01/03/2018 BBC Business Live

This is Business Live from BBC News

with Rachel Horne and Sally Bundock.

Cue the big money.

Music streaming giant Spotify heads

for the New York Stock Exchange.

But will it find a place

on Wall Street's playlist?

Live from London, that's our top

story on Thursday 1st March.

(TITLES)

Could Spotify really

be worth $23 billion?

The Swedish music streaming giant

is listing in New York

in an unconventional way.

We'll tell you all you need to know.

Plus how to get ahead

in advertising

in the world of Google and Facebook.

Why the giants of the industry

could be losing their gloss.

Asia and the US were down and Europe

is following the trend.

We'll keep you updated

with the figures.

Also in the programme: The world's

biggest advertising agency WPP said

2017 wasn't pretty. I was talking to

this man, Sir Martin Sorrell, the

boss, and you can hear that

interview saying that social media

is an opportunity rather than a

threat. As Spotify prepares a market

flotation, we are asking if

streaming is good or bad for the

music industry. Does it help newer

artists or stop them getting paid?

Has it changed the way you discover

music? Tell us your streaming

experiences using the hashtag.

Welcome to the programme.

We start on Wall Street

where Spotify could soon be joining

the ranks of multi-billion-dollar

technology companies.

Music streaming service Spotify has

revealed plans to list its shares

on the New York Stock Exchange.

Spotify is the market leader

in streaming music to mobile

devices and computers

with some 160 million users.

Its revenues jumped well

over a third last year

to almost $5 billion.

Some believe the company

could be valued at as much

as $23 billion.

But although it is growing fast it

has yet to make a profit.

Joining us is Sonja Laud,

head of equity at

Fidelity International.

It is always good to see you. There

has been a lot of anticipation and

rumour that Spotify would come to

market and it has finally made that

announcement. It is doing it in an

unusual way. Talk us through the way

it is coming to market.

Yes, it has

opted to use a rather direct way,

allowing private shareholders to

list their shares on the New York

Stock Exchange. You have got to put

this in context. This is a company

that is very well known and as such

probably assumes that it can avoid

using the road show, the classic

techniques on how to come to market.

Does this also mean it is more of a

level playing field for those who

want to get a bit of Spotify when it

lists? The investment banks won't

have such a hold on the shares when

it comes to market.

Yes. The way the

price discovery mechanism works is

that it literally depends on the buy

and sell orders that come in on the

day, which is very interesting. The

only caveat I would put in is if you

look at the ranges of valuations

that have been put out there, they

are actually quite broad. You

mentioned 23 billion but it starts

from 6.5 billion and that is based

on prices that have been paid for

their private shares in the private

exchange of shares. That is a

question, particularly if you are a

private investor and you can't use

the expertise of somebody looking

into the business model to determine

what the valuation should be. I

would be quite mindful that there

could be huge fluctuations on day

one based on this.

Let's talk about

the figures. We talked about Spotify

joining the ranks of the big tech

companies that floated. Snap,

Facebook, Twitter. The difference

with Spotify is they have got paying

customers. But they have not yet

made a profit.

Exactly. This is

where the important part is. The

business model is well understood, I

think. This is why they assume they

can go straight to market because it

is a very transparent business

model. They have paying users and

they are widely recognised around

the world. But as you quite rightly

point out they have not yet made a

profit. This is the crux to find out

the trajectory. When do they seem to

break even and when to make money?

Is this in terms of expansion and

the Catholics plan? There may be

good reasons but there could be

warning signs will stop why don't

they make a profit?

I remember when

Facebook came to market they were

not making a profit and there was

euphoria around the listing and not

long after that, the shares started

to fall quite a bit because people

are trying to read between the lines

about how it would make money. Now

that company is making a lot of

money.

Absolutely. It is all about

having a good feel for what you

think the trajectory will be. You

have got to keep faith that what you

think it will be is going to

materialise. You are buying into a

loss-making company, so you have got

to understand what needs to happen

for this company to be profitable

one day.

For now, thank you. You

will return later and you will add

more value to some of the stories

out there in business news today.

Let's take a look at some of

the other stories making the news.

Malaysian airline AirAsia has sold

off its aircraft leasing

business for $1.2 billion.

The deal is part of its

efforts to sell non-core

parts of the business,

allowing it to cut debt

and offload the financial

commitment of owning planes.

Recently it has also

sold its training business

and ground handling operations.

AirAsia will now lease

back dozens of planes

from the new owner of the aircraft.

Exxon Mobil says it is

abandoning joint ventures

with Russia's Rosneft,

signed while Secretary

of State Rex Tillerson

was running the oil giant,

citing US and European

Union sanctions.

It's a major turnaround

for the company which had long

argued against the sanctions imposed

in 2014 over Russia's

invasion of Crimea.

Food delivery firm Deliveroo said it

will take comprehensive action

to reduce the amount of plastic

packaging used in its meals.

Plastic cutlery will become

an opt-in on its app,

while the firm has launched

a new line of eco-packaging, with 50

new products to help restaurants

offer sustainable packaging.

Deliveroo boss Will Shu said:

"We want people to enjoy meals

that are sustainably

delivered and packaged."

Do you know what I think? Fingers.

Use your hands.

Use the cutlery in

your house if food is being

delivered to your house?

Just use

your hands and then wash them. They

do that all round the world.

British tech company Dyson has

reported bumper profits today

with underlying earnings up 27% last

year to £801 million.

And it's mainly thanks to Asian

consumers who accounted for three

quarters of its sales last year.

Sarah Toms is in Singapore

to tell us more.

Hello. Yes, as you said, Dyson

products are proving to be a huge

hit with Asian consumers. Dyson

hoovered up 41% rise in profits last

year, and as you said, almost 75% of

the company's growth last year came

from Asia. So why is such a huge

spending boom in the region? There

is a rapidly growing middle class,

especially in China. With that comes

the growing demand for technology

and consumer products. That is why

the blameless fan hairdryers proved

to be so popular and also air

purifiers because air pollution is a

problem in cities like Shanghai and

Beijing. And this is good news will

Dyson, in the middle of an ambitious

expansion. Last year they said they

had been working on building an

electric car for three years. The

British company has not yet decided

where to build the factory. England

and Asia, after these results,

looking like strong possibilities.

Thank you. Let's take a look at how

the markets have been getting on. In

Asia shares overnight were mostly up

but in Europe and the US they were

mostly down. Wall Street showed its

worst monthly performance in two

years for February.

It was still reacting to comments

from new Federal Reserve chair

Jerome Powell which suggested

interest rates could rise

faster than expected.

Remember, it was the hint

of faster rate rises

just a month ago which sparked those

huge global sell offs.

Jerome Powell will be speaking again

in the US today. And in Europe, the

markets have been trading in the UK

for just over 40 minutes, and the

FTSE is down almost one third. Keep

an eye on sterling which fell to its

lowest levels since mid-January

yesterday after Theresa May, the UK

Prime Minister, said she couldn't

accept the EU's draft withdrawal

text.

Now the details about what's ahead

on Wall Street Today.

There is a lot of economic data

for the market to absorb

on Thursday.

The weekly measure of how many

have made their first

claim for unemployment benefits

and it is expected to show

the continuing strength

of the US labour market

with a very low number.

There's also monthly figures

for how many cars were sold

in the US in Fabbri,

they will be released

by auto-makers.

The total is expected to show

a slight decline in the numbers

being sold since this

time last year.

Jerome Powell gives his second day

of testimony to Congress

about monetary policies

which will doubtless

attract a lot of attention.

And the site from economics

investors will also have a lot

of corporate news to mull over

including earnings from retailers

Gap, Coles and Nordstrom.

Still to come: We hear from the boss

of the world's biggest advertsing

firm WPP, Sir Martin Sorrell,

on how social media is changing

the world of advertising.

You're with Business

Live from BBC News.

A report on the UK car industry

after Brexit suggests a no deal

scenario would mean the loss

of thousands of jobs and

millions in investment.

The select committee report suggests

the UK must closely align itself

to the EU's trading model to give

car manufacturing a realistic

chance of survival.

David Bailey, professor of industry

at Aston University,

gave evidence to the committee.

David, tell us a little bit more

about this scenario that is being

played out.

The report is very hard

hitting. The MPs on the committee

have done a great job of spelling

out the issues facing the car

industry in the wake of Brexit, and

they make the point that there is no

benefit from Brexit for UK car

industry. There are only costs and

this is about damage limitation. In

particular they make the point that

no deal would be the worst outcome.

It would mean WTO

tariffs of up to 10% on Karzai 4% on

components, which would have a huge

impact on the industry here. It

would probably see plant closures

and considerable job losses.

Avoiding a no deal is critical.

We

only heard from Toyota yesterday

continuing to invest in the UK car

industry. And I spoke to the boss of

Nissan, who was saying that actually

he is still optimistic about the

situation in the UK. He is keeping a

close eye on negotiations but

clearly some of the big global

players in the car industry are not

giving up.

That is drug. These are

Japanese investors who do want to be

here for the long-term. -- that is

right. The Toyota decision was taken

some time ago and it would be

difficult for them to unwind that.

Nissan have they will build the new

Qashqai from 2021 in the UK but they

will review that in the wake of the

decision on Brexit. They want as

much access to the single market as

possible. 50% of car exports go to

the European Union and Japanese

producers in particular came to the

UK to use that as a launch pad into

the single market. They want to be

as closely aligned as possible with

the single market. If we lose that

and we see barriers to trade, we

will see a reduction in investment

here, I think.

David, thank you for

your time. And it is not just snow

affecting the UK. It has shut down

Geneva airport. They might be more

used to snow in Switzerland compared

to the UK but that airport in Geneva

is closed. The statement advertises

passengers not to arrive.

You're watching Business Live.

Our top story:

Is Spotify really worth $23 billion?

The world's biggest music streaming

service is going public and doing so

in New York. Let's look at the

market so far today. Markets in

Europe are down, with big losses

over the last month across global

markets and we are starting March on

the back foot. All trading in the

red.

Let's talk about the

advertising business now

because the world's biggest ad firm,

WPP, has just reported

its results for 2017.

It has seen a fall in

the amount it bills clients.

But it denies, as some

have suggested,

that this is a sign of a broader

decline in the industry

as the likes of Google and Facebook

take an ever bigger share

of global advertising spending.

Let's show you a few

of the highlights.

WPP

says its net sales were down almost

1% on the previous year,

the worst performance

since the 2008 financial crisis.

In a statement, WPP said 2017

was not a pretty year

and warned there wouldn't be

any growth this year.

And it warned

the industry continues to undergo

fundamental change.

As I've been hearing from the boss

of the firm, Sir Martin Sorrell.

It has not been an easy year. Not a

pretty year, as we put.

Just elaborate, why in your opinion

has it been a tough year for your

company?

A couple of things, from a long-term

point of view, technological

disruption, whether in production,

media or distribution, with Amazon

for example. Which is changing the

dynamics. There are short-term

pressures, activists put pressure,

but to be fair some call for

increased investment in branding and

innovation. And Private Equity

models looking on cost in the short

term. Whatever it is, we have two

adapt the way we go about our

business.

You are extremely spread out, you

are getting bigger. Every time I

meet a company in ad space, they say

apart is owned by WPP. Is too much

going on when you are challenged by

Google and Facebook?

They are the first and second

largest destination for media

investment. Our media book is about

£55 billion billings. That, about 7

billion goes to Google and Facebook.

In my view it would be, while others

disagree, wrong to Google and

Facebook... In our presentation

later today we will give you a quote

from a senior executive at Google

who says the opposite. We are

increasing, we have described them

vividly as frenemies. That they have

become much more partners. That is

not the issue. It might be a comma

and issued that traditional media

with focus on.

Why then is the likes

of Procter and Gamble saying we

won't spend as much this time?

Again, that is not what they have

said. They did not say they are

spending less, but as I interpret

it, they would spend less if Google

and Facebook did not step up to the

response proceeds that the BBC have

in relation to the material on their

channels.

They have to take responsibility.

They have to take social

responsibility and political

responsibility for consumer brand

safety on those media. But Keith was

saying in effect they are media just

like you and have to be responsible.

To be fair, Google and Facebook are

hiring 30,000 people to make sure

that they don't have the issues that

arise with content being placed on

controversial or unacceptable

websites or for the political

shenanigans that may or may not have

happened around elections.

The boss

of WPP. I had to interrupt to get my

questions in.

With me is Thomas Singlehurst,

analyst at investment

bank Citi.

You were listening to that, there is

a lot of discussion about the

advertising industry and how it has

been changed, for better or worse,

because of Facebook and Google.

What is your take?

There is no doubt

there has been disruption. The move

to digital makes advertising more

efficient and budgets potentially

overtime move down which is a big

adjustment for a company like WPP

breaches exposed to traditional

buying. Can it adapt to these new

activities in terms of areas like

business transformation, building

e-commerce platforms?

Explain the people who are not

familiar with the industry what is

the interplay between a company like

WPP and Google or Facebook?

As he mentions, they are media

companies taking advertising. The

only difference between those and

traditional media companies is that

buying is increasingly automated. Do

you need an individually like WPP?

That is the debate about whether WPP

has a role to play.

His argument is they still have a

role.

And the role has to change, whether

he likes it or not. He is completely

open to that, they made

announcements today that they had to

change the way they do things

because their forecast for profits

is flat again.

Ultimately the group has 43% of

revenues from these traditional

advertising related areas. In

fairness, if you did below that, you

-- if you did below, you will find

the Aries people are most worried

about are performing OK -- the

areas. The challenging areas are the

traditional creative functions.

Share price, WPP is down 13.5% on

the markets.

The reality is all the way through

last year the group consistently

downgraded revenue guidance. And

running into the fourth quarter, the

market was expecting slight growth.

They came in with -1.3%.

Markets

don't like surprises. Will that

impact on his remuneration? As the

highest paid FTSE 100 boss in the

UK.

Remuneration is a key focus for

investors. You are right. He is a

big shareholder as well with the

company.

Like you for your analysis, really

interesting discussion about the

future of advertising.

In a moment we'll take a look

through the business pages but first

here's a quick reminder of how

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Stay up-to-date with the news as it

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What you need to know, when you need

to know it.

You have been getting in touch about

the streaming industry, the music

business.

Let us chat through some of those. A

tweak here think streaming is great

for the music industry allowed

artists to reach more than their

original target audience and

consumers can experience a massive

variety of music.

And another, without streaming I

wouldn't have a connection, I don't

have a radio and I don't go

clubbing, the only way I discovered

new artists.

Is the message here, saying, if it

wasn't the streaming I wouldn't pay

anything for my music. I listen and

I pay again.

Some say they still have cassette

tapes and CDs and vinyl. Quite a few

from that end of the scale. They are

the early risers watching!

Maybe we have the streamers at this

time.

One story here about credit card

debt in the United States.

The headline focuses on the fact we

have had rising arrears in credit

card debt and music -- mortgage

payments the people are falling

behind. There is another article

with Bill Gates and an interesting

forecast that the world will face

another global financial crisis, not

the same when it will happen but at

the centre of his concern is the

issue debt has not been reduced

since the crisis and although it

might seem like a microcosm must --

it is the fact we have seen stagnant

real standards of living and real

incomes have been falling. A theme

in the UK as well. We are hitting

the lower income brackets above

proportion.

Who are borrowing just to get by.

Not a good sign. And a story also

linked, problems with UK retail, a

major headline saying up to 200000

More High St store jobs tipped to be

axed by 2020.

It is the same topic. Particularly

in the UK, real income falling, high

inflation which means you hit those

income brackets even more. It will

hit the retail space, a natural

chain of events.

Thank you for joining us this

morning giving us your expertise.

A busy programme. Thank you for your

comments today on streaming. We will

see you again tomorrow, goodbye.