Return to Transcripts main page

Quest Means Business

Italy's President Rejects Prime Minister Draghi's Resignation; Fed Considers One Percent Rate Hike As Inflation Continues To Rise; European Commission Slashes Growth Forecast For 2023; Russia's War On Ukraine; Call To Earth: Thailand's Mara Bay; BMW Charging Extra For Heated Seats In Some Countries. Aired 3-4p ET

Aired July 14, 2022 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[15:00:39]

PAULA NEWTON, CNN INTERNATIONAL HOST: So markets are lower this hour after earnings that began with poor reports from two major banks. We take a look

at a Big Board there, off 150 points, but I have to say off its lows of the day.

Now, meantime, JPMorgan and Morgan Stanley both reported declining profits. Those are the markets and these are the main events.

The Italian President has rejected Italian Prime Minister Mario Draghi's offer to resign -- yes, rejected his offer to resign -- after his governing

coalition appeared close to collapse.

Fed officials raised the prospect of a drastic full percentage point rate hike at their next meeting.

And the British Open shines a light on the deep divisions in golf between those who joined the new Saudi backed league and those who did not.

Live from New York, it is Thursday, July 14th. I'm Paula Newton and this is QUEST MEANS BUSINESS.

And we begin tonight with a political earthquake that is now taking place in Italy.

Last hour, Prime Minister Mario Draghi apparently submitted his resignation to the President. And in a stunning twist, the President says "It's been

rejected." Mario Draghi appeared to be headed for the exit. He called it quits just hours after actually winning a confidence vote in Parliament,

and that's because the vote was boycotted by the Five Star Movement, the largest party in his coalition government.

Now Draghi, once the head of the ECB was tapped to lead the government 18 months ago. In a statement this evening, Draghi said support for the

national unity government is "no longer there."

John Hooper is in Italy for us and he is the Italian and Vatican correspondent at "The Economist" and he joins us now from Florence.

And really, we all throw up our hands trying to figure out what's going on here. I'm sure you're doing same. But what's at work here? And is this

still possible that these are just negotiations underway, but that this Italian government led by Mario Draghi could still survive?

JOHN HOOPER, ITALIAN AND VATICAN CORRESPONDENT, "THE ECONOMIST": I think that it's gone beyond the point of negotiation. We're really getting into

the highest stakes now.

He is saying that he wants to resign, and as you said, the President has rejected that resignation on the basis that though the Five Star Movement,

which is an important component of his government, boycotted the confidence motion today. It nevertheless went through showing that Mario Draghi does

in fact, have a majority in Parliament.

NEWTON: You know, Mario Draghi has not called Super Mario for any reason. Despite perhaps mixed reviews in Italy, he has managed to really study that

economy. He seems to have called the Five Star Movement's bluff on this, but do you think that it will tip Italy into political crisis anyway?

HOOPER: I think that the political crisis certainly is with us. How it's going to pan out remains to be seen, but there are really three ways from

here. One is that he is a -- Draghi is strong armed back in to running the government with or without the Five Star Movement, and another possibility

would be that the country is forced to an early election. They were not due to have one until next year.

And a third possibility is that Mr. Draghi does go and that a new government is installed with a stop gap Premier, but a man who would be

almost certainly or a woman of lesser stature than, as you said, Super Mario.

NEWTON: This is really an opportunity, given the timing in terms of the political and economic crises around the world. Could you just pull back

for us and do a 35,000 feet in terms of what's going on in Italy? Whether it's with Italians, but also Europe, what's at stake here given there is a

war on the doorstep and every European government right now struggling to figure out how to deal with an energy crisis.

[15:05:10]

HOOPER: Yes, indeed, this really could not have come at a worse moment. You have a continuing pandemic, you have rising inflation, a war, as you

mentioned, and already even with Mr. Draghi in office, a tranquilizing presence, the markets were already getting very jittery about Italy's big

debt, it has had dubious prospect for growth, and we'd seen bond yields already on Italian debt going up to levels not seen since 2013-2014.

Now, with this confusion on top, you can imagine that investors are going to get even more jittery.

NEWTON: Absolutely. It cannot be good news for Brussels, either.

John, we really appreciate you keeping us up to date at this. It's not even the late hour in Italy 9:05 PM in the evening, so we will continue to watch

this very carefully. Thanks so much.

Thanks, John.

Now, US stocks opened sharply lower as economic shockwaves start to hit bank earnings. The Dow is now down about a half a percent, you see it

there, the S&P down as well. The NASDAQ has now turned positive.

JPMorgan shares are down nearly four percent after a disappointing second quarter Wall Street's biggest banks said its profits fell 28 percent from a

year ago. It said it will suspend share buybacks to meet capital requirements.

Its investment banking fees were down 54 percent and it blamed large market swings calling them harmful to deal making.

Rahel Solomon is with me now.

Now, the earnings were bad enough and will come really as no comfort during a larger beginning here to earnings season, but Jamie Dimon had a blunt

warning as well. Right?

RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Right, Paula.

So the results were sort of eyebrow raising enough, but it was these comments from Jamie Dimon who as you know, when he speaks the world really

listens, that perhaps caused the most attention today.

I want to read for you in part, Jamie Dimon saying that, you know, we're dealing with two conflicting factors in the global economy. The US economy

continues to grow in both the job market and consumer spending and their ability to spend remain healthy, but -- and this is a big but --

geopolitical tensions, high inflation, waning consumer confidence and the list goes on.

And combined with the war in Ukraine and its harmful effect on global energy are very likely -- very likely -- to have negative consequences on

the global economy sometime down the road saying that we are prepared. Saying very likely, Paula, but not that -- saying very likely, but not that

we are likely going to miss this.

And so the question now is when this happens, the bank saying that they are prepared for, and you might remember that not long ago, he said that he was

worried about an economic hurricane and said brace yourself.

So it appears that at least from his perspective, the bank is trying to do just that. They are trying to brace themselves for whatever comes down the

road.

I should say that a few of the things that have been sort of propping up confidence, if you can even call it that here in the US, is the strong

consumer which Jamie Dimon alluded to and the labor market which according to last week's readings, still appearing quite robust, quite resilient.

But the question is, is the consumer still strong? We are going to get retail sales data tomorrow. That'll tell us a little bit about that. But

earnings reports like this have become so important, Paula, as we try to still understand are consumers still spending? Are consumers okay? How are

they weathering this high inflation environment?

But these comments today coming from Jamie Dimon, certainly not making anyone feel any better.

NEWTON: Okay, Rahel Solomon for us. Thanks for taking us through it. Appreciate it.

Now all eyes are of course on Central Banks among investors that continue to see that inflation is rising. Fed Governor Christopher Waller said he is

willing to consider a rate hike larger than 75 basis, points echoing comments from Atlanta Fed President, Raphael Bostic.

Now he said yesterday, all options are on the table. That's including a full percentage point rate hike. Waller said at the moment, he still

supports a 75-basis-point increase, although that 100 is on the table.

Bill Lee is Chief Economist at the Milken Institute and he joins me now from Los Angeles.

To me, it seems like the Fed is still weighing its options. We're going to lean on your experience, though with US banking, the IMF, and the New York

Fed. And I ask you simply, what happens now? When you look at that inflation data, is there really only one path forward for the Fed in the

near term?

BILL LEE, CHIEF ECONOMIST, MILKEN INSTITUTE: It is of utmost importance that the Fed convinces everybody they are going to bring in issued back to

its target level.

[15:10:02]

Expectations are absolutely critical to the Fed's story and as long as the Fed believes that they have to put more pressure on the economy in order to

contain inflation, they're going to do that.

Because once inflation starts to run away in terms of like people's expectations, and people don't believe the Fed is able to control

inflation, we're going to return to the horrible wage price spirals that we had in the 70s and that corrosive behavior is something the Fed is going to

do everything possible to avoid.

NEWTON: So do you think a hundred basis points that is closer to reality right now, rather than 75?

LEE: The latest numbers are showing that inflation is still rising and that's the fear that the Fed has just got to get rid of. And so yes, a

hundred basis points is definitely on the table because the Fed started off behind the eighth ball as it were. They started late. And now, it's a game

of catch up.

And as I said, the absolute important target for the Fed would be people and business expectations. The people and businesses have to be convinced

that the Fed will bring inflation down in a reasonable amount of time.

NEWTON: Okay, and they're going to have to create some confidence that that will be done -- I have to ask you, you know, oil is down

significantly, but not all energy prices are down. The Jobs Report gave no comfort to anyone earlier, in terms of inflation having peaked, and yet you

do hear some people think that it has.

I mean, what do you think when you delve deeper into the data the other day on the CPI?

LEE: When the Fed looks deeper at the data, and as I have given my experience at the Fed, as well as the IMF, it is absolutely clear that

goods prices are starting to come down, commodity prices are coming down.

But the worst of all worlds -- service prices, rents -- all of the pieces of inflation that are very, very sticky, and once they start to rise is

very hard to get them to turn around. Those are the pieces that the Fed is trying to get a handle on and to try to cool off.

Cooling off the very hot real estate market will be the first step in that policy.

NEWTON: Yes, and that is stubborn, and sticky, as you say, as our wages, which was the two things that caught my attention in that data.

You know, we are in uncharted territory when it comes to geopolitical risk, with new shocks to the global system, it seems every day. I mean, you just

have to look at what we talk about here on the show -- everything from Sri Lanka and now to Italy.

How many more shocks do you think the global economy can take? And as you say, given your expertise with the IMF, the IMF, just this week, right,

downgrading global growth yet again. I mean, how worried are you? Because this does seem to be unprecedented shocks, or at least the kind of shocks

we haven't seen since the 70s.

LEE: What's absolutely clear is that this inflation issue is a global issue and it is starting to get all governments concerned. And the

political unrest in Sri Lanka, as well as the tensions coming about in Italy are a good example of what the Fed is faced with because the if that

kind of division starts to rise here in the US, that loss of confidence will not only mean we continue to weak earnings for things, but no one ever

is going to want to borrow and expand businesses.

And the only prayer that we have for controlling inflation is that people think of the future, invest in the future, invest in productivity enhancing

investments, so that we could actually make people more productive, give them higher wages, and bring down inflation.

But that requires investment and that requires confidence. We don't have that now.

NEWTON: And do you think we will -- just to end on a positive note here -- do you think getting any kind of breathing room with that price of oil is

going to help? Well, it is down significantly now. President Biden will speak to Saudi and other leaders about pumping more oil. Do you think that

will help restore confidence that the inflation rate can go down?

LEE: Well, Paula, the real thing to look at would be the price of gasoline. If the price of crude oil comes down, that's not going to help

the consumers' pocketbook.

When we go fill up our tanks, it is the price of gasoline that counts and having refineries be able to produce more gasoline is actually the key to

that, and getting President Biden to ease up on the rules for refineries is the first step in that in that kind of a policy.

NEWTON: So interesting in terms of when it comes down to that because as you said, a lot of it has to do not just on the price of oil, but refining

that oil.

I can't thank you enough for being here for us. Thanks so much.

LEE: Thanks, Paula.

NEWTON: Now, experts are warning Europe faces a difficult winter between a lagging economy and an energy crisis on the horizon. We will talk to the

head of a natural gas shipper. That's after the break.

(COMMERCIAL BREAK)

[15:15:51]

NEWTON: The European Commission is expecting the EU to grow at a slower pace in 2023. The toll of Russia's war in Ukraine, it says. The European

market suffered across the board today.

Germany's DAX falling hardest, you see there nearly two percent with Euronext and the CAC not far behind. Now for next year, the Commission had

been predicting a growth year of 2.3 percent for the EU as a whole. It has now slashed expectations to just 1.5 percent. I would predict more

revisions ahead.

Shell's chief executive says a tough winter awaits Europe, a warning that the region may have to ration energy as Russian gas supplies are choked

off. Shell is Europe's largest oil and gas company. Its CEO Ben van Beurden cautioned Russia could completely cut off gas flows to the EU.

Meantime, France's President Emmanuel Macron is already urging his citizens to rein in their energy use. Listen.

(BEGIN VIDEO CLIP)

EMMANUEL MACRON, FRENCH PRESIDENT (through translator): Russia uses energy as it uses food, as a weapon of war. And so I think we must today prepare

for a scenario in which we have to manage completely without Russian gas, and I think that this is not a theoretical scenario.

(END VIDEO CLIP)

NEWTON: Not theoretical. Oystein Kalleklev is CEO of FLEX LNG which ships liquefied natural gas and he joins me now from Oslo, and it is good to have

you here especially on the heels of Macron's comments there.

So gas rationing in Europe, it will soon have to be a reality. Can and will a long lasting pivot to LNG supply make up for that Russian loss?

OYSTEIN KALLEKLEV, CEO, FLEX LNG: Thanks, Paula. Well, I think, well, we already in the midst of substituting Russian gas with LNG.

LNG imports in Europe is up 60 percent this year, which is a remarkable increase, but you know the storage levels in Europe is just about 60

percent. So whether we are able to get to an adequate level before the winter, I'm doubtful.

NEWTON: You're doubtful. So you don't think you will reach the level that you have to, especially if it's a cold winter in Europe, you don't think

you'll reach that level.

KALLEKLEV: You want to get to 80 percent by the heating starts at first of October. I think that seems fairly unlikely. Now, the volume of LNG, of

course they are going, but with the recent closure of free ports in the US, a lot of LNG has disappeared from the market.

And when we are talking about oil falling below $100.00, the price of gas in Europe is equivalent to $300.00 per barrel of oil.

NEWTON: Incredible, which is now you've seen actually the switching from the natural gas to oil. Now, many have said that, given extended timelines,

transport issues, the storage complications with LNG that it's not a good long-term alternative for Europe. What's your assessment of that?

KALLEKLEV: I think it's a very flexible product. You know, this kind of situation we have in Europe now is not unprecedented and actually it is a

bit reminiscent of what happened in Japan after the Fukushima event in 2011 when they shut down all the nukes, which provided 30 percent of the

electricity output.

[15:20:10]

And what they did then was to implement similar policies we are seeing in Europe. Now with rationing of power, and they were actually able to shave

off the peak demand from electricity by 20 percent.

And, and how they managed to get through the crisis was, of course, absorbing a lot of LNG, and this was actually the start of the spot LNG

market by Japan, soaking up all LNG similar to what Europe is doing today.

NEWTON: So if I hear you correctly, if winter -- if there is this winter of discontent in Europe, do you think then by the next winter after that,

so 2023 to 2024, do you think LNG could really make up for a lot by that time, just on the added timeline there?

KALLEKLEV: I think one thing is, of course, you cannot just make LNG quickly. You know, it takes a lot of time to build LNG export gas. But I

think the quickest way you can do is it probably in three years.

So really, you need to see the European signing up for long-term offtake agreements of LNG in order to stimulate more exporters, particularly from

the US.

So right now, basically, what the Europeans are doing is to soak up all the spot LNG and that's about one-third of the market. The rest of the market

are LNG being sold on long-term contracts, which is not that flexible in nature.

NEWTON: Now that flexibility is --

KALLEKLEV: So, in terms of the winter --

NEWTON: Go ahead.

KALLEKLEV: In terms of the winter, of course, we came from a winter with very low storage level and we've been trying to fill up the inventory cell

in Europe by buying all the spot LNG cargoes. Europe has been taking more than 70 percent of the US LNG cargoes. Last summer, this was 15 percent.

So they kind of just gone gangbusters on buying the spot LNG. But of course, in the event, the Russian pipeline flows stops entirely, there is

not enough LNG. And I guess we will get that answer in one week's time when, when Nord stream 1 is supposed to start again.

NEWTON: You ventured a guess on what will happen because many people fear that it will not start up again.

KALLEKLEV: It's too early to tell. This kind of situation with the Russians are very unpredictable. My guess is that they would start again,

but they might choke it off later in the season.

NEWTON: Just continue to use it as a weapon. I hear you. And we also hear you on the fact that this has to be a long-term shift into LNG, two, three,

four years out not, just you know trying to absorb that spot market.

We'll leave it there for now. Thanks so much appreciate it.

Now, Emirates is slamming London's London Heathrow Airport calling its plan to cap daily departures unreasonable and in fact unacceptable.

Heathrow says a chronic staff shortage is causing the delays cancellations and oh yes, you see them there, those lost bags. Isn't that incredible?

It wants to limit outbound traffic to no more than 100,000 passengers a day. Emirate says the problems at Heathrow are due to the airport's

incompetence.

Get this, a Delta flight left London this week carrying a thousand bags, no passengers, just the bags. It had to get all those bags back to its owners

in the United States. What a reunion that was, right, Anna Stewart? Can you imagine you don't know where your bag was and it came on this special

flight? You still had to get back to the airport to get it.

Anyhow, listen, given the statement from Emirates, does Emirates have the will and the power to be able to just keep scheduling those flights and

ignore what Heathrow is asking.

ANNA STEWART, CNN REPORTER: But it says that is what it's going to do, and I thought was really interesting because earlier in the week when we had

this big announcement from Heathrow that they were going to implement a capacity cap, they said they were asking airlines to do this and they were

suggesting airlines work with an independent slot coordinator so they could all figure out how to reach this target.

They said they weren't going to enforce it, but today in this very long stinging statement from Emirates, Emirates say they are being threatened

with legal action.

We do not have a response from Heathrow on that point. I think it would be quite incredible if Heathrow decided to take a really important customer to

Court over this.

Listen, at the end of the day, Emirates can keep scheduling the flights they have, but will they actually take off? Because the issue will be for

Heathrow if it really is facing a logistical crunch. If safety is at risk, then of course some planes will not take off.

And I think the point that Heathrow would make at this stage is that once airlines to get ahead of this, so they're not canceling flights last minute

for passengers, but of course Emirates believes Heathrow hasn't done nearly enough to help get out of this terrible hole, particularly with staff

shortages, and perhaps they could have done more.

And actually, I asked its Director General who have even suggested that Heathrow Airport is profiting at the expense of airlines. The end result

though, Paula, really is the same regardless, isn't it? It's the fact that there aren't enough staff at Heathrow Airport and at many other airports

and airlines around the world. And as a result, more flight cancellations are coming.

[15:25:04]

NEWTON: And depending on your route, Heathrow really is a lynchpin for so many travel plans. Now, can we just rewind a little bit here, and in terms

of the passenger traffic, what is it now compared to, let's say 2019?

STEWART: So right now for Heathrow, their capacity is at around 80 to 85 percent of where they were at pre-pandemic.

So ordinarily, they can handle 220,000 passengers every day, that's departures and arrivals; around 110,000 on average for departures. So

they're limiting that or they're trying to at least to 100,000.

At the moment, that's around 4,000 passengers a day that are over their cap. So that's how many people could be impacted. If of course, airlines

decided to actually implement this cap.

At the moment, it looks like quite a few airlines aren't and I can tell you from my own experience, you're not meant to be able to buy a flight

according to Heathrow right now. They've asked airlines to stop selling any tickets from now right through early September.

Well, unfortunately I booked one in the last 24 hours from Heathrow going to Dubai at the end of July. So clearly, it hasn't worked.

NEWTON: You're just part of the problem, Anna.

STEWART: I'm sorry.

NEWTON: Even though you are the Chief Air-Mageddon correspondent, I guess, it's for reporting purposes. You'll be able to report back.

STEWART: Yes, but my bag is lost.

NEWTON: Exactly.

STEWART: You'll be the first to hear, Paula.

NEWTON: You're checking a bag. Are you an amateur? Okay, we will leave -- you know what Richard would say about this.

Anyhow, I leave it there because Roan (ph) and the producer is killing me. All right, take care, Anna. We will continue to check in with you.

Coming up for us, Phil Mickelson says he can't wait for the next LIV Golf event as the British Open kicks off. Tiger Woods though had some harsh

words for him and the other players who joined the Saudi backed league.

(COMMERCIAL BREAK)

NEWTON: Hello, I'm Paula Newton and there's more QUEST MEANS BUSINESS in a moment.

When Saudi Arabia is using its economic might to muscle in on the world of golf, critics accuse the Kingdom of sports washing its human rights record.

And with its customer base shrinking, Netflix is preparing something it had vowed never to do, show ads on its platform.

Before that though, these are the headlines this hour.

[15:30:08]

(JOINED IN PROGRESS)

NEWTON: Customer base shrinking. Netflix is preparing something it had vowed never to do: show ads on its platform.

Before that, these are the headlines.

(MUSIC PLAYING)

NEWTON (voice-over): Its president has resigned by email according to the parliament's speakers office. An official announcement is expected

tomorrow, once the email has been verified. Street celebrations broke out in Colombo after the announcement, one day after Gotabaya Rajapaksa fled

the country after months of angry protests over his (INAUDIBLE).

Former British finance minister Rishi Sunak has won a second round of voting to replace prime minister Boris Johnson. Penny Mordaunt, a junior

trade minister and strong Brexit supporter came in second.

The Conservative Party has now narrowed the field of candidates to just five. The next Tory leader is set to take over (INAUDIBLE).

U.S. President Joe Biden and Israeli prime minister Yair Lapid signed a joint declaration in Jerusalem today, expanding security cooperation

between the two nations, containing a commitment to never allow Iran to acquire nuclear weapons.

On Friday, Mr. Biden will meet with Palestinian readers before heading to Saudi Arabia.

(MUSIC PLAYING)

NEWTON: The E.U. is condemning what it called a horrendous Russian strike on the Ukrainian city of Vinnytsia. Russian foreign policy chief Yosef

Borrell said on Twitter that targeting civilians is a war crime and must stop now.

The strike killed at least 23 people on Thursday, including three children. Scott McLean is there right now.

As you have been for several hours. It has been heartbreaking to see your reporting. As many in Ukraine have pointed, out there is really no spot

that is safe.

What is behind this latest missile strike from Russia?

SCOTT MCLEAN, CNN CORRESPONDENT: I would show you around but it's too dark to see anything at this late hour. They are still working feverishly to

clear the scene. This is a place that people did not expect this kind of thing to happen.

Vinnytsia is far from any kind of front line. In fact, this is a place where people fleeing violence in the east or southern parts of the country

have come to seek safety. I've met families who came from the Kyiv area during the height of the fighting there, to seek safety in Vinnytsia.

This has been relatively safe. But nowhere is immune from Russia's missile strikes. Today is another example of that. We know that the air raid sirens

went off just after 10:00 in the morning.

And it was 30 minutes later that these missiles came down. One of them hit a theater, which is just beside me. Another one hit in a parking lot

between the theater and an office building.

The office building had the windows completely blown out. What is especially remarkable is that some people were not taking shelter in the

basement. They were inside the upper floors of that building. And some ended up without a scratch.

Others were not so lucky. Some bodies were, well, completely unrecognizable after the damage from the strike. Of the 23 dead, there were only a few

earlier today that they actually managed to identify.

This tells you a lot about the state that these bodies were actually in, Paula. President Zelenskyy said this is not something that people could do.

This is something that only animals could do. He calls it an act of terrorism.

One other story, there is a small memorial just behind me, flowers, stuffed animals there. And the reason is because that is the spot where a 3 year

old girl was killed while she was sitting in her stroller.

What makes this even more tragic and more relatable, is the fact that her mother just an hour before these missile strikes came down, had actually

posted a video on Instagram that anyone of us could probably post.

It was her walking down the street and her little girl pushing her own stroller along. Obviously, 1.5 hours later, the little girl's dead. And the

mother's in hospital, seriously wounded, now fighting for her life.

The other thing that I find remarkable about being on the scene every day, Paula, is that they have let us roam wherever we want and look at anything

we want because you get the impression very quickly that the Ukrainians want us to be here.

They want the world to know exactly what happened here. They want the world to know that this was a strike on a civilian target -- Paula.

NEWTON: They know very well that they are also struggling to really avoid that fatigue that so many people fear.

[15:35:00]

Unfortunately, Scott, with everything you brought us, I can only imagine the trauma by all Ukrainians now when they hear the air raid sirens, they

may be forced into the bomb shelters and basements. Thank you so much for bringing us the story.

The war in Ukraine has sparked a global energy crisis. Western leaders are reshaping their relationships with Gulf states to help address the

shortage. German chancellor Olaf Scholz met with the sultan of Oman, hoping to find alternative sources of energy to reduce German reliance on Russia's

oil and gas

Meantime U.S. president Joe Biden is ready to meet face to face with the Saudi crown prince, the man he once vowed to make a pariah over his role in

the murder of journalist Jamal Khashoggi. Biden explains his change of heart.

(BEGIN VIDEO CLIP)

JOE BIDEN (D), PRESIDENT OF THE UNITED STATES: My views on Khashoggi have been made absolutely, positively clear. I have never been quiet about

talking about human rights. The question that -- the reason I'm going to Saudi Arabia, though, is much broader. It is to promote U.S. interests.

(END VIDEO CLIP)

(SPORTS)

[15:40:00]

NEWTON: Up next for us, for all you Netflix bingers, yes, a cheaper version of the streaming service is on the way. That is if you are willing

to put up with the ads. More after the break.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

[15:45:00]

(MUSIC PLAYING)

SOARES: As the world opens up to travel once again, tourist destinations are attracting visitors from right across the globe.

But what impact can the increasing number of travelers have on natural environments?

Today on Call to Earth, a marine habitat destroyed by overtourism has been restored to its former glory, providing a potential model for sustainable

travel.

(BEGIN VIDEOTAPE)

(MUSIC PLAYING)

UNIDENTIFIED FEMALE (voice-over): In the turquoise waters of this tropical island, a place of breathtaking beauty. It has inspired a generation of

travelers.

This is Maya Bay, made famous by the year 2000 movie, "The Beach," starring Leonardo DiCaprio. But over the following two decades, this island paradise

became an environmental nightmare, attracting up to 5,000 tourists per day.

THON THAMRONGNAWASAWAT, KASETSAUT UNIVERSITY (voice-over): Before, we had 100 boat in the bay. You couldn't walk on the beach. (INAUDIBLE) they see

other people here, they don't have even the best (INAUDIBLE) because they're very crowded.

UNIDENTIFIED FEMALE (voice-over): Boats and beachgoers destroyed the coral in the bay's shallow waters, reducing it by over 60 percent in the past 30

years.

The line in the sand came in 2018, when the Thai government made the controversial decision to close the moneymaking tourist destination and

begin to restore the ecosystem. The man overseeing that restoration is a Thai marine scientist, known as Dr. Thon.

(MUSIC PLAYING)

UNIDENTIFIED FEMALE (voice-over): Since the bay closed, he and a team of volunteers have planted over 30,000 pieces of coral to kickstart the

regeneration of the ecosystem.

THAMRONGNAWASAWAT (voice-over): And now coral starts to grow and spread by themselves. So we have increased our (INAUDIBLE) and let the Mother Earth

doing her job.

UNIDENTIFIED FEMALE (voice-over): They are using a fast growing coral cultivated nearby. Dr. Thon says without this transplant work, it could

take over 30 to 50 years for the reef to regenerate naturally in the bay.

By giving nature a helping hand, the hope is to maintain the delicate balance of tourism, environment and economy. Maya Bay reopened to the

public in January 2022 and tourists are returning.

But now, numbers are limited to just 300 visitors at a time, leaving plenty of room for selfies. And rules protecting the recovering coral are strictly

enforced. A new jetty at the back of the island enables boats to dock without entering the bay, allowing other life to return. These black tip

sharks are thriving in the shallow waters.

THAMRONGNAWASAWAT (voice-over): Then because of the only three months (ph) the (INAUDIBLE) come back. They keep on mating. Some of them give birth. So

there are a lot of things happening in Maya Bay that is not only the coral reef.

UNIDENTIFIED FEMALE (voice-over): Dr. Thon hopes Maya Bay can act as a model for other tourist destinations at risk and help change perspectives

at home and abroad.

THAMRONGNAWASAWAT (voice-over): If you change the image of our Thai tourism, share the image that we are not just a country that are crazy

about money, we would like to (INAUDIBLE).

UNIDENTIFIED FEMALE (voice-over): The legacy of a lifetime, his work will help protect this incredible environment for generations to come.

(END VIDEOTAPE)

NEWTON: So let us know what you are doing to answer the call with the #CallToEarth.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

NEWTON: Netflix says a cheaper plan featuring ads is on its way. Now the streaming giant is teaming up with Microsoft to roll out the new service.

Netflix notably resisted ads, right, until its subscriber growth rate tanked, taking shares lower as well.

And those shares are down 70 percent this year. And as if there were not enough subscription fees, BMW, so innovative, says it will offer some

British owners heated seats just for a monthly charge. Angry drivers are calling the move bad timing, as the U.K. is in the midst of a severe cost

of living crisis.

Bruce Turkel is the founder of Turkel, a global branding consultancy. And he's an expert on consumer behavior. He joins me now from Miami, Florida.

And really good to see you. Please let me in on the secret here.

Are we at peak subscription or is this just a normal maturing of the market, that companies are adjusting to consumer preferences?

BRUCE TURKEL, FOUNDER AND CEO, TURKEL: Actually, consumers don't like subscriptions. Companies like subscriptions. We much prefer one and done.

We like to buy something and never be charged again.

But subscriptions are much more profitable. And once we get on that merry- go-round, we never leave. So they want us to subscribe to things.

NEWTON: Yes, and that automatic charge on your credit card is annoying. A recent CNBC survey noticed that more than a third of Americans now have

canceled a monthly subscription and, obviously, they've done that in the past six months, obviously because of inflation.

So where do you see this going right now in the future, when you look at a Netflix saying look, we are going to have two models here, one for

subscription and one for ads?

TURKEL: Well, think about Netflix for a second. For 50 years, we got free TV with ads. Then Netflix came along and said it won't be free but you

won't have ads anymore.

Now they are telling us, it won't be free and you will have ads. I don't know if they are going to call it Notflix but it's kind of crazy that

they've upended this all with the suggestion that it's better for consumers. It is not; it is better for Netflix.

NEWTON: Do you think consumers will have any power in how this goes?

I mean, at one point in time, will we actually get the services the way we want them?

Obviously having to hand over the market price.

TURKEL: Well, so think about what you just said.

Will we get what we want?

We will only get what we want, as consumers, if we move in a bloc. Right, now you have outside influences.

[15:55:00]

The economy and other things that are causing us to maybe look more carefully at how we spend our money.

However, the more we get used to these subscription services, the more we will accept them. The companies care about two things, acquisition, the

cost of getting a customer, and retention, the cost of keeping a customer.

Once again, if you purchase a product, well, the retention does not much matter because you've already paid for it. But if you continue to pay month

after month and studies show regardless of what has just happened, once people start subscribing, they mostly continue to subscribe.

Retention goes, the price of it goes down and the benefits of it go way up. We are not going to get what we want. The companies are going to get what

they want.

NEWTON: So interesting what you say, especially given that, you know, BMW, as you are just saying, took it to a whole new level.

You know, technology was supposed to bring better service, that combination of technology and service was magically supposed to bring everything

together and really give us the products that we wanted at a more efficient price.

Do you see that happening?

Because at this point, you, know BMW really charging to heat your seat when they've already put the infrastructure in your seat to heat your bottom?

TURKEL: So, Paula, look at it this way. BMW has been trying to get us to subscribe to things for a long time. They've tried with entertainment;

they've tried with way finding, they've tried with oil changes and tire service and we have continued to push against it.

Now this idea of having seat warmers, be on the subscription service, makes perfect sense from a strategic point of view, because what they can say is,

listen, subscribe when it's cold out and then unsubscribe when it's warm.

But A, we are not going to do that. We are going to forget to do it. And second of all, BMW does not stand for bum of the month warmer.

(CROSSTALK)

TURKEL: -- 80,000, 100,000 euros or pounds or U.S. dollars for a car. If they wanted a cheaper car, they would buy a Kia. What they want is to get

the services they demand.

However, once again, once they get us to start doing this, we will continue. If you want an example, just look at the difference between

owning a car and leasing a car. We used to own them. Eventually you paid off and then it was yours.

Now we lease them. Yes, you have a new car and maybe you get more for your money. But we've accepted the fact that we have a monthly car payment that

doesn't go away. And BMW likes that plan. And they want to do it on other things. This is the way to get us hooked.

NEWTON: Right. Bruce, I have to leave it there. But fascinating as always, thanks so much, really appreciate it.

We will be right back for the last look at the market.

END