes.
QUEST: Everybody thinks one more move this year, does that seem reasonable?
CLARIDA: Well, there are certainly scenarios where that would be appropriate. There are other scenarios where we might not hike at all. It
really is going to depend on how the data comes in.
(END VIDEO CLIP)
QUEST: Richard Clarida. I am joined by Lindsey Bell. She is the investment strategist at the Center for Financial Research Analysis. Good
to see you. As always, nice to have you on this program.
LINDSEY BELL, INVESTMENT STRATEGIST, CENTER FOR FINANCIAL RESEARCH ANALYSIS: Thanks for having me here.
QUEST: So the Fed says, they've done for the rates this year or maybe one, we don't need to get too excited about it. They're being patient. What
should the strategy be now with equities?
BELL: Well, I think the Fed being patient and being more flexible certainly bodes well for equities going forward, and that's part of why
you've seen the run-up in equities at such a fast pace at the beginning of this year. We are up 10.9% through yesterday's close. That's a very fast
acceleration into the start of the year. We feel good about equities. I think it's time to take a little bit of a pause. We are almost through our
earnings season here. The numbers have been fine, but analysts are cutting estimates for 2019 growth sharply.
QUEST: Right, but what does that mean in reality. I mean, the earnings issue we learned about last year, Apple started, that particular one.
There is still the issue of the China trade war or skirmish, whatever we call it. There is still obviously Brexit concerns, and you've still got
the issue of the China slowdown. So the macro-economic environment hasn't shifted.
BELL: Right, and it seems like the stock market is ignoring all that, and I think what it's pricing in, it's telling you, that it is pricing in a lot
of those issues are going to be resolved and we are going to be good here in 2019. I am not so sure about that.
If you look at the multiple in the S&P 500, trading at 16.7 times. That's just above the historical average. And numbers - earnings estimate have
come down, so you have to ask yourself are the earnings numbers correct? Or is the market correct?
QUEST: But when we've spoken before --
BELL: Yes.
QUEST: And I can't remember the exact number of your S&P forecast for the year in terms of growth, but it was single digit.
BELL: Yes, we're at 3.2% earnings growth in 2019 right now. That compares to 22% in 2018. Historically, average is anywhere from 8% to 10%. That's
pretty weak. We came into --
QUEST: Right, but yields on treasuries has also come down.
BELL: Right.
QUEST: So if you are playing a yield game, I mean, I know it less than an hour in the stock exchange, and I know it's 2.6 on the ten-year.
BELL: Yes, and part of that is because people are fleeing to safety. People are buying bonds. You are seeing the yield come down, right? So it
is a question, as the stock market is going up, bond prices going up. Who is going to be right here?
[15:15:08]
BELL: Where is the -- where do we land?
QUEST: Have they both come down?
BELL: They were last year. So, I mean, I think that you can -- I think there is more opportunity in the stock market this year, though.
QUEST: Really?
BELL: Because o don't think we're going into a recession.
QUEST: But is there greater opportunity -- I suppose what I'm looking to sort out here is, vis-a-vis at the end of last year, is there -- or even
the beginning of this year, is there greater opportunity this year? Are you more relaxed about a buoyant market with an S&P gain of maybe 8% or 9%
this year, where we had all been talking 5% or 6%?
BELL: The way we think about it is we are cautiously optimistic. We do think that a China trade deal is going to be done. There is just simply
too much at risk on both sides of the equation in China and in the U.S. The Fed has backed off. They are being more patient and more flexible. So
these are very good things and that together will lead to better earnings growth rates in 2019 than what the analyst -- the consensus that we are
currently expecting.
QUEST: What can spoil the party?
BELL: I think, you know, an exogenous event overseas. A major slowdown in China that you know --
QUEST: With a failure to get a decent deal. I mean, let's just -- for the purposes of this discussion, let's assume the trade negotiations do not
succeed and that the higher level of tariffs gets introduced and auto tariffs come in, which of course, you'll be aware of. The U.S. government
has now received the report on that, how bad will that be?
BELL: Well, I think we go back to where we started the year, honestly. You know, we came off very, very low levels on December 24th. The S&P 500
was trading at 14 times. That's where the market has bottomed historically.
QUEST: Hold there for second while I just look at the European markets. Over in Europe, stocks finished on a mixed note. If you look -- I mean, it
was classic. Look at that. The FTSE is falling. It's not surprising with Brexit. The Xetra DAX is up. Zurich is up. Paris was flat all over.
Banks were being dragged on the market. The Danish shipping giant, Mersk fell 10% after a weak quarterly results.
Europe, the real fear now is Europe is going to head or at least the Eurozone heads for a recession. If that happens, what happens elsewhere?
BELL: Well, I think if that happens, that is going to be a major problem for China because Europe imports a lot of their goods. So that's going to
be a problem there. I think it's -- you know, the big question is, and we're not exactly sure is what happens in the U.S. because are we really
isolated from these other events around the world? 2018, we seemed like our economy was booming. We had tax reform and fiscal stimulus so that
helped us there. What can the government -- what can the policy be this year that helps our economy continue?
QUEST: Good to see you. Thank you so much. I much appreciate it.
BELL: Thank you.
QUEST: As we continue tonight, an American mystery, an American businessman in Moscow and now lawmakers want to talk to this man about
Donald Trump in Russia. CNN's exclusive reporting next. It is "Quest Means Business." Also AT&T is pulling the plug on its YouTube investments
citing growing fears over child exploitation, in a moment.
(COMMERCIAL BREAK)
[15:20:00]
QUEST: CNN has learned that the U.S. Senate has some questions from Moscow-based American businessmen over his ties to Donald Trump. Sources
say that David Geovanis may have information about the U.S. President's activities in Russia, and it all goes back to the 1990s. Nina dos Santos
is in London. Let's have her exclusive reporting.
NINA DOS SANTOS, CORRESPONDENT, CNN: Thank you very much, Richard. Yes, this is an individual that you won't have heard about in the various
investigations into Russian interference in the 2016 elections. Although, he is a very well-known individual in Moscow where he has been a fixer for
around about 30 years. He's worked for other peoples whose names have cropped up in the various investigations.
Notably, the Russian metals and mining magnate, Oleg Deripaska who of course has connections to the Kremlin and his meetings with Paul Manafort
have been deeply scrutinized. It appears as though it's from 1996 meeting which David Geovanis, in a trip, that David Geovanis accompanied the U.S.
President, Donald Trump alongside two key Trump donors.
That has been the focus of these Congressional investigators interest. You can see some of video here that emerged online on YouTube just a month or
so ago of that meeting back in the day and Donald Trump is meeting with senior Moscow officials to talk about an ill-fated original plan to build a
Trump Tower in the 1990s in Russia -- Richard.
QUEST: So what is the fundamental allegation do you think that can be leveled from this?
DOS SANTOS: Well, what's interesting about David Geovanis is that he is now partly a Russian citizen as well. He is an American citizen, but since
2014, I have been able to establish that he has had a Russian passport and he doesn't appear to have returned to the United States since early 2017,
around about the time of the inauguration of President Trump.
That means that although since investigators have reached out to him in spring of last year, until they manage to coax him back to America, it's
going to be difficult for them to learn exactly what he knows.
Having said that, they have interviewed multiple witnesses who I have been speaking to on the condition of anonymity and they've told me they have
been asked probing questions about David Geovanis and his business and personal ties with Donald Trump back in the 1990s and until the mid-2000s,
crucially there is also a piece of written information that has been handed to the Senate investigators that claims that this is somebody who could
unravel the mystery of kompromat, Richard.
QUEST: Right, so, within this sphere of a vast investigation, where do you think he fits?
DOS SANTOS: Well, he is obviously a new character and what's so interesting about him popping up at this time and the fact that the Senate
appear to over the last year have repeatedly tried to get ahold of this individual is that his ties go back much further than the investigation
that we've heard thus far. That means that at least, when it comes to the Senate investigation, that one has been probably much, much further back
into Donald Trump's original ties to Russia.
His original plans to build the Trump Tower that when they were revived ten years later, have subsequently become a key part of the Mueller
investigation into Russian interference and this is also significant when it comes to the timing because this is an individual who hasn't yet it
appears to have been interviewed either by congressional investigators or the by Mueller probe. It's not clear at this point whether or not he's a
person of interest to Robert Mueller, the Special Counsel, but the Special Counsel's investigation is expected to wrap up very soon.
So will this be a stone that will be left unturned if he doesn't manage to speak to those Senate investigators and they don't manage to get ahold of
him, Richard.
QUEST: Nina, thank you. A top U.S. investor is facing fraud charges in Russia. Michael Calvey is the founder of the Baring Vostok Capital
Partners, and now he sits in a Moscow jail. Fred Pleitgen has more from the Russian capital.
[15:25:10]
(BEGIN VIDEO CLIP)
FRED PLEITGEN, SENIOR INTERNATIONAL CORRESPONDENT, CNN: Richard, this is another potential blow to U.S.-Russian business relations as American,
Michael Calvey who is actually one of the largest foreign investors in Russia has been formally accused of fraud.
Now, the Russian Investigative Committee says that it launched an investigation into embezzlement of $2.5 billion ruble. That's about a
little over $38 million from the Vostochny Bank. Now, the case is getting a lot of attention here in Russia also because Michael Calvey is actually
one of the few foreign investors still left here in this country. Of course, sanctions, taking a big toll on the country's economy and also on
foreign direct investment in Russia as well.
The case also, of course, has political overtones here in this country. Russian President Vladimir Putin coming out just yesterday in a major
speech to Russian lawmakers saying that he believes that honest business people should not be subject to criminal investigations here in this
country.
It's interesting, because his Press Secretary, Dmitry Peskov was asked about the case earlier today, and all he was willing to say was that he
believed that the truth will prevail and that he also believes that the case will not hurt the business climate here in Russia, of course, we are
going to have to wait and see whether or not that really will be the case.
Meanwhile, the U.S. has been criticizing the case saying that the embassy - the U.S. Embassy here in Moscow has not been granted consular access to
Michael Calvey and the U.S. says that that is against the rules of diplomacy, Richard.
QUEST: Fred Pleitgen in Moscow. Big brands and big controversy, not a good mix for YouTube as it feels the heat over yet more questionable
content.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There is more "Quest Means Business" in just a moment. It's almost time for the Oscars and I've got questions that
need answering about those opening credits to this year's nominees. Who are all these people and these strange companies with exotic graphics?
And a new study shows the top most overpaid chief executives will show if your boss made the list. As we continue tonight, this is CNN, and on this
network, the news always comes first.
Venezuela's border with Brazil is now closed. The embattled Venezuelan President Nicolas Maduro made the announcement on Thursday, saying he is
also considering closing the border with Colombia. It's another road block for the opposition that is looking for ways to bring aid into the country.
President Trump's second summit with North Korean leader Kim Jong-un will start with a one-on-one meeting. A senior administration official says the
private meeting will be followed by a meal and an expanded talks. The summit takes place in Vietnam next week.
Pope Francis says Catholics are looking for what he calls concrete actions, not just simple condemnation to combat the scourge of sexual abuse by the
clergy. The pope's remarks came as he opened an unprecedented summit of nearly 200 Catholic leaders near the Vatican City.
We're waiting to hear whether Roger Stone is going to jail while he awaits trial on charges linked to the Russian influence investigation. Now, the
hearing taking place at the moment, the long-time Trump associate called his Instagram post, commenting on his case "a stupid lack of judgment". A
justice is -- a judge is deciding whether Stone violated the terms of his release.
A bail is set at $100,000 for "Empire" actor Jussie Smollett after police say he orchestrated his own attack. They say Smollett paid two men -- this
is the incident last month, partly because he was unhappy with his salary. He is accused of filing a false police report.
AT&T; our parent company has a message for Google's YouTube. It says it's pulling all of its advertising from YouTube over inappropriate content
that's raising child exploitation fees, and it's not alone. The branding expert Bruce Turkel of -- chief of the -- of Turkel Brands joins me live
from Miami, and Shelley Palmer is here again.
Bruce, essentially, this is about innocent posts on YouTube of things like young females doing gymnastics, and then unsavory, arguably paraphilic
comments attached to it and corporate advertisers around it. YouTube is saying it's looking at what it can do. If you're a big brand, what do you
do about this?
BRUCE TURKEL, CHIEF EXECUTIVE OFFICER, TURKEL BRANDS: If you're a big brand, you do exactly what those brands did, you run for the hills.
Richard, here is a new term you're going to hear it here first, but you're going to hear it a lot in the next few years.
Adjacency awareness. It no longer is good enough to run ads where you think people are watching. You have to know what's around them. Because
let's face it, nobody knew what was there, it's algorithms that pick where the ads run.
But the activists, the objectors, they use the same --
QUEST: Right --
TURKEL: Algorithms, we call it Google to find where these ads are.
QUEST: But this is slightly different in the sense that, in the past, this adjacency awareness has been the adverts themselves. Here, its user-
created content where -- which is entirely innocent and wholesome, where contributors, you know, members of the public and nasties have added
unsavory, vile comments.
TURKEL: My friend, I respect that because you're in the industry. You know everything about media, it's what you do every day, but consumers
don't. And although that's a very logical argument, it's not an emotional argument. And the consumers don't think about that. Nobody thinks that
these companies condone that kind of activity and nobody thinks YouTube condones that kind of activity.
No longer matters. Today, inaction equals endorsement. Because someone sees it, and the knee-jerk reaction is the ad is next to that horrible
comment, I'm not doing business with that company anymore. That's the way consumers act.
SHELLEY PALMER, CHIEF EXECUTIVE OFFICER, THE PALMER GROUP: So brand safety, we'll talk about that. It's content adjacency and brand safety are
not new concepts. Here's the problem YouTube is having. You've described it perfectly.
These are videos of young children doing whatever young children --
QUEST: Right --
PALMER: Do and pedophiles writing in code are communicating with each other internally, and that community is leveraging a very wholesome
environment --
QUEST: But how --
PALMER: To do really bad stuff.
QUEST: But is it possible for YouTube --
PALMER: Yes --
QUEST: Is it possible --
PALMER: Yes --
QUEST: Technologically?
[15:35:00] PALMER: It doesn't -- it's not a technological thing at all. Because you don't need that, it's called human curation, you have a content
of community manager who manages a community, and you step it up, YouTube, and you step it up, Facebook and you take responsibility for what's on your
platform.
QUEST: All right, but Bruce --
TURKEL: Shelley is absolutely right.
QUEST: But Bruce, will that be enough for companies? I mean, at the end of the day --
TURKEL: Yes, that would be enough --
QUEST: He throws -- yes, at the end of the day, even with human curation, you're still going to have these incidents happening because algorithms are
so powerful. What do companies do, Bruce?
TURKEL: What the companies have to do is exactly what Shelley said. They have to be aware of everywhere their message is because once again
adjacency awareness says you're going to be blamed for whatever you are next to. And you can like it or dislike it, you can say it's fair or
unfair.
But at the end of the day, none of that matters. What matters is that you don't want your brand next to something that people find distasteful.
QUEST: We'll come to -- Bruce, staying with you, though, surely, I mean, does it really affect the companies? I suppose in the case of something as
vile as this, but in the case of -- Bruce, in the case of just nudity or something like that, I mean, you know, do users really associate the two?
PALMER: Although -- I'll take that right now.
QUEST: Yes --
PALMER: I'll just say to you, either advertising works or it doesn't. Either messaging works or it doesn't. You can't have it both ways. If you
are adjacent to something that is not on brand for you, and you're a marketer, then your message is compromised.
Then, you unfortunately are not going to get the efficacy out of your brand dollars that you want. You also -- if you're a publicly-traded company,
you've got the public screaming and yelling at you, it's like --
QUEST: OK --
PALMER: Look what you've done.
QUEST: So let's go back to what YouTube can actually do, all right?
PALMER: Yes --
QUEST: So in the scenario, you've got YouTube that is, it has -- it has its content, which is automatically putting -- which is automatically
putting comments --
PALMER: Yes --
QUEST: And it's automatically putting --
PALMER: Well, let's talk about the technology right straight up. A video goes on YouTube and it's got a comments section, which the author of the
video -- it's user-generated video, generally though, companies put up videos and people put up videos, you can either enable or disable comments.
If you enable comments, they're open. Now, you can go in and edit them yourself, YouTube does not touch your comments. They don't do it.
QUEST: But is it realistic, is it realistic to do that, bearing in mind the size and scale, YouTube is the largest purveyor --
PALMER: Richard?
QUEST: Of video content --
PALMER: So we now come to the major question of the 21st century.
QUEST: Right --
PALMER: Look, the actual major question, which is what is real and what is fake? What are we responsible for and what are we not responsible for?
Technology -- look, we can write these posts by computer. We don't -- AI can write the posts, you don't even need people to do the comment. The
question is, if there was a community manager there --
QUEST: Right --
PALMER: Then the community manager would be able to go, hey, this is not appropriate for this environment.
QUEST: Stay with me and Bruce, you're back, I believe we had a --
PALMER: Yes --
QUEST: Technical problem. But listen, before we come to you, finally, briefly, I want to read this story first. Nike shares were down 1.5
percent after a very high profile sneaker malfunction. The college basketball star Zion Williamson got injured after his sneaker shoe tore
apart at the start of a big game on Wednesday night.
Now, William is expected to be the next big NBA star. Look at that shoe, Nike said it's working to identify the issue. You are our branding expert
on QUEST MEANS BUSINESS. Bruce, I mean, if you are Nike, this has gone around the world. What do you do?
TURKEL: I start marketing him. I start talking about how strong he is. How powerful he is. I'll design a new shoe with steel cables to keep him
n. I'd turn this liability into an asset that we are going to have the shoe for the strongest guy in the world, and we turn that into the shoe
that everybody wants.
PALMER: Yes, I'd handle that differently.
(LAUGHTER)
QUEST: Thank you, good to see you --
TURKEL: Thanks, Shelley.
QUEST: Good to see you --
PALMER: Good to see you, Bruce.
QUEST: Thank you very much, Shelley, always good to have you, always good to have you, Bruce as well.
TURKEL: Thank you.
QUEST: The average CEO and the S&P 500 makes more than $13 million. A new report finds out were not paying for performance. Investors are starting
to revolt -- in a moment.
[15:40:00] (COMMERCIAL BREAK)
QUEST: A bumpy ride for Tesla shares after consumer reports decided not to give it the thumbs up. So the electric car makers Model 3, reliability
issues are to blame. Tesla's stock took a dive. Once the news came out, they're off more than 3.5 percent. Our senior auto writer Peter Valdes-
Dapena is with me. What's this about? What this really all about?
PETER VALDES-DAPENA, CNN BUSINESS SENIOR AUTO WRITER: Well, you remember, consumer reports bases its reliability on customer surveys. And by now,
there are enough customers out there with Tesla Model 3s that they can get.
These surveys and -- now, it's been fine, but in the meantime, Tesla has been also manufacturing more complex versions, the all wheel drive
versions, more complex, more things to go wrong. Apparently, dependability has started to decline, customers are reporting problems and it fell below
average, and that means consumer reports will not recommend any car with below average dependability.
QUEST: I mean, this is relatively new. Is there a history of dependability or reliability issues? Because you're saying --
VALDES-DAPENA: Yes --
QUEST: It's with a newer models that are more complex?
VALDES-DAPENA: Yes. Initially, the model 3 had OK reliability, OK dependability, but apparently, you know, one thing this new report said at
the time is this doesn't include these all wheel drive models. Well, now they have problems and Tesla's other cars, model S, model X have also had
some dependability problems.
QUEST: Will people be paying notice and taking notice of this? Does anybody -- no disrespect to -- and with the reports. Does anybody take
notice of them?
VALDES-DAPENA: Indeed. Consumer reports generally regard -- generally speaking is regarded as the single most influential car magazine with car
shoppers in America, absolutely. Car -- for any ordinary car company, this would be a disaster.
QUEST: Right, but you don't just buy --
VALDES-DAPENA: No problem --
QUEST: You don't just buy a car, you're buying a Tesla.
VALDES-DAPENA: Exactly, and that's why Tesla is a little bit different. Tesla customers seem to be a bit immune to this sort of thing. Tesla has
not just customers, Tesla has fans. And so far they've been selling the cars to fans. However, remember the model 3 is their most affordable car.
This is the one that's supposed to reach(ph) the masses, are we getting to the point? Now, the question is, are we getting to the point now where
we're through with the hardcore fans, and now you're getting down to the kind of customers --
QUEST: Well --
VALDES-DAPENA: Really think about it and read this stuff.
QUEST: What about the sales? I mean, I remember seeing lots of reports that those who put down deposits on the three were asking for them back.
And lots of questions about the ability -- I mean, obviously, the ability to ramp up. Where do we stand on this?
VALDES-DAPENA: Right now, Tesla is ramping up, has been ramping up production for a while. And a long time ago, they started selling cars to
people who haven't even made reservations yet. Because they were ramped up enough. And they may have some customers who are holding back, who have
reservations or are still waiting for that $35,000 version that hasn't started being made yet.
So right now, it's kind of unclear where they are in terms of -- because you have customers waiting and you have customers who are buying these more
expensive ones. So, we have to see.
QUEST: Seen a beautiful car, provided you can get it to start.
VALDES-DAPENA: Indeed, it is quite a lovely car and fun to drive.
QUEST: Good to see you, sir, thank you so much.
VALDES-DAPENA: Thank you.
[15:45:00] QUEST: Thank you. Chief Executive pay is rising and big shareholders are starting to revolt. That's the conclusion from As You
Sow. The organization puts together this list of the most overpaid CEOs, and they're based on the ratio between CEO pays and the medium pay of
workers at the company.
So you've got Fleetcor, Oracle, Broadcom, Mondelez, they are at the top of the list. Look at that, Robert Iger is also on the list. Companies from
every sector. Joining me now, Rosanna Landis-Weaver is the Program Manager for As You Sow. When we look at that list -- will you bring it up again,
at least the top five.
What is your fundamental complaint, because obviously, CEOs are going to get paid more than anybody else in the company?
ROSANNA LANDIS-WEAVER, PROGRAM MANAGER, AS YOU SOW: And that's entirely reasonable, more than anyone else in the company is one thing. But the
rate of increase of CEO pay over the last few decades has been ten times as fast at least as the rate of pay for average workers. Just a real quick
note, too --
QUEST: Yes --
LANDIS-WEAVER: We included the ratio because that's new and exciting data and everyone loves that. But the methodology --
QUEST: Right --
LANDIS-WEAVER: Is a little bit more complex --
QUEST: Sure --
LANDIS-WEAVER: Than that.
QUEST: So the idea of -- the idea of the watchers for example, I read in the report, fund managers, that own the stock, tend or the company tend not
to be that concerned, but pension funds do.
LANDIS-WEAVER: Right, and I think, you know, frankly, I think BlackRock and Vanguard will tell you they're very concerned, too. It's more that
they don't take their concerns into votes. They are more likely to do back room conversations. But they would also say that they'd see
significant problems, I believe, with CEO pay.
Certainly, Larry Fink's letters and so forth have indicated that income inequality is something that he thinks about. But again, they are more
into back room negotiations, whereas the pension funds are more likely to actually take a stance and vote no. Again, this is a fairly recent thing
in the U.S., they had that privilege longer than we have.
But it's only been since 2010 that U.S. investors have been able to vote on pay.
QUEST: All right, now, what do you think is an acceptable ratio from top to bottom. Now, this is the ratio from the highest to the lowest or from
the highest to the mean?
LANDIS-WEAVER: This is the median employee, this is --
QUEST: Right --
LANDIS-WEAVER: What the SEC required. Well, I will tell you, Plato told Aristotle five times, JPMorgan I believe said 20, there, Peter Drucker had
his high 20s or something. People have different ideas. I think one way we can really see an interesting distinction with those new disclosure
information is comparing like-to-like companies.
QUEST: Right --
LANDIS-WEAVER: So Wal-Mart, for example, the CEO makes well over a thousand times what the median worker does. Costco which is more or less a
competitor has a 100 times, that's because --
QUEST: All right --
LANDIS-WEAVER: They have more reasonable CEO pay and better worker pay, too. So when you compare like-to-like, you get a look at this.
QUEST: It is a fascinating subject, and we're grateful you came to tell us about it. We'll talk more about it, thank you.
LANDIS-WEAVER: Thank you.
QUEST: As we continue tonight, get ready to roll out the red carpet, it's almost time for the Oscars, the Academy Awards, there are eight films up
for best picture, and we'll shine a light on how they are made and how they are financed after the break.
[15:50:00] (COMMERCIAL BREAK)
QUEST: This is the title sequence for "Roma", it is one of the top contenders for Oscars glory. And we are focusing on the companies behind
the films. You see the names coming up there, we'll go through it in just a moment. You can recognize it from the title sequence. Now step into a
theater, and we'll explain exactly what all this means.
Brilliant, our title sequence is 35 seconds, others seem to go on forever. The "Roma" ones are still going on. Joining me, Frank Pallotta is here,
good to see you, sir, leave the popcorn alone.
FRANK PALLOTTA, CNN MEDIA REPORTER: I won't touch the popcorn.
QUEST: Have some popcorn. You're going to tell us and explain to us --
PALLOTTA: Yes --
QUEST: Something of how this all works.
PALLOTTA: Yes.
QUEST: With particular reference to -- I mean, you saw our title sequence.
PALLOTTA: Right.
QUEST: We have QUEST MEANS BUSINESS productions goes on to the next one, and then I'm Richard Quest, a Chris Dyle(ph) production, a Tom Foster
direction. But let's actually do a real one.
PALLOTTA: Yes --
QUEST: Start with this one. Who are these people?
PALLOTTA: So this is Netflix, I don't know if you've ever heard of this company --
QUEST: Right --
PALLOTTA: It's kind of a popular media company. Netflix for "Roma" is the distributor, they are basically the studio, they are the ones that get the
movie to the masses.
QUEST: Right, so then the titles run on a bit further, who are these lot?
PALLOTTA: A participant media is a production company. They help fund "Roma". Their reported funding was about $15 million, which is pretty much
the budget of a small film like a "Roma".
QUEST: So whose actually studios are they using? Netflix's or these people?
PALLOTTA: Well, it starts off like Alfonso Cuaron who creates "Roma", uses a production company like Participant Media to help bring the movie
together. Then they try to find a studio that can either release it or an independent movies kind of way --
QUEST: Right --
PALLOTTA: You know, distribute it.
QUEST: Right, and then we have, the next one, which is Esperanto Filmoj --
PALLOTTA: Yes --
QUEST: Or Moy(ph) --
PALLOTTA: So Esperanto is actually a production company owned by Alfonso Cuaron himself. So the director of the movie has his own kind of place and
his world. So this is why it's important because now he has a part of this, he has some skin in the game.
QUEST: So, right, so the director has skin, directs the movie --
PALLOTTA: Yes --
QUEST: And there would also be a director's thing like such-and-such film --
PALLOTTA: Yes.
QUEST: And he has this --
PALLOTTA: Yes --
QUEST: Which is through Participant Media --
PALLOTTA: Correct --
QUEST: Which is then goes on to Netflix.
PALLOTTA: Right, so basically, Cuaron uses his own production company to create this very personal --
QUEST: So who is putting -- who is making money?
PALLOTTA: Everyone is making money, that's the thing. Because they all have certain places to really work inside of this film.
QUEST: So let's go back to Netflix --
PALLOTTA: Yes, let's go back to Netflix --
QUEST: Who have started it -- when and the Oscar goes to "Roma", if that is the case.
PALLOTTA: Yes --
QUEST: Netflix comes up and collect it.
PALLOTTA: It's not going to be Netflix, it's actually going to be Alfonso Cuaron because he is the -- not only the director of the cinematographer,
but he is the producer. And there are certain union rules as well. This is the same exact kind of thing, if say, "Black Panther" wins on Sunday, it
won't be Alan Horn; the film chief of Disney Studios walking up there to collect the award.
It will be Kevin Feige, the president of Marvel Studios who is also a part of the Producers Guild of America.
QUEST: Hardest question of the night.
PALLOTTA: Wonderful.
QUEST: On all three --
PALLOTTA: Yes --
QUEST: Netflix participant, the funny one I can't remember.
PALLOTTA: Esperanto --
QUEST: Esperanto --
PALLOTTA: Yes --
QUEST: Esperanto --
PALLOTTA: Yes --
[15:55:00] QUEST: Which is the most important?
PALLOTTA: The most important --
QUEST: Choose one --
PALLOTTA: I would say Netflix is probably the most --
QUEST: Right --
PALLOTTA: Important because Netflix is the only one --
QUEST: Like Disney or Marvel?
PALLOTTA: It's a hard question because you can't really have one without the other. The production companies are the ones that make sure that the
movie gets made, Netflix and other studios like Disney are the ones that make sure the movie gets seen. You can't have one without the other.
QUEST: And whose facility, studio -- excuse me, does it not matter who actually makes it?
PALLOTTA: It doesn't really -- it really doesn't matter, it matters on as an artist, who do you want to work with? How do you want your -- how do you
want to be produced, how do you want your movie be seen?
QUEST: All right, before we go to the break --
PALLOTTA: Yes --
QUEST: We'll look at the markets --
PALLOTTA: Yes --
QUEST: Quick look at the markets to wrap up this thing. Who is going to win the -- by the way, all the markets are 116 points. Tell me who is
going to win the best Oscar?
PALLOTTA: I think there is a real chance that "Green Book" from Universal has a good chance. But "Roma" is a big upcoming film.
QUEST: All right, we'll look at the markets as we come to the close and eat the popcorn. The Dow Jones Industrials is down 111 points, it's
triple-digit losses, some big results are out after the bell. The Chinese search engine Baidu, Nike is leading the Dow lower with -- don't you even
think --
PALLOTTA: I saw you, you saw me looking at it.
QUEST: I saw you looking at it.
PALLOTTA: It's popcorn, it's meant to be eaten.
QUEST: We're not even -- it's Caramel popcorn. Is that --
PALLOTTA: That's why I really want it.
QUEST: And now we lost the Dow.
PALLOTTA: Mine, let me just get one, it's fine, it's fine. People know about the markets, I need my popcorn. It's fine, it's the whole thing,
don't worry about it.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. The issue of YouTube, the advertisers who are refusing or boycotting until they sought out the problems with
pedophiles and the like, making comments is really fascinating because it's all happening so quickly.
These are technologies at the forefront of our lives and the speed of changes are so rapid, but with the best intentions of the world. Look,
YouTube has no intention of doing anything wrong. The advertisers only want to advertise in the best possible places.
Miscreants and others are taking advantage of this situation. And the algorithms and the human creation required or curation required is so
enormous. Because back to my first point, it's all happening so fast. And that's why I think give everybody a bit of space to breathe there, at
least, everybody is trying to do something even if ultimately, the results are not too successful.
Watch this one, it's got a long way to go. And that is QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York.
(BELL RINGING)
Whatever you're up to in the hours ahead, I hope it is profitable.
END
