01/03/2018 BBC Business Live


01/03/2018

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LineFromTo

This is Business Live from BBC News

with Rachel Horne and Sally Bundock.

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Cue the big money.

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Music streaming giant Spotify heads

for the New York Stock Exchange.

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But will it find a place

on Wall Street's playlist?

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Live from London, that's our top

story on Thursday 1st March.

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(TITLES)

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Could Spotify really

be worth $23 billion?

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The Swedish music streaming giant

is listing in New York

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in an unconventional way.

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We'll tell you all you need to know.

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Plus how to get ahead

in advertising

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in the world of Google and Facebook.

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Why the giants of the industry

could be losing their gloss.

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Asia and the US were down and Europe

is following the trend.

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We'll keep you updated

with the figures.

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Also in the programme: The world's

biggest advertising agency WPP said

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2017 wasn't pretty. I was talking to

this man, Sir Martin Sorrell, the

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boss, and you can hear that

interview saying that social media

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is an opportunity rather than a

threat. As Spotify prepares a market

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flotation, we are asking if

streaming is good or bad for the

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music industry. Does it help newer

artists or stop them getting paid?

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Has it changed the way you discover

music? Tell us your streaming

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experiences using the hashtag.

Welcome to the programme.

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We start on Wall Street

where Spotify could soon be joining

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the ranks of multi-billion-dollar

technology companies.

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Music streaming service Spotify has

revealed plans to list its shares

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on the New York Stock Exchange.

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Spotify is the market leader

in streaming music to mobile

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devices and computers

with some 160 million users.

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Its revenues jumped well

over a third last year

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to almost $5 billion.

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Some believe the company

could be valued at as much

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as $23 billion.

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But although it is growing fast it

has yet to make a profit.

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Joining us is Sonja Laud,

head of equity at

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Fidelity International.

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It is always good to see you. There

has been a lot of anticipation and

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rumour that Spotify would come to

market and it has finally made that

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announcement. It is doing it in an

unusual way. Talk us through the way

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it is coming to market.

Yes, it has

opted to use a rather direct way,

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allowing private shareholders to

list their shares on the New York

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Stock Exchange. You have got to put

this in context. This is a company

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that is very well known and as such

probably assumes that it can avoid

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using the road show, the classic

techniques on how to come to market.

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Does this also mean it is more of a

level playing field for those who

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want to get a bit of Spotify when it

lists? The investment banks won't

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have such a hold on the shares when

it comes to market.

Yes. The way the

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price discovery mechanism works is

that it literally depends on the buy

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and sell orders that come in on the

day, which is very interesting. The

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only caveat I would put in is if you

look at the ranges of valuations

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that have been put out there, they

are actually quite broad. You

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mentioned 23 billion but it starts

from 6.5 billion and that is based

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on prices that have been paid for

their private shares in the private

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exchange of shares. That is a

question, particularly if you are a

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private investor and you can't use

the expertise of somebody looking

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into the business model to determine

what the valuation should be. I

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would be quite mindful that there

could be huge fluctuations on day

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one based on this.

Let's talk about

the figures. We talked about Spotify

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joining the ranks of the big tech

companies that floated. Snap,

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Facebook, Twitter. The difference

with Spotify is they have got paying

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customers. But they have not yet

made a profit.

Exactly. This is

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where the important part is. The

business model is well understood, I

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think. This is why they assume they

can go straight to market because it

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is a very transparent business

model. They have paying users and

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they are widely recognised around

the world. But as you quite rightly

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point out they have not yet made a

profit. This is the crux to find out

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the trajectory. When do they seem to

break even and when to make money?

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Is this in terms of expansion and

the Catholics plan? There may be

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good reasons but there could be

warning signs will stop why don't

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they make a profit?

I remember when

Facebook came to market they were

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not making a profit and there was

euphoria around the listing and not

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long after that, the shares started

to fall quite a bit because people

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are trying to read between the lines

about how it would make money. Now

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that company is making a lot of

money.

Absolutely. It is all about

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having a good feel for what you

think the trajectory will be. You

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have got to keep faith that what you

think it will be is going to

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materialise. You are buying into a

loss-making company, so you have got

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to understand what needs to happen

for this company to be profitable

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one day.

For now, thank you. You

will return later and you will add

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more value to some of the stories

out there in business news today.

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Let's take a look at some of

the other stories making the news.

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Malaysian airline AirAsia has sold

off its aircraft leasing

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business for $1.2 billion.

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The deal is part of its

efforts to sell non-core

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parts of the business,

allowing it to cut debt

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and offload the financial

commitment of owning planes.

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Recently it has also

sold its training business

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and ground handling operations.

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AirAsia will now lease

back dozens of planes

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from the new owner of the aircraft.

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Exxon Mobil says it is

abandoning joint ventures

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with Russia's Rosneft,

signed while Secretary

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of State Rex Tillerson

was running the oil giant,

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citing US and European

Union sanctions.

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It's a major turnaround

for the company which had long

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argued against the sanctions imposed

in 2014 over Russia's

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invasion of Crimea.

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Food delivery firm Deliveroo said it

will take comprehensive action

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to reduce the amount of plastic

packaging used in its meals.

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Plastic cutlery will become

an opt-in on its app,

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while the firm has launched

a new line of eco-packaging, with 50

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new products to help restaurants

offer sustainable packaging.

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Deliveroo boss Will Shu said:

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"We want people to enjoy meals

that are sustainably

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delivered and packaged."

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Do you know what I think? Fingers.

Use your hands.

Use the cutlery in

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your house if food is being

delivered to your house?

Just use

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your hands and then wash them. They

do that all round the world.

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British tech company Dyson has

reported bumper profits today

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with underlying earnings up 27% last

year to £801 million.

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And it's mainly thanks to Asian

consumers who accounted for three

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quarters of its sales last year.

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Sarah Toms is in Singapore

to tell us more.

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Hello. Yes, as you said, Dyson

products are proving to be a huge

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hit with Asian consumers. Dyson

hoovered up 41% rise in profits last

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year, and as you said, almost 75% of

the company's growth last year came

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from Asia. So why is such a huge

spending boom in the region? There

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is a rapidly growing middle class,

especially in China. With that comes

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the growing demand for technology

and consumer products. That is why

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the blameless fan hairdryers proved

to be so popular and also air

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purifiers because air pollution is a

problem in cities like Shanghai and

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Beijing. And this is good news will

Dyson, in the middle of an ambitious

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expansion. Last year they said they

had been working on building an

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electric car for three years. The

British company has not yet decided

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where to build the factory. England

and Asia, after these results,

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looking like strong possibilities.

Thank you. Let's take a look at how

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the markets have been getting on. In

Asia shares overnight were mostly up

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but in Europe and the US they were

mostly down. Wall Street showed its

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worst monthly performance in two

years for February.

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It was still reacting to comments

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from new Federal Reserve chair

Jerome Powell which suggested

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interest rates could rise

faster than expected.

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Remember, it was the hint

of faster rate rises

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just a month ago which sparked those

huge global sell offs.

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Jerome Powell will be speaking again

in the US today. And in Europe, the

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markets have been trading in the UK

for just over 40 minutes, and the

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FTSE is down almost one third. Keep

an eye on sterling which fell to its

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lowest levels since mid-January

yesterday after Theresa May, the UK

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Prime Minister, said she couldn't

accept the EU's draft withdrawal

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text.

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Now the details about what's ahead

on Wall Street Today.

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There is a lot of economic data

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for the market to absorb

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on Thursday.

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The weekly measure of how many

have made their first

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claim for unemployment benefits

and it is expected to show

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the continuing strength

of the US labour market

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with a very low number.

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There's also monthly figures

for how many cars were sold

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in the US in Fabbri,

they will be released

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by auto-makers.

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The total is expected to show

a slight decline in the numbers

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being sold since this

time last year.

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Jerome Powell gives his second day

of testimony to Congress

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about monetary policies

which will doubtless

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attract a lot of attention.

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And the site from economics

investors will also have a lot

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of corporate news to mull over

including earnings from retailers

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Gap, Coles and Nordstrom.

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Still to come: We hear from the boss

of the world's biggest advertsing

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firm WPP, Sir Martin Sorrell,

on how social media is changing

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the world of advertising.

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You're with Business

Live from BBC News.

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A report on the UK car industry

after Brexit suggests a no deal

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scenario would mean the loss

of thousands of jobs and

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millions in investment.

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The select committee report suggests

the UK must closely align itself

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to the EU's trading model to give

car manufacturing a realistic

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chance of survival.

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David Bailey, professor of industry

at Aston University,

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gave evidence to the committee.

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David, tell us a little bit more

about this scenario that is being

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played out.

The report is very hard

hitting. The MPs on the committee

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have done a great job of spelling

out the issues facing the car

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industry in the wake of Brexit, and

they make the point that there is no

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benefit from Brexit for UK car

industry. There are only costs and

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this is about damage limitation. In

particular they make the point that

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no deal would be the worst outcome.

It would mean WTO

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tariffs of up to 10% on Karzai 4% on

components, which would have a huge

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impact on the industry here. It

would probably see plant closures

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and considerable job losses.

Avoiding a no deal is critical.

We

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only heard from Toyota yesterday

continuing to invest in the UK car

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industry. And I spoke to the boss of

Nissan, who was saying that actually

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he is still optimistic about the

situation in the UK. He is keeping a

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close eye on negotiations but

clearly some of the big global

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players in the car industry are not

giving up.

That is drug. These are

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Japanese investors who do want to be

here for the long-term. -- that is

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right. The Toyota decision was taken

some time ago and it would be

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difficult for them to unwind that.

Nissan have they will build the new

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Qashqai from 2021 in the UK but they

will review that in the wake of the

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decision on Brexit. They want as

much access to the single market as

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possible. 50% of car exports go to

the European Union and Japanese

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producers in particular came to the

UK to use that as a launch pad into

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the single market. They want to be

as closely aligned as possible with

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the single market. If we lose that

and we see barriers to trade, we

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will see a reduction in investment

here, I think.

David, thank you for

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your time. And it is not just snow

affecting the UK. It has shut down

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Geneva airport. They might be more

used to snow in Switzerland compared

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to the UK but that airport in Geneva

is closed. The statement advertises

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passengers not to arrive.

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You're watching Business Live.

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Our top story:

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Is Spotify really worth $23 billion?

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The world's biggest music streaming

service is going public and doing so

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in New York. Let's look at the

market so far today. Markets in

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Europe are down, with big losses

over the last month across global

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markets and we are starting March on

the back foot. All trading in the

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red.

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Let's talk about the

advertising business now

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because the world's biggest ad firm,

WPP, has just reported

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its results for 2017.

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It has seen a fall in

the amount it bills clients.

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But it denies, as some

have suggested,

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that this is a sign of a broader

decline in the industry

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as the likes of Google and Facebook

take an ever bigger share

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of global advertising spending.

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Let's show you a few

of the highlights.

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WPP

says its net sales were down almost

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1% on the previous year,

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the worst performance

since the 2008 financial crisis.

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In a statement, WPP said 2017

was not a pretty year

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and warned there wouldn't be

any growth this year.

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And it warned

the industry continues to undergo

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fundamental change.

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As I've been hearing from the boss

of the firm, Sir Martin Sorrell.

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It has not been an easy year. Not a

pretty year, as we put.

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Just elaborate, why in your opinion

has it been a tough year for your

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company?

A couple of things, from a long-term

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point of view, technological

disruption, whether in production,

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media or distribution, with Amazon

for example. Which is changing the

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dynamics. There are short-term

pressures, activists put pressure,

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but to be fair some call for

increased investment in branding and

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innovation. And Private Equity

models looking on cost in the short

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term. Whatever it is, we have two

adapt the way we go about our

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business.

You are extremely spread out, you

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are getting bigger. Every time I

meet a company in ad space, they say

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apart is owned by WPP. Is too much

going on when you are challenged by

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Google and Facebook?

They are the first and second

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largest destination for media

investment. Our media book is about

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£55 billion billings. That, about 7

billion goes to Google and Facebook.

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In my view it would be, while others

disagree, wrong to Google and

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Facebook... In our presentation

later today we will give you a quote

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from a senior executive at Google

who says the opposite. We are

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increasing, we have described them

vividly as frenemies. That they have

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become much more partners. That is

not the issue. It might be a comma

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and issued that traditional media

with focus on.

Why then is the likes

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of Procter and Gamble saying we

won't spend as much this time?

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Again, that is not what they have

said. They did not say they are

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spending less, but as I interpret

it, they would spend less if Google

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and Facebook did not step up to the

response proceeds that the BBC have

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in relation to the material on their

channels.

0:17:410:17:48

They have to take responsibility.

They have to take social

0:17:480:17:53

responsibility and political

responsibility for consumer brand

0:17:530:17:55

safety on those media. But Keith was

saying in effect they are media just

0:17:550:18:02

like you and have to be responsible.

To be fair, Google and Facebook are

0:18:020:18:08

hiring 30,000 people to make sure

that they don't have the issues that

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arise with content being placed on

controversial or unacceptable

0:18:150:18:21

websites or for the political

shenanigans that may or may not have

0:18:210:18:25

happened around elections.

The boss

of WPP. I had to interrupt to get my

0:18:250:18:33

questions in.

0:18:330:18:33

With me is Thomas Singlehurst,

analyst at investment

0:18:330:18:35

bank Citi.

0:18:350:18:40

You were listening to that, there is

a lot of discussion about the

0:18:400:18:44

advertising industry and how it has

been changed, for better or worse,

0:18:440:18:49

because of Facebook and Google.

What is your take?

There is no doubt

0:18:490:18:54

there has been disruption. The move

to digital makes advertising more

0:18:540:19:00

efficient and budgets potentially

overtime move down which is a big

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adjustment for a company like WPP

breaches exposed to traditional

0:19:080:19:14

buying. Can it adapt to these new

activities in terms of areas like

0:19:140:19:22

business transformation, building

e-commerce platforms?

0:19:220:19:27

Explain the people who are not

familiar with the industry what is

0:19:270:19:30

the interplay between a company like

WPP and Google or Facebook?

0:19:300:19:39

As he mentions, they are media

companies taking advertising. The

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only difference between those and

traditional media companies is that

0:19:420:19:54

buying is increasingly automated. Do

you need an individually like WPP?

0:19:540:20:02

That is the debate about whether WPP

has a role to play.

0:20:020:20:12

His argument is they still have a

role.

0:20:120:20:16

And the role has to change, whether

he likes it or not. He is completely

0:20:160:20:22

open to that, they made

announcements today that they had to

0:20:220:20:26

change the way they do things

because their forecast for profits

0:20:260:20:30

is flat again.

Ultimately the group has 43% of

0:20:300:20:37

revenues from these traditional

advertising related areas. In

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fairness, if you did below that, you

-- if you did below, you will find

0:20:430:20:49

the Aries people are most worried

about are performing OK -- the

0:20:490:20:55

areas. The challenging areas are the

traditional creative functions.

0:20:550:21:01

Share price, WPP is down 13.5% on

the markets.

0:21:010:21:08

The reality is all the way through

last year the group consistently

0:21:080:21:12

downgraded revenue guidance. And

running into the fourth quarter, the

0:21:120:21:23

market was expecting slight growth.

They came in with -1.3%.

Markets

0:21:230:21:31

don't like surprises. Will that

impact on his remuneration? As the

0:21:310:21:37

highest paid FTSE 100 boss in the

UK.

0:21:370:21:44

Remuneration is a key focus for

investors. You are right. He is a

0:21:440:21:50

big shareholder as well with the

company.

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Like you for your analysis, really

interesting discussion about the

0:22:020:22:05

future of advertising.

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In a moment we'll take a look

through the business pages but first

0:22:060:22:09

here's a quick reminder of how

to get in touch with us.

0:22:090:22:14

Stay up-to-date with the news as it

happens. With analysis from our

0:22:140:22:24

editors or around the globe.

We want to hear from you, get

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involved.

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On Twitter as well. And you can find

us on Facebook.

0:22:320:22:42

What you need to know, when you need

to know it.

0:22:420:22:51

You have been getting in touch about

the streaming industry, the music

0:22:510:22:56

business.

Let us chat through some of those. A

0:22:560:23:00

tweak here think streaming is great

for the music industry allowed

0:23:000:23:03

artists to reach more than their

original target audience and

0:23:030:23:06

consumers can experience a massive

variety of music.

0:23:060:23:12

And another, without streaming I

wouldn't have a connection, I don't

0:23:120:23:16

have a radio and I don't go

clubbing, the only way I discovered

0:23:160:23:21

new artists.

Is the message here, saying, if it

0:23:210:23:29

wasn't the streaming I wouldn't pay

anything for my music. I listen and

0:23:290:23:33

I pay again.

Some say they still have cassette

0:23:330:23:39

tapes and CDs and vinyl. Quite a few

from that end of the scale. They are

0:23:390:23:44

the early risers watching!

Maybe we have the streamers at this

0:23:440:23:49

time.

0:23:490:23:59

One story here about credit card

debt in the United States.

0:24:010:24:07

The headline focuses on the fact we

have had rising arrears in credit

0:24:070:24:10

card debt and music -- mortgage

payments the people are falling

0:24:100:24:15

behind. There is another article

with Bill Gates and an interesting

0:24:150:24:24

forecast that the world will face

another global financial crisis, not

0:24:240:24:29

the same when it will happen but at

the centre of his concern is the

0:24:290:24:34

issue debt has not been reduced

since the crisis and although it

0:24:340:24:38

might seem like a microcosm must --

it is the fact we have seen stagnant

0:24:380:24:48

real standards of living and real

incomes have been falling. A theme

0:24:480:24:53

in the UK as well. We are hitting

the lower income brackets above

0:24:530:24:59

proportion.

Who are borrowing just to get by.

0:24:590:25:06

Not a good sign. And a story also

linked, problems with UK retail, a

0:25:060:25:11

major headline saying up to 200000

More High St store jobs tipped to be

0:25:110:25:19

axed by 2020.

It is the same topic. Particularly

0:25:190:25:28

in the UK, real income falling, high

inflation which means you hit those

0:25:280:25:33

income brackets even more. It will

hit the retail space, a natural

0:25:330:25:38

chain of events.

Thank you for joining us this

0:25:380:25:46

morning giving us your expertise.

A busy programme. Thank you for your

0:25:460:25:54

comments today on streaming. We will

see you again tomorrow, goodbye.

0:25:540:25:57

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