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QUEST MEANS BUSINESS
Volkswagen Orders Massive Recall in Europe; DiCaprio Buys Film Rights to VW Scandal Book; VW Down, European Markets Rise; US Stocks Snap Two Days of Losses; Goldman Sachs, Burberry Earnings Disappoint; US Makes Progress in Cutting Deficit; UEFA Members Stand Behind Michel Platini; CEO of Major FIFA Sponsor Hublot Speaks Out on Scandal; Tag Heuer Signs Deal With Tom Brady; Migrant Crisis and Human Trafficking; Travel Industry Fights Child Trafficking
Aired October 15, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:59:55] (NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: Very interesting day on Wall Street. Look at how the graph goes up as the market rose from 12:00 onwards, with a strong
one and a third percent gain at the end of the session. And the man at the --
(GAVEL POUNDS)
QUEST: Ooh. That is what you call a wimpy gavel on Thursday, October the 15th.
Back it into the garage. Germany orders a massive recall of Volkswagen cars.
It's a square offering in a market that's gone pear-shaped.
And think of it as the tipping point, as one restaurateur takes the power to tip out of your hands.
I'm Richard Quest, back in New York, where of course I mean business.
Good evening. Tonight, the wheels are set in motion on Volkswagen's giant recall. The company has announced one of the biggest recalls in auto
history. It's trying to rectify the cars that cheat on emissions tests.
You'll remember originally Volkswagen had hoped to do it as a voluntary recall, and they weren't even using the word "recall." Well, no
longer. Now the company is to recall 8.5 million diesel vehicles. The work will begin in January, and VW says there'll be no cost to the
customer. That's generous of them.
It comes after German regulators ordered a mandatory recall of a couple of million cars. Germany's transport minister said Volkswagen had
no choice. They had to get the cars off the road.
(BEGIN VIDEO CLIP)
ALEXANDER DORBRINDT, GERMAN TRANSPORT MINISTER (through translator): The KBA believes this to be a case of software using an unreliable defeat
device. VW must now remove the corresponding software from all vehicles and take the necessary steps to ensure compliance with emission
regulations.
(END VIDEO CLIP)
QUEST: This latest recall only makes the emissions scandal go deeper and more expensive for Volkswagen. The events of the past month have been
so dramatic that Leonard DiCaprio has already bought the film rights to a Volkswagen book, even though the author, Jack Ewing, hasn't written the
book yet. We'll talk about that with the author in a moment. But all the twists and turns have inspired us to give VW the Hollywood treatment.
(BEGIN VIDEO CLIP)
MICHAEL HORN, PRESIDENT AND CEO, VOLKSWAGEN GROUP OF AMERICA: In my German words, we've totally screwed up.
MARTIN WINTERKORN, CEO, VOLKSWAGEN (through translator): The irregularities in our group's diesel engines go against everything
Volkswagen stands for.
LAUREN FIX, CAR COACH: This is a very serious situation because it's a trust issue issue more than anything.
UNIDENTIFIED MALE: There can be no winking, no blinking on how you meet regulations around the globe.
REP. JOE BARTON (R), TEXAS: Do you really believe that senior-level corporate managers had no knowledge for years and years?
HORN: I agree it's very hard to believe.
(END VIDEO CLIP)
QUEST: I'd go and watch that movie. The question is, is it the book that Jack Ewing of the "New York Times" is going to write? Joins me now.
Sir. So, you're writing the book, and I know that's what you're here to talk about. Tell me why did you decide to do it?
JACK EWING, EUROPEAN ECONOMICS COMMENTATOR, "NEW YORK TIMES": Well, to be quite honest, a publisher approached me, Norton, and asked me if I
would be interested in doing it. That was only about three weeks ago, and things have moved very quickly since then. I have a great agent, Marly
Rusoff, who took it to Hollywood, and you know the rest.
QUEST: Are you surprised at the speed at which this has happened?
EWING: Yes, very -- you mean in terms of it going to Hollywood?
QUEST: The whole process. Well, let's face it, this scandal, I mean, although those involved have been negotiating it for a year or two, the
rest of the world -- the rest of us have only known about it for the last couple of months.
EWING: Yes. No, the way it hit was amazing. It's -- one day we found out there was the cheating, and then just an incredible amount of
stuff has happened since, that it's totally turned Volkswagen upside-down.
QUEST: We'll leave the movie to one side, but in terms of the book, what do you aim for the book to do? What do you want it to discover?
EWING: Well, I think there's two goals. One, I just want to tell the story, and I -- the big question that everybody wants to know is, who is
responsible for this inside Volkswagen? What kind of management mistakes allowed this to happen? I think that's one part of the story.
And then, I'm also looking at the broader issue of what this means for businesses in general? What does this say about the way businesses operate
today?
QUEST: Let's talk on that issue, because when I heard it, initially you thought, well, this can't be true. I mean, it's so outrageous. And
then you heard the testimony last -- two weeks ago in front of Congress, where basically, they lied. And now we're hearing that there may have been
dozens of engineers in Volkswagen who knew about this.
EWING: Yes, well, it's hard to believe that something that was installed in 11 million cars, that that was the work of a very small group
of people. There had to be a number of people involved.
[16:05:02] And I think that's what we still don't know, is how far did this go? How high did it go? And why did Volkswagen not have systems
in place that would prevent this type of problem from reaching a point where it could really threaten the entire company?
QUEST: When I look at BP and Macondo and the Gulf of Mexico, there was an incident, and there was no real -- there were certain cultural
problems that allowed it to happen, but the company had to move quickly to protect the balance sheet, selling off assets and all that sort of thing.
Do you expect the same sort of actions now from Volkswagen? We know they've already cut capex. But what more do you think Volkswagen will have
to do?
EWING: I think they'll wait as long as they can before they start selling off unites, like Lamborghini or Bentley, some of those, some of the
family silver, so to speak. But I think the main effect that is it's going to hurt their ability to invest in new technologies.
QUEST: And finally, is the book going to be sexy, and who's going to play the leading role?
(LAUGHTER)
QUEST: You knew I was going to ask you that.
EWING: Sexy? I don't know, I don't have any sex scenes yet, and that might be a little hard to come up with. Leading roles? I think DiCaprio
would make a great Martin Winterkorn, but that's up to him. I have no idea what he's planning to do.
QUEST: Martin Winterkorn, Leonardo DiCaprio. I'll come to the opening night. Thank you very much.
EWING: Great, Richard.
QUEST: Good to see you. Now, the latest recall news sent Volkswagen stock plummeting in Germany. Join me at the super screens, and you'll see
how the markets traded. Which -- when you think of what happened to Volkswagen and put it into the context of the other markets, you'll see.
Take, say, for example the Xetra DAX. This was how the one day trading, you have that very sharp fall there, reflecting it. The markets
had a good day in Europe, except, obviously, for certain stocks. The Xetra DAX was up 1.5 percent.
Just show you how it's gone over the last six months. That's, obviously, the crisis over the last few weeks. The FTSE was also up more
than 1 percent. Paris and -- similarly, they were all up.
There was weak US data, which suggested interest rates will not rise this year. In fact, there's been a whole slew of economic data suggesting
now that interest rates won't rise despite what Janet Yellen said in a recent speech.
Two members of the Fed Board -- the FOMC -- are now believed to believe that it should be pushed into next month, so dissension within the
Fed is starting to become a real issue.
From here onwards, 12:00 onwards, and the market goes on an absolute tear, back over 17,000. But what happened this afternoon? What happened
this afternoon that caused all this to take place? We'll talk about that as we also talk about earnings with Paul La Monica. Good to see you, Paul.
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Thank you.
QUEST: Nice to see you. What happened at 12:00 during the day that enabled the market to suddenly rise so sharply?
LA MONICA: Yes, I'm not sure there was a specific event that caused that day-end rally, but as you pointed out, people are growing more
comfortable with the notion that the Fed is going to stick with zero percent interest rates for a couple more months, perhaps into early 2016.
And while a few weeks ago, people complained about that, now I think people are partying because it means more of the easy money flowing.
QUEST: OK, so, we also had earnings results, which I'm just going to remind. Goldman Sachs had a third quarter miss, where net income fell.
But there was a concern particularly with Goldman Sachs -- the stock was up, but it was about bond trading, wasn't it? It was fixed income --
LA MONICA: Yes.
QUEST: -- that was the cause of the problem.
LA MONICA: Yes, the big drop there. Fixed income, currencies, commodities.
QUEST: So, if Goldman was down on earnings and it misses, why is the stock up 3 percent?
LA MONICA: It's a great question. There's a couple of things, I think, at play. One, people are hoping because the market has stabilized
since late August, that the worst of the turmoil is now over, fourth quarter trading numbers should be better.
Also, Goldman's showing a lot more discipline. Their compensation expenses, the quote-unquote "bonus pool," it's down 16 percent from a year
ago. So, the company is not rewarding its employees as lavishly, because times aren't as good.
QUEST: One man who's not going to be rewarded as lavishly is Christopher Bailey at Burberry.
LA MONICA: Not at all.
QUEST: Burberry's results -- "It was an increasingly challenging environment," is how they describe it. But Burberry is related to China,
large numbers of sales in China, and that's down sharply. Is this a bloody nose, if you like, for Bailey?
LA MONICA: I think it is. China and Hong Kong are clearly a problem. But he is not alone. Every luxury retailer, and many retailers around the
world with exposure to China, are going to have difficult, at least for the third quarter. Again, will things stabilize in the fourth quarter?
Because Chinese stocks have surged as well so far this month.
QUEST: I need to as you about debt. I see -- I'm just looking at the screen -- that the US government has announced basically that the federal
deficit was $439 billion in fiscal 15, which was $144 billion --
LA MONICA: Yes.
QUEST: -- less, giving a deficit of 2.5 percent. That's remarkable numbers.
[16:10:04] LA MONICA: It is. I think what's really happening here is that even though it's fashionable to complain about the sluggish growth
in the US economy, the US economy has grown steadily, even if it's not spectacular, and you've seen that with the job market. More people with
jobs equals more payroll taxes. More revenue coming in, even though we're still spending a lot, that leads to a lower deficit.
QUEST: Even so, it means the deficit's not a problem.
LA MONICA: No, of course the deficit is a problem for the long term. We also have that debt ceiling debate, I mean --
QUEST: Ah! Leave the debt ceiling!
(CROSSTALK)
LA MONICA: We are not out of the woods.
QUEST: Leave the debt ceiling!
LA MONICA: Washington is still a mess.
QUEST: You said it, not me.
(LAUGHTER)
QUEST: When we come back, a 90-day ban could have cost him his bid to be the next FIFA president, and now it seems Michel Platini still has the
support of some very important allies. It's QUEST MEANS BUSINESS from New York.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: UEFA is still backing its president to clear his name. Michel Platini's plans to become the next FIFA president were derailed when FIFA
banned him for allegedly taking a disloyal payment from Sepp Blatter. Now, he's won the unanimous support and backing from Europe's football
authorities.
(BEGIN VIDEO CLIP)
GIANNI INFANTINO, SECRETARY GENERAL, UEFA: We support Michel Platini's right to a due process and a fair trial and to the opportunity to
clear his name.
We strongly call on all instances involved in the current process, FIFA's ethics committee, FIFA's appeal committee and, ultimately, the court
of arbitration for sport, to work very rapidly to ensure that there is a final decision on the merits of the case by, at the latest, mid-November
2015.
(END VIDEO CLIP)
QUEST: Is Platini's aims and efforts derailed? UEFA says it doesn't want February's election for FIFA presidency to be delayed. The problem
is, there aren't too many candidates left who aren't facing some form of corruption or some allegation of misdeeds and miscreant behavior.
Now, Sepp Blatter has already been -- said he won't run. The election is because he said he's stepping down. And anyway, he is suspended for 90
days. Platini was one of the front-runners, but now he's also been suspended for 90 days.
[16:15:05] As for the Korean billionaire, Chung Mong-joon, he's been banned for six years. He was suspended over the bids for the next two
World Cups. Which really just leaves us at the end with Prince Ali bin al- Hussein of Jordan, who lost to Blatter in the election this year.
You might -- and you would be perhaps reasonable if you say this lot couldn't run the proverbial in a brewery. Don Riddell is at the CNN Center
and joins me now. Mr. Riddell, two of the three candidates are suspended. I mean, how on Earth do they get out of this mess?
DON RIDDELL, CNN SPORTS CORRESPONDENT: Well, yes, that's the $64 million question, Richard. I might perhaps have given Michel Platini a
yellow card, in your graphic there. A red card would suggest that he's completely out of the running.
But you've heard that UEFA are going to give him their backing. And the way I understand that is, he's got our backing for now. They want him
to go through the due process, where he has the opportunity to clear his name, and they are insisting that that is done as quickly as possible, by
mid-November.
But it may well be that regardless of their backing, he can't run for the presidency anyway, because he's submitted his paperwork, he's one of
only two men, he and Prince Ali, to have actually have got to that stage with 11 days to go until the deadline --
QUEST: Right.
RIDDELL: -- on October the 26th. But he's still got to go through an integrity check, and it may well be that FIFA determined he isn't fit to
run for the presidency anyway.
QUEST: Now, can UEFA just ignore FIFA on this basis and say, let's face it, you're all so corrupt, and it's such a shambles, that if we want
Platini to stay as head as UEFA, what are you going to do about it? UEFA is by far and away the biggest at the table.
RIDDELL: Well, I mean, today's meeting was really to determine whether or not Platini has their support for the FIFA presidency. What
they were discussing today wasn't whether or not he's fit to be able to continue on as the UEFA president.
QUEST: Right.
RIDDELL: Incidentally, even though he's been banned from all football-related activities for 90 days, UEFA said today that he's still
getting paid as the UEFA president. So, it's easy to get mixed up in what actually people are all talking about here. But essentially, what was
going on today was whether or not UEFA --
QUEST: Right.
RIDDELL: -- supports Platini to run for the FIFA presidency. And right now, they do. But as you say, there's only two men in the running,
and it's really hard to see how this process can go forward and take place on February the 26th with any degree of credibility.
QUEST: In a sentence, Don, are you still aghast at just how awful this is?
(LAUGHTER)
RIDDELL: None of this comes as any surprise anymore. It's very difficult to be shocked or surprised by any of this, Richard. But it is an
absolute fiasco for sure.
QUEST: Right. Don Riddell, thank you very much. Our FIFA fiasco correspondent, Don Riddell, bringing us up there.
Swiss watchmaker Hublot is a major FIFA sponsor. Now, Hublot was the official timekeeper of the 2014 World Cup. As you can see. And it will
reprise that role in 2018. While many sponsors have either cut ties with FIFA or called for Blatter to step down, Hublot has done neither.
So now, we're going to give the head of Hublot, the chief exec, Jean- Claude Biver, the chance to actually say in clear terms, sir, what do you think about the current fiasco with FIFA? What do you want to happen?
JEAN-CLAUDE BIVER, CEO, HUBLOT: I want the truth to come out. I want clarity. I want to know what has happened. For the time being, I can only
say there's a presumption of innocence. At least in Europe, that's how I think.
I want to know what has happened. I want to -- I'm looking forward to the 24th of November, when we will definitely know. Now, for me, for our
brand --
QUEST: It's damaging.
BIVER: It's not damaging us.
QUEST: Yet.
BIVER: You know why? Because we are part of the referee. We hold the referee board. So, we are linked to the referees and to the game more,
somehow, than other sponsors, who are around the field.
QUEST: Right. So, I'm not going to dwell for long on this, because we have other things to talk about, but to be clear, should Blatter go
sooner rather than later?
BIVER: No. He should go -- when he has to go. Why should he go now? If he goes now, means somehow he is guilty. I mean, why should he go? He
has a term, which is end of February, or something like that. He should -- I mean, he's suspended. So we're talking now -- he's out of there anymore.
[16:20:05] QUEST: Had you had had any moment had any doubts about whether you should continue to sponsor --
BIVER: Never. We didn't have a single doubt, because it will -- if FIFA has a problem, it doesn't mean football has a problem. And FIFA --
(CROSSTALK)
QUEST: But as FIFA's problem has continued, sponsors could have acted sooner, could have put commercial pressure sooner. Do you agree?
BIVER: Eventually, yes, but there was no doubt that anything was wrong. I have been knowing Blatter since 40 years. I cannot imagine today
that he did something wrong, voluntary.
QUEST: You've announced a Tag Heuer sponsorship with Tom Brady.
BIVER: Yes.
QUEST: Which, of course, is a new venture. I hesitate to suggest Deflategate, but you do seem to have a knack for sponsoring people who
might have issues in the controversial area, don't you?
BIVER: Yes. We are disruptive.
(LAUGHTER)
BIVER: Disruption is creativity. The innovation disrupts the past. And somehow, we believe in people, whatever is said on the right or on the
left side. And by the way, Tom Brady is -- he was cleared and he is totally innocent.
QUEST: Well, the court has cleared him, yes --
(CROSSTALK)
BIVER: That's a lot.
QUEST: Well, on appeal, it cleared him. There's still the question of well -- but you had no doubt with that either, with Brady?
BIVER: I have no doubt with Brady.
QUEST: Yes?
BIVER: And I have no doubt -- I must say, it seems strange, I have no doubt with Michel Platini, and I have no doubt with Blatter.
QUEST: How much is this watch that I'm holding?
BIVER: $5,000 US, or 5,000 Swiss francs. Today, it's the same price.
QUEST: Tell me!
(LAUGHTER)
QUEST: I was in Geneva this morning! I was in Geneva this morning. How on Earth do people live in that city? It's so expensive.
BIVER: I think New York is more expensive for me than Geneva. I had a beer in the airport, a Budweiser, and I paid $6. I said to myself, that
cannot be possible.
(LAUGHTER)
QUEST: You're selling $5,000 watches. You can afford it, sir.
(LAUGHTER)
QUEST: Right, let's just put this in a safe. You won't be needing this for the moment.
There's a new front that we're going to be talking about with the Freedom Project. It follows in just a moment. Our agenda turns in a very
difficult and different direction. We're going to be talking about what happens in hotels all around the world. The Freedom Project on the front
lines.
(COMMERCIAL BREAK)
[16:25:25] QUEST: Interpol and Europol are taking on the organized criminals who are fueling the migrant crisis. They want a coordinated
action to stop the human traffickers and the people smugglers who are trading in human misery.
The law enforcement agencies -- now it's going to hold a two-day meeting at Interpol's headquarters in southern France. And there, they'll
discuss how to disrupt these criminal networks. There'll be representatives from 50 countries who'll take part.
As you may know, a third of all victims of human trafficking are children, according to the United Nations, and it is happening right here
in the United States behind locked hotel room doors. The travel industry is being warned to look out for signs of abuse. CNN's Clare Sebastian
exposes a problem, which literally could be happening across the corridor.
(BEGIN VIDEOTAPE)
UNIDENTIFIED FEMALE: On a ran of the hotel, the guy at the front desk looked at me. I feel like he knew something was wrong.
CLARE SEBASTIAN, CNN PRODUCER (voice-over): This is the latest campaign by anti-child trafficking group, ECPAT-USA, to spur the travel
industry into action.
CAROL SMOKENSKI, EXECUTIVE DIRECTOR, ECPAT-USA: The fact is that children are commercially, sexually exploited at hotels in the United
States. It happens all over. It's not like there's one bad company or one bad place. Frankly, pimps and traffickers don't really car.
SEBASTIAN: The card now has more than 1200 signatories worldwide. At last count, 223 are full members, who report to ECPAT every year. Hilton
became a member in 2011.
JENNIFER SILBERMAN, SENIOR MANAGER, HILTON WORLDWIDE: Infusing this into our overall training agenda or curriculum. It was really something
that was very natural for us, because we are a training organization. I think first and foremost, it was developing a training that would make
sense for our team members.
SEBASTIAN: Hilton now relies on a combination of this online training and face-to-face classes. Hotel staff are taught to look for possible red
flags and report them to the hotel manager, who will decide whether to involve law enforcement.
CRAIG WILLIAMS, GENERAL MANAGER, HILTON NEWARK AIRPORT: The Guest Service agents will be looking for things like cash-paying guests, large
groups of young children.
SEBASTIAN (on camera): What are the room attendants -- what are the cleaners looking for?
WILLIAMS: Unusual situations in the room, alcohol, drugs.
SEBASTIAN (voice-over): It's an uncomfortable reality for an industry built on hospitality, holidays, happy times.
SEBASTIAN (on camera): And yet, signing ECPAT's code, like Hilton has done, is not the only way that this industry is tackling this darker side.
Some companies, for example, have their own specific policies.
SEBASTIAN (voice-over): Companies like Starwood Hotels and American Airlines have implemented training programs of their own. There are also
other NGOs, like Airline Ambassadors, an ECPAT signatory, which trains airport and airline staff in the US.
And there's raising public awareness. Marriott International is a major sponsor of the UN's Be a Responsible Traveler program. All these
efforts are helping break the taboo that once surrounded this issue.
WILLIAMS: In the three, four years that this has been exposed to me and my hotel team, we've come a very long way. It's a subject that is
talked about often.
SEBASTIAN: With more than a billion people traveling abroad each year, this industry is more engaged than ever in the fight against human
trafficking.
Clare Sebastian, CNN, New York.
(END VIDEOTAPE)
QUEST: An important point, and I'll talk more about that in the Profitable Moment at the end of the program. QUEST MEANS BUSINESS returns
in a second or two.
[16:29:00] (COMMERCIAL BREAK)
[16:32:16] QUEST: Hello, I'm Richard Quest. Of course there's more "Quest Means Business" in just a moment when Square announced an IPO in the
market that's looking bleak for techs. So why are they doing it now?
And no more deciding whether to leave 10 percent/15 percent/17.5 percent. A top chef's eliminating all tips from his restaurants. But will
others follow?
Before that, this is CNN and on this network the news always comes first.
President Obama's extended the American military mission in Afghanistan once again. Nine thousand eight hundred American troops will
now remain in Afghanistan through most of next year while focused on training Afghan troops and fighting the remnants of al-Qaeda. Mr. Obama
says the decision was made in consultation with Afghan leaders and U.S. military commanders.
(BEGIN VIDEOCLIP)
BARACK OBAMA, U.S. PRESIDENT: Afghan forces are still not as strong as they need to be. They're developing critical capabilities -
intelligence, logistics, aviation, command and control.
And meanwhile the Taliban has made gains, particularly in rural areas and can still launch deadly attacks in cities including Kabul.
(END VIDEOCLIP)
QUEST: Israel continues to be worried after a string knife attacks. In Jerusalem there's an increased police presence around Palestinian
neighborhoods.
Checkpoints have been set up and 300 additional security guards have been recruited to protect public transportation.
No new attacks have been reported on Thursday.
The former convicted Olympian Oscar Pistorius will be released from prison in less than a week and he'll be transferred to "house arrest."
He's only been behind bars since last October when a judge sentenced him to five years for culpable homicide in the shooting death of his
girlfriend Reeva Steemkamp.
The reality star and the former NBA player Lamar Odom is fighting for his life in a Las Vegas hospital. Today he was visited by his teenaged
children.
He was found unresponsive at a legal brothel in the U.S. state of Nevada. His ex-wife Khloe Kardashian is reportedly by his side.
Europe's football body UEFA said it supports the President Michel Platini's right to defend himself against allegations of corruption.
Platini's being investigated by FIFA over an alleged disloyal payment by Sepp Blatter. Platini was given a 90-day suspension.
UEFA's calling for the case to be concluded by mid-November.
[16:35:06] Square has filed to go public. Now you may have seen its card readers. The mobile payments company says it's applying to trade on
the New York Stock Exchange under the ticket symbol SQ. Those are my mother's initials.
Anyway, no word yet on the number of shares or indeed the price range. Square launched in 2009. It's now valued at $6 billion.
Why to go public now for a tech company is a serious question investors may want to know.
There've been just 17 tech IPOs in 2015 which is the lowest number since 2009. And when you look at the performance, they are some of the
worst that we've seen in the second quarter.
For instance, (RINGS BELL) Etsy down 63 percent since an April debut, Box down 46 percent since the debut in January.
Alibaba, GoPro, GrubHub - they were all sharply down over the course of the year. Now amongst those still waiting in the wings - Airbnb,
SnapChat and Uber.
Uber will be amongst one of the most valuable companies in the world if it goes according to plan.
More tech startups opted for private funding. It's away from the market and you're less likely to suffer the effects.
Samuel Burke joins me now from London. Why has tech had such a bad rap in IPOs, bearing in mind to a man, woman and child, we agree tech is
the future?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Well, what happened is you had a lot of the big tech companies - Facebook, Twitter - and they came out
and they had great IPOs - Twitter at first, not so much anymore for their stuff.
But what a lot of companies saw was these great sexy IPOs and they wanted to follow in their footsteps. But by the time they reached the
market, they already had a lot of competitors and so it hasn't gone quite as well for them.
And when it comes to Square, Richard, we've learned a lot. They earn a lot of money, they spend a lot of money, but at the end of the day,
they're still not profitable.
Just take a look at these numbers, Richard. Revenue is up for Square 54 percent to $850 million. Losses increased to $154 million though. Most
surprising of all, their deal to process Starbucks has actually caused them to lose $28 million.
But at the end of the day, I'll get back to your question. Here we see razor-thin margins and a very competitive field --
QUEST: Right, but -
BURKE: -- the same thing that has hurt the other IPOs.
QUEST: The difference though with something like Square and it's always a risk of newer technology or a better mousetrap, but at least
they're making a product which is clearly in demand. They've got competitors unlike some companies which are just mist on the waters.
BURKE: That's right, and that's part of the reason that they want to do their IPO. And they know they've got the revenue coming in, they need
the money to continue to attract new clients.
But another reason that they want to do it - because they just want to stay ahead of the competition. A lot of people recognize that if Square
doesn't act now, those competitors are going to get the best of them.
And yes, there's a lull but a lot of people are expecting big numbers for those other companies and it shows.
QUEST: So, I know Square obviously warned about Dorsey spending time between Square and Twitter. How much of that is a real concern? Because
new companies - I mean, most companies - shouldn't just be completely dependent on the chief executive.
But new companies tend to be more reliant on the ability of the CEO.
BURKE: And this is uncharted territory. It's very rare to see the CEO of two companies of this size in charge - Jack Dorsey in charge of
Twitter, Jack Dorsey in charge of Square.
Take a look at this little nugget that I found in there prospectus, and it took some people by surprise because Jack Dorsey has been so
confident. He said -- or rather in the prospectus for Square - they say quote, "This may at times adversely affect his ability {Jack Dorsey's
ability}to devote time, attention and effort to Square.
Now, when I talked to Jack Dorsey about his last year, he said, listen, they're right next door to each other, I can easily cross the
street and go from one to another.
He makes it sound almost as easy as you, Richard, going from one show to another - "Business Traveler" to "Quest Means Business," but it might be
a little bit tougher than that. At least that's what some of the investors are thinking.
QUEST: Yes, I mean, many CEOs run much bigger companies than those two and manage to do so successfully. Dorsey can do it. (RINGS BELL).
Thank you, Samuel Burke in London.
Coming soon to a stock exchange near you, an IMAX IPO in Hong Kong that's been a blockbuster success. Chief exec of IMAX joins me next.
"Quest Means Business."
(COMMERCIAL BREAK)
[16:42:35] QUEST: Can't beat a good movie and a good evening at the C-Ma (ph) -- going to the pictures as we used to say. Well, IMAX has
continued its winning streak in Hong Kong, defying the recent volatility from the region.
The shares in the movie company's Chinese offshoot debuted in Hong Kong a week ago and today they're at more than 20 percent since then.
Richard Gelfond is the IMAX chief executive and appropriately for chief, he's with me in the C Suite.
Now 20 percent?
RICHARD GELFOND, CEO, IMAX: It's really 35 percent, Richard, but I hate to correct you.
QUEST: When you're talking about that sort of level, you can correct as much as you like, sir.
GELFOND: OK, sorry.
QUEST: Were you seriously worried about this going ahead when you'd seen what was happening?
GELFOND: The answer would be yes. We filed in around April or May. I was there in June for kind of pre-IPO meetings and I felt like the
hottest commodity in town. I had 61 meetings and people were like how much can I buy, how fast?
And then we had planned on going right around Labor Day, and the markets had been really volatile and as you know they devalued the ranum be
(ph) and the market hit its lowest point in two years.
And sure I was worried. I mean, you know, you could not be worried.
QUEST: So why didn't you pull it? Because we've seen cases - I remember WizzAir in London literally pulled their IPO within days of when
it was supposed to happen. Why did you decide not do that?
GELFOND: Because we were going to own 70 percent of it after the IPO happened and we were only selling 7 percent in the IPO.
So I wasn't so concerned about what the price was in the IPO as I was about where it traded in the aftermarket so we could create long-term value
which is why we did it.
So I view windows as either opened or closed and, you know, I didn't need the last nickel and it made sense for me to wait a while to see if we
could sneak through.
And the Fed didn't raise interest rates as you know at the end of September and we found a window.
QUEST: This is fascinating because I'm getting real insight into the sort of decisions you have to make and we often don't hear about in terms
of an IPO.
In the days after and the week after, we've seen this 35 percent rise in the level. What's driving that? Is it speculation or is it
fundamental?
GELFOND: I think it's more fundamental. I think one reason that it was priced lower than it could have been is where investors were just
skittish about IPOs in general.
[16:45:04] QUEST: But that really - but that meant leaving some money on the table.
GELFOND: That meant leaving money on the table, but our book was very strong. We were more than five times oversubscribed and remember this is
discretionary consumer in China.
This isn't export, this isn't manufacturing, and that segment has done extremely well, Richard. So I felt good about it.
There's a lot of demand, the road shows were full, and I think the bankers who did a good job priced it deliberately a little lower so it
would trade well.
QUEST: And what did you do with the money?
GELFOND: Some of the money is going to be reinvested in China and we're going to build a post-production facility, a screening room, invest
in more theater deals in China, more joint ventures.
And then the amount we sell - the amount we sold - we're going to keep on our balance sheet to do better things.
QUEST: Thank you, sir, I appreciate it.
GELFOND: Thank you.
QUEST: Thank you very much indeed. Now from the small screen - from the big screen and the small screen - to the very small screen.
GoPro is used for all sorts of extreme sports and GoPro shares have been on an extreme downhill slide. GoPro's fallen more than 50 percent
this year.
The company does have ambitions to get some uplift - it's taking on the drone market. And its chief exec Nick Woodman told Maggie Lake that
the company plans to roll out its own version of (GESTURES) next year.
(BEGIN VIDEOCLIP)
NICK WOODMAN, CEO, GOPRO: We definitely are on track to introduce our drone for the first half of 2016, and we're really excited about it.
And it's going to be a differentiated experience that I think is going to be extremely well received by GoPro existing and new customers.
Even though we don't yet have a drone product in the market, I think GoPro has been such a big part of why consumers are so interested in drones
and in other flying camera solutions -- because the drone market really took off when people started mounting GoPros specifically on drones.
A lot of the drones that are flying, they already are GoPros in a sense, and so I think that that gives us a distinct advantage against say
another company that was entering the market that had no history in that space whatsoever.
(END VIDEOCLIP)
QUEST: GoPro in the market and Rich Gelfond pulling us right in terms of the price at which his IPO. It was fascinating actually to hear an IPO
- to hear a CEO - talk about an IPO, something they're often frequently reluctant to do so.
Here in the United States you are expected to tip on just about everything. Now a campaign has begun to curb the tipping activity.
There's a major boost to the anti-tipping movement. @RichardQuest on your thoughts of what you think about tipping.
We're going to talk about it after you've watched a highlight from "Make, Create, Innovate." (RINGS BELL).
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[16:50:43] QUEST: Welcome to the restaurant. You are most welcome. And now one of New York's top restauranteurs has joined the no-tipping
movement.
Danny Meyer's banning the practice at his full-service restaurants starting late next month. It's a major change for New Yorkers. Indeed,
tipping is pretty much engrained in this society.
For instance, look at what TripAdvisor says, "Tipping is a part of our service economy and our taxation system, and all visitors should understand
that it is part of our local culture."
Is it really? Joining me now to talk about this is Drew Neiporent, the owner of Myriad Restaurant Group. Good to see you, sir.
DREW NIEPORENT, OWNER, MYRIAD RESTAURANT GROUP: Likewise. Did you leave a tip the last time you were at Nobu?
QUEST: The bill -
NIEPORENT: Maybe not because in London it's value added, right? And it's 12 points price (ph) -
QUEST: No, no - you still -- there's still a tip -- a line for the tip you can always add in. But here's the point, here's the point - are
you going to follow Meyer and other's lead in this regard or are you just thinking about whether you should?
NIEPORENT: No, we've though this - you know - Danny and I actually came up together in 1985 at a restaurant called Mon Triche (ph). They
still have Trifecta Grill and Nobu for over 25 years. No, but whatever.
Danny's a terrific person and perhaps this works for his group. Economics of the restaurant business are miserable, Richard. They just
don't work.
And the tipping equation is part of American culture, and it might work for Danny Meyer, but it doesn't work for the vast majority of
restaurants in this country.
QUEST: But the problem is not tipping per se because, you know, wherever you travel in the world you leave a tip on the restaurant.
It's got out of control in the United States some people would say. This idea of a 20 percent tip - on a meal that was probably quite expensive
to start with.
NIEPORENT: But, Richard, let me tell you. These are hardworking people and, you know, this is a complicated issue. I would acknowledge
that.
QUEST: Yes.
NIEPORENT: But to just go to the extreme. You're not a stupid person - if you're leaving 20 percent on $100, that's $20. Danny Meyer's going to
charge you 30 percent more on the prices.
So he's looking at you and he's saying, you know what, you don't have to leave a tip. But he's banging you for another 30 percent, not 20
percent. And that is where the problem lies.
He's not doing you any favors.
QUEST: I wonder though when you talk about this, I've always had the feeling that you're transferring your wage bill to me.
NIEPORENT: OK that's - but everything is transferred to you. You're the customer. Everything that we charge based - is based on - us being
able to meet our expenses to be able to stay in business.
And you're looking at somebody who's opened over 40 restaurants in the last 30 years, all around the world including in the communist country
known as California -
QUEST: Right.
NIEPORENT: And where I did pay wages of $10 per hour, and guess what? Everyone got paid except for us, the investors.
QUEST: So would you be in favor or do you believe that tipping should be withheld in the case of bad service? Unlike as it (AUDIO GAP) somebody
run down the street after me saying you didn't leave me a big enough tip.
We've all heard those stories. But -
NIEPORENT: As long as they didn't do anything to your food while you were still there. But the answer is -
QUEST: (LAUGHTER).
NIEPORENT: -- of course, Richard, you're allowed - you're the guest.
QUEST: Right.
NIEPORENT: And if you don't receive commensurate service, you're entitled to leave whatever you desire which includes zero.
But the truth is, is that we're in a service business and these people work hard and they deserve that 15 or 20 percent that you've been leaving -
that millions of people tonight will leave in restaurants in New York City.
QUEST: Do you think the law should be changed in the United States so that tips can be shared? Tips coming through to the front -
NIEPORENT: Absolutely.
QUEST: -- because many people don't realize that tips given to waiters or the waiting staff cannot be shared by federal law with those
back of house.
NIEPORENT: Absolutely, because the generation that you're looking at in Danny Meyer, what we did want to try to do when we first came up was
make the system equitable.
And that would have been to take gratuities and share them equitably with our entire staff. And then we got kicked in the teeth because there
were lawsuit after lawsuit - basically ambulance-chasing attorneys. None of these things got adjudicated in law, we all have to settle because you
know how lawyers can be.
And anyway, the bottom line is, yes, without a question the law should be changed about the distribution of gratuities.
[16:55:05] QUEST: I wish I had a glass to say cheers.
NIEPORENT: I was about to say, this is the only time I had never been offered a glass of wine (LAUGHTER). Thank you, Richard, you're tremendous
at what you do.
QUEST: Next time in your restaurant.
NIEPORENT: I hope so. Thank you very much.
QUEST: Thank you very much indeed.
NIEPORENT: Thank you.
QUEST: We will have a "Profitable Moment" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." Claire Sebastian brought us a report this evening that showed how the hospitality industry is dealing
with the very serious question of child sex trafficking.
It's gratifying to see that an industry which so often wants to look in the opposite direction is finally admitting that there is a problem and
they're going to do something about it.
The World Tourism Organization has for a long time made it clear that things have to change. And if you ever try and get a tourist company to
talk about something as serious as this, well they just push it to one side.
It's the nasty side of tourism that nobody ever wants to face up to.
Thankfully people like Hilton, Marriott, the big airlines are now saying that they will not shove this aside. They will acknowledge there's
a problem and they will do something about it.
There's absolutely no room in any form of an industry for the sort of industry - child sex tourism - that has been taking place. And the
gratification that now those companies are doing something about it must be celebrated.
And that is "Quest Means Business" for tonight. I'm Richard Quest back in New York. Whatever you're up to in the hours ahead, (RINGS BELL) I
hope it's profitable. We'll do it again tomorrow.
END
