Apple Is Ready to Make Long-Awaited Push Into Smart-Home Market

0:00Some people treat Chachy PT like some kind of smart search engine, and some use it to get work done. Chachy PT work is a new way of working in Chachy PT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put Chachy PT to work on your most ambitious ideas and projects. Get started at chachypt.com by selecting Work Mode, available on plus and pro plans. This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about, keeping up with cyber threats. That's where MasterCard can help, with access to tools that help identify cyber threats to better protect your business.

1:02Building a dream business, priceless. For cybersecurity and a changing world, there's MasterCard. Learn more at mastercard.com slash small business. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern. On Apple CarPlay and Android Auto, with the Bloomberg Business App. Listen on demand wherever you get your podcasts. Or watch us live on YouTube. A lot of tech news out there. We want to get to that Matthew Blochson, the senior media and tech analyst of Bloomberg Intelligence. Usually in London, he flies all the way over here to New York, the world's financial capital. Where is he today? He's at the Bloomberg offices in Princeton, New Jersey. That's where Bloomberg Intelligence week. That's where we got our start. Boy, how many years ago? 17 years ago, we started the Bloomberg Intelligence down there in Princeton. Matt, thanks so much for joining us here. I want to start with Apple.

2:04Looks like Mark German was reporting here from Bloomberg News. Apple making plans to push into the smart home market with a smart home hub code named J490. That just rolls off the tongue. Not just what Apple's doing here in the home market. Yes, I mean, I'll see that they've been pushing gradually into the market for quite some time, but mainly through the home speaker market with the home pod and the home pod mini, which I think hasn't been around a way successful. You'd expect an Apple product to be. I think the cost of the device, some of it is playing to the Apple ecosystem. Some of it's about the fact that Siri hasn't been actually that great as an AI assistant, and it's been up against some pretty strong rivals in the likes of Amazon and Google. So I think this is a revamp of that strategy in the addition of this home hub devices, a concerted effort to push forward and make a bigger splash in that market.

3:08And create these smart homes where you can control your heating and a whole bunch of other things through this centralized hub. So let's see, so far it's not been a great hunting ground for Apple, but maybe with this kind of revamp in particular with Siri AI, they can have a better performing product and gain some more momentum. Turning our attention a little bit more toward AI, the news that the Federal Trade Commission is really looking at Open AI and Thropic and other AI companies around the safety of their products, admit recent cyber security incidents. What are your thoughts with respect to how this may change those companies or what changes may be on the horizon for them as a result of this probe? Yeah, I mean, what we'll have to say is there's just like so much going on across the industry when it comes to say the collaboration, cooperation, agreement between companies and the extent to which some of this

4:08is anti-compensative or not and whether it's really necessary. So I think there's so many different things going on. Obviously we had the agreement signed by close to a 2000 execs with Donald Trump, the President Trump yesterday. I think it's an evolving space. I think the fact that we saw that this agreement signed by so many executives does point to the fact there are real concerns out there that need to be addressed. Agreement within the industry is definitely the quickest way to kind of make progress on this. Possibly some kind of legislation is going to come at some point in the future, but as we want our legislation takes time, there's a lot of differing views amongst politicians about what legislations would look like. So I wouldn't see anything coming any time seen on that front. Matthew, I guess we're also waiting on IPOs for some of these big names and theropic open AI. It seems like maybe they're kind of pushing these things back a little bit

5:11for a variety of reasons. What do you think the market reception would be for these some of these big IPOs because the numbers they're talking about are pretty darn huge. Yeah, they are. I think the first number that people are looking to, a particular you look at anthropic and open AI is their annualized recurring revenue, run rate revenue. What's it that's been kind of growing materially over the last 12 months, so as their businesses scale, but that's kind of really the number that these IPOs are going to be anchored on and the revenue multiple you can get against that. So I think ultimately that's kind of still the most important thing, and if perhaps they're delaying it, maybe it's the sign that the momentum in their revenue isn't coming through as quickly as they hoped. And yeah, I'm playing into that when investors look to the longer term, they're trying to assess what is the addressable market for these companies. And that's I think where this is kind of AI safety concerns come in, is that if there are going to be more guardrails about the pace at which they develop their kind of their frontier models, to what extent does that slow

6:16the pace of adoption and the revenue opportunity, you know, on a kind of three to five year view. Stay with us more from Bloomberg Intelligence coming up after this. Some people treat Chachi Pt like some kind of smart search engine, and some use it to get work done. Chachi Pt work is a new way of working in Chachi Pt that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put Chachi Pt to work on your most ambitious ideas and projects. Get started at chachipt.com by selecting work mode, available on plus and pro plans. The world of business is constantly evolving. Every day new challenges, new opportunities, new ways of working. Comcast business keeps you totally in step with secure AI

7:20back networking built to power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle. And get this, Comcast business powers over 90 percent of the fortune 500 and millions of small businesses behind it all network engineers, cybersecurity specialists, support teams, thousands of experts answering your call at 2am like its 2pm, always on, always ready. That's a lot of coffee. One partner powering how business gets done for companies of every size all around the globe. When you add it all up, no one does business like Comcast business. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Open AI CEO Sam Aldman, he spoke with Bloomberg's Ed Ludlow from Open AI's Dev Day in San Francisco.

8:26He spoke on concerns over AI safety saying they will happily slow down releases when needed. When we need to make a decision about slowing down our training or our model release so that we can make more progress and put more of our attention into safety alignment, monitoring, security. We will happily do that. Now of course we're going to continue to make progress, but the world should always have confidence in our safety cases, in our safety claims, and that we are going to be responsible with this technology. All right, that was Open AI CEO Sam Aldman speaking with Bloomberg's Ed Ludlow from Open AI's Dev Day in San Francisco. We're now joined by Ed Ludlow, Bloomberg Techhost. I believe he's down there in LIS. You never know where this guy is. Thanks so much for joining us here. I guess this whole safety guard rail thing, that narrative is just not going away. How do you think this plays out? What does Mr. Altman think?

9:27Yeah, I think what was been interesting in the last 24 hours is there is a combination now between the action that Open AI will or won't take on either delaying the release of a model or pausing the training of a generation of model and whether or not and when it goes public. So the way that Sam, he actually pushed back on me pretty hard, because I asked him, is it that going public is incompatible with the idea that you need to slow down the cadence of release and pacing at the frontier? He said not quite. The whole point is that when you are a newly public company, that's when it's most difficult. You know this pull, right? What it takes to go public, all the internal audit, the requirements of you within 12 months of going public. I think his point is like it's not just that you have your duty shareholders, they want to see growth, profit, etc. And that that's incompatible with delaying or slowing down. It's a body of work, two bodies of work that require a lot of the company. So that was a fascinating discussion.

10:32And in front of the city. News as well with respect to their IPO. What could open AI lose by waiting? Yeah, so what was interesting, we broke this story yesterday with some curious timing. I have to admit, because it happened during the keynote at their DevDay, but sources are telling us that they are in talks with their existing investors to do a private market round, which you can kind of see as a bridge to an IPO happening, whether it's next year or even 2028, right? Like what I hear a lot from sources is like people are pretty supportive with open AI taking its time anyway. To be fair, we talked to Sam Altman and open AI CFO about this idea and the way that the CFO Sarah Fryer put it is, you know, there is market demand for them to do a private market round, but they will go public eventually. They will go public when the timing is just better. The environment right now is not the right environment for them to do it. But I think answering your

11:33question, you know, my understanding is that everyone's pretty calm about it actually. You know, the acceptance that anthropic will likely go public first. So at a, to the extent that there is another private round, I'm assuming it's going to be at some higher evaluation suggesting that at least the private market is still bullish on this AI story. Yes. So the valuation that we reported is about 1.4 trillion, which would be up from, you know, 900 billion-ish, 850 billion to 900 billion dollars in its last private market round. You know, again, what Sarah Fryer said on the record, because I said, here's what we reported, what can you say, was that there is market demand for them to do this. You get the sense, this is the investors pushing them to do it, rather than them needing money. Because don't forget, when they raised $122 billion earlier this year in a single round, that was a record, and all that money sitting on their balance sheet. So right now, there's like all this debate about how much cash they burn through for the compute, but they do have a lot of cash, right? You know,

12:38sitting there ready to use. Stay with us, more from Bloomberg Intelligence coming up after this. Some people treat Chachypt like some kind of smart search engine, and some use it to get work done. Chachypt work is a new way of working in Chachypt that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put Chachypt to work on your most ambitious ideas and projects. Get started at chachypt.com by selecting Work Mode, available on plus and pro plans. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast business keeps you totally in step with secure AI back networking built to

13:41power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle. And get this, Comcast Business powers over 90% of the fortune 500 and millions of small businesses behind it all, network engineers, cyber security specialists, support teams, thousands of experts answering your call at 2 a.m. like its 2 p.m. always on, always ready. That's a lot of coffee. One partner powering how business gets done for companies of every size all around the globe. When you add it all up, no one does business like Comcast Business. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. On Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. There's some bond deals out there in the marketplace right here. I'm talking size. Paramount

14:44Skydance out with something like 51 or 52 billion. I don't know what's going on up there. That's a lot of debt for a media company. Steven Flynn, it's his job to figure it all out. Steven Flynn, he's a credit analyst from Bloomberg Intelligence. He covers all the tech media telecom space here. Talk to us. Just about the structure of this deal. What's the company doing down the marketplace? Sure. They're raising a lot of debt. They're bringing a lot of money. They're hitting various markets. They have two components to the debt. There's the first lean debt. That's investment grade rated. They're doing loans and they're doing US dollar-dronominated corporate bonds. On the high yield side, they have second lean bonds that are high yield rated and they're hitting both the dollar market and the euro market and high yield. There's multiple parts. They're hitting multiple markets. In your opinion, what would be the first sign that that debt reduction plan is not working? Well, let's hope it does work. I was saying we're putting on a lot of debt. We're going to have a lot of leverage. What's expected is the company is going to be implementing a ton of cost synergies.

15:47They're starting out with high leverage, but the goal is to de-lever. There's two components that you could increase your EBITDA to lower leverage or you could reduce your debt or net debt balance. They're going to do two things. Number one, they hope to grow the EBITDA. What a big part of that is the cost synergies. If you look at the two companies, combine them. You're talking about $12 billion of EBITDA. They're looking for $6 billion of annual cost savings within three years. That was a huge number. That growing EBITDA will lower your leverage ratio. Once you get past a year or two, they should start to generate a significant amount of free cash flow. That free cash flow will be used to reduce the debt. That will get you to de-lever over the next three years. Bloomberg news is out. The great story on this deal today, just saying, hey, they wanted to get this deal done six months ago, or if not more, but they had some delays, states, attorney generals holding up the deal. That delay, what's happened in those six months is interest rates have gone up dramatically. Now, this is going to cost them a lot more. How much of a problem is after them?

16:47It is going to cost them a lot more. We think about it. They first announced plans to, I think they offered $30 a share back in December of 25. They agreed to $31 a share and late February of this year. You think about where the credit markets have gone over that time. It's gone higher. If we look at the generic US 10-year treasury bond, it's up about 100 basis points from about 4.2% to 5.2%. The IG market is up about 110 basis points up to about 6% in total. High yield markets up about 160 basis points. It's now on average 8.3%. If you think about that significant rise in the underlying markets, obviously in Paramount, it's going to be true. They're issuing a lot of debt. It's going to come wide. It's going to cost them a lot of money. If you think about that change, in total, they're raising about $57 billion in debt with all the different markets that we talked about an extra 100 to 150 basis points. That's an extra 570 to 815 million a year in interest

17:49expense. The company is expected to generate significant free cash flow. This will clearly put somewhat of a dent in that free cash flow. Hopefully the company will have the capacity to deal with it or true. You're a credit analyst. You don't rely on hopefully. I'm an equity guy. I say, it's a lot of good work out the way we're at it. By the stock, you guys really look at the numbers and can they actually do it? Yeah. I say we hope they can. But the bonds are coming wide. If you were a bond investor, you're saying, hey, I have significant concerns. Medium mergers don't have a great track record. There's a lot of synergies that they have to cut. There's some uncertainties there. It's going to be a big name in the market and it's coming really wide. If I don't own it and it performs or if it tightens, I'm going to underperform. That's going to force people to be involved. The new secure debt will basically place them above unsecured debt holders currently for Paramount. How much of a problem is that? What does that mean for those investors who are already investing in Paramount debt? Sure. It's going to be a complicated capital structure

18:51with many layers. You said the first lien is the first priority that's investment grade rated. The new bonds they're offering are second lien, which are high yield rated. Now there's some legacy debt on the Warner Brothers side that's exchanging at the second lien and then there'll be some stub pieces. You reference the legacy Paramount unsecured debt. That will be behind a few layers of debt. Now those bonds are yielding much more. They're trading at large discounts to par. A lot of those risk factors are already in where the Paramount bonds are trading. It's interesting. Paramount bonds were a part of the investment grade index until I think it was March this year when they got their last downgrade to junk. They fell out of the index and into high yield. Stay with us more from Bloomberg Intelligence coming up after this. Some people treat Chachypt like some kind of smart search engine and some use it to get work done. Chachypt work is a new way of working in Chachypt that can take action across your apps and files, stay with a project for hours if needed and turn a goal into finished work. It's designed to

19:53help you move from a chaotic starting point to a reviewable first version. So all the source materials briefs and scattered information that you have to grind through to turn into something useful can just become something useful. Put Chachypt to work on your most ambitious ideas and projects. Get started at chachypt.com by selecting work mode available on plus and pro plans. The world of business is constantly evolving. Every day new challenges new opportunities new ways of working. Comcast business keeps you totally in step with secure AI back networking built to power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle and get this. Comcast business powers over 90% of the fortune 500 and millions of small businesses behind it all network engineers, cyber security specialists, support teams, thousands of experts answering your call at 2 a.m. like it's 2 p.m. always on, always

20:57ready. That's a lot of coffee. One partner powering how business gets done for companies of every size all around the globe. When you add it all up, no one does business like Comcast business. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Well the New York Times investigation found that draft kings built a machine learning model that scored customers by how much they would lose for each free bet or bonus they received. That's raised some concern. Sharon is a subject in part of our next guest opinion column at the golfam. Makanda he's a lecturer at the Yale School of Management and he is a Bloomberg opinion contributor. We are in the era of warped entrepreneurship. What do you mean by that, Gotham? So this is a draft king story but it's not just a draft king story.

21:58And for draft kings, I'd almost just want to ask that people who are doing this, if you told your mother that what you did was using the data science skills that you acquired over years of painstaking work to find people who are problem gamblers and extract the last bits of money from them and make it harder for them to sort of separate themselves from their gambling habit. Would you feel proud of yourself? Like is that something that your mom would say, gee I'm really glad you did that son? I sort of hope not but I don't think it's not just a draft king story although the issues of gambling, sort of online sports gambling, what it's done or something we really should address, it's that we have created a version of too much of American capitalism that's sort of oriented around predation, around making life worse for your customers and your counter parties, gathering money for your sort of returns for yourself instead of creating wealth, which is what capitalism is supposed to be about. In my opinion, what the most striking part of your piece was is basically the dichotomy between this aspirational capitalism

23:03and this predatory capitalism. And you had mentioned in centuries past we really were better at reading that in. What are ways in which you see that possibly happening again in this age of globalization, in this age of having so much information about others at your disposal very quickly. Yeah, I think there are two thrusts that we could take. One is sort of issue by issue area by area right? Would you say that look, it's not, you know, I would just say broadly, allowing online sports gambling nationwide, that was a Supreme Court decision, it was a catastrophically bad one, it should be reversed. But there are other like, you know, you see private equity companies that are monopolized in construction of fire trucks and then jacking up the prices. There's just no excuse for that kind of thing. Antitrust was designed for that. We need to do that much more aggressively. But the broader one is the idea that we need to reorient the American economy around people who make things instead of sort of people whose idea of growing a company is how do you squeeze it for numbers? That the classic problem here is Boeing. We all watched what happened to Boeing and it's

24:04low recovery now. But like if you if you were running an airplane company, you should think that your product is airplanes and not a stock price. And that involves sort of a pervasive attempt to defy and utilize the economy and make it sort of really put it in charge of people who are people who like to make things as opposed to just people who are playing games with it. But we've trained generations and one could argue the backbone of American capitalism is the maximized profitability for shareholders. Full stop. Are you suggesting something different? So I am because it's sort of very important to say this. I do this to my students every year. I'll ask them, do you as a CEO in the United States have a fiduciary responsibility to maximize shareholder returns? And most of them will say yes. And they are wrong. That is a matter of black letter law. It is not something that is hotly debated in the law. You as a CEO have a responsibility to exercise your best business judgment in the interest of shareholders. That's not the same thing.

25:04And so, so yeah, Paul, I would say very simply, the model we have created that does this, it's not just bad for workers in the environment and stakeholders in society. It's bad for shareholders. Before we had this model of a short term shareholder primacy, shareholder returns were better than they are now. I'm going to ask a deeply philosophical question right now. So how do you untangle the idea of American individual achievement that is obtained through that particular sort of edge that somebody might have? So you had noted that that kind of edge to take advantage of others is what really is launching a lot of this really predatory capitalism. What needs to happen to be American identity, especially as it pertains to business, to not say I'm going to get my economic advantage at all costs, even if that means harming another person. Yeah, and I think that is an ideological shift and it goes everywhere from schools. But the most important thing is incentives, right?

26:06That we need to shift the if you if you change incentives in such a way that this sort of behavior is not rewarded, the norms will start to shift with it too. And it's not just about incentives, but sort of saying like, you know, if we find out that you as a company are treating gambling the way the opioid, you know, making gambling into the next version of the opioid epidemic in the United States, we should probably intervene before it gets that bad. And if we go after the people who do it strongly enough, that will change incentives. But the broader question, and I think it's a it's like a really powerful one, right? Is in the 1950s Peter Drucker wrote about the fact he said that if you were a top graduate of a business school, said you wanted to go to, you know, general motors or, you know, or Ford, you wanted to go to a place that made things. He said you would be ashamed, ashamed of yourself. If you went to a place where you were just allocating capital. And that's a very different model of the world. And it's one that's that historically the United States has had that you can sort of see ways in which go back where this idea that we really care about making great

27:10things, not just short term returns. This is the Bloomberg Intelligence Podcast available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday 10 a.m. to newneasternonbloomberg.com, the iHeartRadio app, tune in and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. Artificial Intelligence is transforming how businesses operate. But what will it take to build a truly autonomous AI enterprise? On October 28th in Boston, join the Bloomberg tech briefing, building the agentic enterprise to hear business and technology leaders explore the strategies needed to build cyber resiliency and secure trusted AI systems for the agentic AI era, proudly sponsored by HPE. Learn more and register at Bloomberglive.com slash Bloomberg tech briefing. Real quick, if any of these sound familiar, there's something you can do right now,

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