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QUEST MEANS BUSINESS
BlackBerry Off the Market; US Stock Markets Edge Higher; Twitter Potential for Profit; SAC Capital to Plead Guilty to Insider Trading; Johnson & Johnson Settlement; US Congress Debating Employment Nondiscrimination; Pirelli Prototype Debut
Aired November 4, 2013 - 16:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
MAGGIE LAKE, CNN INTERNATIONAL HOST: It's the closing bell on Wall Street. The stock markets start the week higher, but only just. It's Monday, the 4th of November.
BlackBerry off the block. The sale is canceled and the CEO is out.
Guilty of insider trading. SAC Capital, a major Wall Street company, is given a record fine.
And an online outrage. Google's chairman says he's furious with the NSA.
I'm Maggie Lake. This is QUEST MEANS BUSINESS.
Good evening. BlackBerry is officially off the market. The troubled SmartPhone maker abandoned plans to sell itself today. Instead, BlackBerry's largest shareholder, Fairfax Financial, will invest $1 billion in the company. BlackBerry will go forward as a public company with new leadership. It said good-bye to CEO Thorsten Heins today and will search for a permanent replacement.
Shares of BlackBerry took a beating today, down 16 percent, almost 16.5 percent. Shelly Palmer is author of "Digital Wisdom" and he joins me now. Shelly, we've been talking about BlackBerry for a while. Is this it? Is this the end for them?
SHELLY PALMER, AUTHOR, "DIGITAL WISDOM": Well, I don't know if you can say is this the end? It's like, where do you want to start the beginning of the end? This is the beginning of the beginning of the end? No, this is the middle of the end for BlackBerry.
PALMER: These guys just can't get out of their own way. They went from a -- the story is terrifying. They went from a position of complete, total dominance to one where they're irrelevant in every way you can imagine the word "irrelevant."
LAKE: And if we look at why that is, they're still a public company. Somebody just invested a billion dollars in them. They did tap somebody, although it may be interim, who is known -- he knows his way around mobile, around software services data, possible that they're able to come out as a different-looking company?
PALMER: It's really interesting. What's happened to BlackBerry is what happens to so many companies. First they were arrogant, then they missed a major and important change in the marketplace, and now, without the enterprises behind them and in a world of BYOD, bring your own device, there's no real reason to have a BlackBerry. I'm wearing a pair of Google Glasses --
LAKE: I was just going to say, speaking of bringing of your own device, Shelly brought his own device right here.
PALMER: But for me, this is the future. I'm in a wearable world, whether it's Galaxy Gear from Samsung, this is Google Glass, whether I'm going to have something from Apple at a certain point, unless they come out and change the paradigm and say we know the keyboard was our strength, we've got a keyboard-based device that's going to blow your mind -- which they tried and the market ignored --
PALMER: So, that's not the answer. People said --
LAKE: Because they were playing yesterday's game already at that point, weren't they?
PALMER: It's over. That --
PALMER: We're at the end of what a regular SmartPhone is going to look like. The next SmartPhones that come out are going to have slightly better cameras, slightly better processors, all the things are going to be invisible.
What's going to be interesting about the next group of SmartPhones is how they interact in a connected world, in the internet of things, and in a machine-to-machine. As far as, is it going to make a better phone call, take a better picture, be more connected to Facebook? No. It's going to feel exactly the same. And so the phone company is going to need to literally give it to you to make you take it.
PALMER: Now, what's next? What's next is either wearables, whether they're on our wrist or on our eyeglasses or --
LAKE: Something that takes away that friction between you --
LAKE: It's all about the experience now. I want to talk -- I want to go circle back to this, because this is an amazing fall from grace from being the company that really defined this market. Let's listen to what outgoing CEO Thorsten Heins, he had a very different picture in mind for BlackBerry's future back in -- just in January of 2012, which is not that long ago.
He was asked where the company would be in five years. They were already having some trouble at that point. Take a listen to what he said.
(BEGIN VIDEO CLIP)
THORSTEN TEINS, OUTGOING CEO, BLACKBERRY: I see us absolutely as one of the leading players globally. Just from our regional presence, we are still expanding, there's still regions that we can explore. I see us a clear technology and value-experience leader.
(END VIDEO CLIP)
LAKE: I mean -- listen. A lot of CEOs come on and they put a positive spin on. I'm thinking right now a lot of people asking Tim Cook, have you lost your innovative edge, and he's saying, "I think we will be -- " I mean, we hear this stuff. Is the problem that they really believed what they were saying at the time?
PALMER: I think, look. Whether he believed his own press or was just making it up doesn't matter. A five-year plan is a ludicrous concept --
LAKE: In this world of technology.
PALMER: In the world --
PALMER: Today is the slowest rate of change we'll ever experience ever for the rest of your life. We're on a hockey stick of change, and managing that change is the only thing a real business can do.
If you ask yourself, do I have the correct mobile strategy? You've asked the wrong question. The question is, do I have a connected world strategy? Do I have a way to interface of all of my devices with all of the people in, as you best put it, frictionless way.
And so, the friction point here is really simplistic: they missed the market. Are they going to be able to catch up? You know what? I don't know if they're going to be able to catch up. What they're living on right now, they're living on the enterprises that still use BlackBerry, they're living on BlackBerry enterprise server.
Their e-mail system, which used to be flawless and awesome and secure, is less so today and less meaningful today. And so, if you take the relevance of BlackBerry as a secure enterprise system out of the conversation, you have absolutely nothing left, and anyone who doesn't see that misses the point.
LAKE: Well, and that is why everyone looked at their books and no one decided to step up and buy them --
LAKE: -- which is worrying. Shelly, last question, because not only is BlackBerry's struggle and future very important, but the lesson it gives other companies. I imagine that there are CEOs who are looking at this terrified for their future.
Are we going to see the names that are dominant now in what we know as the phone market still there, still fighting it out? Or are we going to see some of them go the way of BlackBerry.
PALMER: You don't need to be a futurist or a technologist to answer that question. There will be a thinning of the herd. And I'll tell you how it's going to happen. Everybody who can adapt to change and manage change is going to survive and prosper, and everyone who can't is going to perish.
You can call it Darwinian evolution, you can call it anything you want, but at the end of the day, we're in a business, now, of managing and adapting to change. Those who can will survive and thrive, those who can't will adapt or die.
LAKE: And it is brutal out there.
PALMER: It's a pretty brutal world.
LAKE: They're going to earn their pay, some of those CEOs. Shelly, always great to see you. You're looking great with the Google Glass.
LAKE: I love it. It suits you. Shelly Palmer for us --
LAKE: -- author of "Digital World." Well, on the broader stock market, US stocks made small gains today. Let's check in with Alison Kosik, who is at the New York Stock Exchange for us. Alison, we were higher, but just.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, just barely. But you know what? We are ending in the plus column. Today was really all about TINA, T-I-N-A means There Is No Alternative. The way investors saw it, there wasn't much moving the trade today except the mindset that there's no other place to put your money at this point.
We are seeing investors trying to be a little cautious, because there is some nervousness that there's only been a mild correction this year, but stocks continue riding this wave of momentum. You look at October, it was a strong month. The rest of the year expected to be more of the same.
If the market trend continues, stocks are likely to finish the year with the biggest annual gain since 1997 even though the US economy ain't very pretty right now. Investors, Maggie, they're riding the trend. Maggie?
LAKE: They are. It's hard to fight it. All right, Alison, thank you so much. Well, a big week for Twitter. The company raising the price of shares in its Initial Public Offering to between $23 and $25 a share, that is from the previous range of $17 to $20. Twitter is offering 70 million shares, indicating a market value of as much as $13.9 billion. That's a big number.
Twitter is expected to price its shares on Wednesday and they will begin trading on the New York Stock Exchange, we believe, on Thursday.
Now, Twitter is going public in what is said to be the biggest technology IPO since Facebook. Twitter hasn't made a profit for at least the past three years, but that's not a problem for investors. All they care about is Twitter's potential future earnings.
BRYAN CRANSTON AS WALTER WHITE, "BREAKING BAD": Hey! Perfect timing. Just about to get started.
LAKE (voice-over): From the tense final season of AMC's "Breaking Bad," to the heart-pounding suspense of Showtime's "Homeland" --
CLAIRE DANES AS CARRIE MATHISON, "HOMELAND": You can't collect intelligence from behind a desk.
MANDY PATINKIN AS SAUL BERENSON, "HOMELAND": Find a way.
LAKE: -- people glued to the programming on this screen are now turning to this screen to tweet about the action live. It could help put Twitter on the path to profitability.
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LAKE: A key issue for investors.
NATE ELLIOTT, FORRESTER RESEARCH: Twitter has sort of stumbled upon this position as the place people go to have conversations about the things that they're watching on TV. That, in theory at least, presents a really big opportunity for Twitter.
LAKE: During an interview with "All Things D," Twitter CEO Dick Costolo acknowledged the phenomenon.
DICK COSTOLO, CEO, TWITTER: Over the last few years, we've recognized that Twitter is the second screen for TV. And TV is more fun with Twitter.
LAKE: For big events like the Academy Awards, live tweeting can be off the charts. Almost 9 million tweets were sent during the Oscars this year. And during the last Super Bowl, more than 230,000 tweets were sent per minute.
A new study says 55 percent of Americans watching TV now do so with a second screen up and running. Dick Costolo says this can be a win-win for Twitter and for TV.
COSTOLO: In a world in which the broadcasters, I think, have traditionally come to think of technology companies as competitors, we view ourselves as complementary to what those folks are doing.
LAKE: Indeed, a recent issue of "Forbes" talks about how Twitter will save TV and how TV will save Twitter. But to do so, both mediums must get creative.
ELLIOTT: Twitter can't just plaster lots of banner ads on its screen like Facebook and other sites do. So, they've got to find other ways to make money. And they can do that by putting promoted tweets into the stream of content people see.
LAKE: If Twitter can find a way to make money from even a fraction of these tweets, it might easily reach the goal that it set in its IPO road show: a 40 percent profit margin, higher, even, than Google's.
LAKE (on camera): Twitter is far from that goal now, but every live tweet counts. As the second screen gains in popularity, Twitter is hoping to turn 140 characters into cold, hard cash.
LAKE: Now you know how to reach me. Well, up next, a guilty plea and a fine. SAC Capital settles with prosecutors, but founder Steve Cohen is not off the hook.
LAKE: SAC Capital has struck a deal with US prosecutors. The hedge fund owned by billionaire Steven Cohen agreed to plead guilty to criminal insider trading charges and pay a very large fine. As Zain Asher reports, the case will send shivers down Wall Street.
PREET BHARARA, US DEPARTMENT OF JUSTICE: All of the charged SAC companies have agreed to plead guilty, and all have agreed collectively to pay total fines and penalties in the record amount of $1.8 billion.
ZAIN ASHER, CNN BUSINESS CORRESPONDENT (voice-over): With that announcement, the biggest insider trading fine in history was levied against Steven Cohen's SAC Capital. For the past year, the walls have been closing in on one of the biggest hedge funds in America.
Cohen himself was also slapped with a civil lawsuit in July accusing him of failing to supervise his employees, six of whom have already pleaded guilty to insider trading. But Monday's announcement doesn't mean SAC Capital is quite off the hook just yet.
BHARARA: We will continue to pursue insider trading investigations and follow the facts wherever they lead. And the investigation in this case, on the criminal side, remains ongoing.
ASHER: Cohen, known for his trading mastery, is a regular on the "Forbes" 400 list of the richest Americans. His multibillion-dollar hedge fund, SAC Capital, has average returns of 27 percent a year over the past two decades.
He boasts a 35,000 square-foot mansion in Greenwich, Connecticut, and an art collection that includes works by Warhol and Van Gogh.
But now, this one-time poker whiz has folded. For the past few years, the government has been circling Cohen, systematically targeting his employees in hopes they'll turn against him.
TOM GORMAN, DORSEY & WHITNEY, LLC: It's a very traditional kind of law enforcement approach. They use this same approach in organized crime cases. They just work their way from the bottom up to the top, and then they try to get who they think is the top guy.
ASHER: Under the terms of Monday's agreement, Cohen will no longer manage money for outside investors, effectively turning his giant fund into a family office. But he'd still be allowed to invest his own personal funds, an estimated $9.4 billion.
Prosecutors still haven't brought criminal charges against Cohen, but for regulators, this is about a much bigger problem, and they offer a word of warning.
BHARARA: No institution should rest easy in the belief that it is too big to jail.
ASHER: The US attorney also emphasized that the proposed agreement offers no immunity for any SAC employee.
Zain Asher, CNN, New York.
LAKE: Now, we have a statement from SAC spokesman Jonathan Gasthalter said in an e-mail to us, "We take responsibility for the handful of men who pleaded guilty and whose conduct gave us rise to SAC's liability. The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years. SAC has never encouraged, promoted, or tolerated insider trading."
Now, as part of the deal with prosecutors, SAC will close its investment advisory business to outside investors, as Zain mentioned, though the firm will probably continue to manage Steven Cohen's fortune. His net worth is an estimated $9.4 billion, that's based just on September figures. Total funds managed by SAC estimated at $15 billion, according to "Bloomberg News."
Maureen Farrell joins us. She writes for CNNMoney.com and has been following this story for a while. Maureen, for people who may not be familiar with Steven Cohen, he's a bit of a recluse, he's not a household name. But this is the most feared man on Wall Street. Preet Bharara the US attorney really landing what has been the big fish that has eluded government officials for so long.
MAUREEN FARRELL, CNNMONEY.COM CORRESPONDENT: It is. He's landed it, this is a record fine, we've never seen anything of this magnitude. And Steven Cohen is one of the richest men on Wall Street.
That said, what we're still waiting to hear is whether or not he will face criminal charges. There's also this idea that the US attorney wanted to put him in jail. He said this deal does not offer any immunity to Cohen or anybody else, so that's really what we're going to wait and see, $1.8 billion, that's a huge sum.
LAKE: But small compared to the fortune. And you're right, they got closer --
LAKE: -- than they ever have before and shut down, potentially, managing for outside investors. But they didn't get anyone to turn on him, really. There are a lot of questions about the case. They just didn't have the case to bring it criminally.
What does this do for Wall Street? I have heard people -- a lot of people say to me, the reason he was so powerful is because he was the biggest payer on Wall Street. They just have so much liquidity, people worried about what it means for bank profits. Also what it means just for liquidity in the market.
LAKE: That is how central this hedge fund was, not only in Wall Street, but in global trading circles.
FARRELL: It's huge. That's why it says a lot of banks have kept on working with them. It's going to be really interesting right now to see, now that they are -- they're going to plead guilty, whether banks will keep on working with him and taking his trades.
LAKE: That's the question, right? Because even though he's able to manage his own personal money, is he took toxic --
LAKE: -- for banks who are trying to repair their own reputation to deal with him?
FARRELL: But that said, the commissions are huge. Even with -- it used to be $15 billion, now it's $9 billion of his own money that he's trading on Wall Street. It's huge -- it's still a huge sum, that still makes it one of the bigger hedge funds on Wall Street.
LAKE: Preet Bharara all along has said that he wants to break this pervasive culture of insider trading where the people on the inside, the banks made all the money, at the expense of the little guy, who is, in essence, getting ripped off in this process. Is this going to change things? Does -- will this act as a deterrent, or is the jury out on that?
FARRELL: I think people say already it has. He has put people in jail already for insider trading. We're seeing all these fines against the big banks, particularly in the hedge fund world. They say it's been a huge a deterrent already. I think there's been 75 convictions out of 87 cases that they have brought before the courts.
So, his record's stellar. We haven't really ever seen anything like this. He's really gone on the attack. This was the big case that he was waiting for, and they've won, the US attorney's office.
LAKE: It's always hard -- I'm always a bit skeptical when somebody says they're going to stamp out greed on Wall Street, but if at least they know they're being watched and the steer away from this insider trading and make the system a little bit fairer, then he'll have achieved something.
All right, fascinating story. Not over yet for us, they say.
LAKE: Maureen Farrell joining us. Thank you so much.
FARRELL: Thank you.
LAKE: Well, Johnson & Johnson has agreed to pay $2.2 billion to settle allegations of false marketing. The case involved two schizophrenia drugs which were promoted as a treatment for dementia and a heart-failure drug that was marketed for use not approved by the Food and Drug Administration. The settlement is one of the largest ever paid out by a health care company.
(BEGIN VIDEO CLIP)
ERIC HOLDER, US ATTORNEY GENERAL: Two of these alleged actions, these companies lined their pockets at the expense of American taxpayers, patients, and private insurance industry. They drove up cost for everyone in the health care system and negatively impacted the longterm solvency of essential health care programs like Medicare.
(END VIDEO CLIP)
LAKE: In just about an hour, the US Senate will vote on a measure to prohibit workplace bias based on sexual orientation and identity. The Employment Nondiscrimination Act extends the same protections to lesbian, gay, bisexual, and transgender workers that are already guaranteed on the basis of race, gender, and religion.
Apple CEO Tim Cook weighed into the ongoing debate. He penned a rare opinion piece stating that workplace equality is good for business.
Cook wrote, quote, "If our coworkers cannot themselves in the workplace -- cannot be themselves in the workplace, they certainly cannot be their best selves. When that happens, we undermine people's potential and deny ourselves and our society the full benefits of those individual talents," end quote.
Well, joining me now is Tico Almeilda (sic). He is the founder and president of Freedom to Work and helped draft the ENDA legislation, as it's known. And I'm sorry, Almeida, Mr. Almeida joins us live. Thank you so much, sorry about that.
TICO ALMEIDA, FOUNDER AND PRESIDENT, FREEDOM TO WORK: No worries, thank you.
LAKE: Talk to me about what we're seeing right now. This is pending approval in the Senate. There has been a lot of criticism and pushback from some Republicans especially, but lawmakers who say listen, there's already legislation that covers this, that protects these rights, and this is, in fact, going to hurt small businesses, create a lot of litigation. What do you say to that?
ALMEIDA: Well, that's the false argument that Speaker Boehner made just today, he claimed that this affects small business when, in fact, if you look at the bill, there is an exemption for businesses under the size of 50 employees. That's the exact same exemption that exists under the Civil Rights Act, that has existed for 50 years, and there's been no problem with small businesses being burdened by that law.
It's a law that gives people an equal opportunity, a fair shot to build a career based on their talents, based on their hard work, and not to be judged because of race. And this really extends the exact same policy to sexual orientation and gender identity.
LAKE: And what do you think the chances are of this passing, at least in the Senate? We know it's going to be tougher in the House. Do you think you have a shot here? Is this finally time? Has your time finally come?
ALMEIDA: It has. Just today, Dean Heller, the senator from Nevada, a Republican senator, announced that he will vote as the 60th vote in favor of the Employment Nondiscrimination Act. And like Mr. Cook's op-ed in "The Wall Street Journal" says, I think one of the big things we have going for us is the business case for LGBT fairness.
It is now -- we're now at the point where almost 90 percent of the Fortune 500 companies in the United States have voluntarily adopted policies that protect gay and lesbian people from workplace discrimination, so this is an example where Congress needs to follow the lead of business leaders and do what they say, as Mr. Cook said, is actually best for retaining and recruiting top talent and contributing to our economy.
LAKE: Of course, who lawmakers answer to are the voters. We're coming up on an election day in some towns and cities across the country. Is the national mood shifting on this? Has it changed?
ALMEIDA: It has changed very quickly in favor of fairness for gay and transgender Americans. In fact, there is polling just from this year that shows that there is overwhelming majority support among voters at large. And I think most impressive, there's now majority support, 56 percent, among Republican voters.
So, this is a case where we're going to see today around 10 Republican senators join with all of the Democrats to move this legislation forward, and that's a sign of just how far we've come and how elected officials in Washington are following the lead of voters.
LAKE: And that would be a rare sight of bipartisan cooperation if we saw that, indeed. Tico Almeida, best of luck to you. Thanks so much for joining us.
ALMEIDA: Thank you.
LAKE: Well, Pirelli gives Formula 1 teams in Brazil a taste of what's to come. The Italian tire maker is trailing -- trying, rather, a new prototype at the country's Grand Prix next month. It hopes to motor ahead from a year of controversy. We'll have the details next.
LAKE: Pirelli is hoping to move on from a season of controversy by testing next year's Formula 1 tires in Brazil this month. The Italian tire maker came under scrutiny after a number of tire blowouts at this year's British Grand Prix. Pirelli says it wasn't to blame and pointed to tire misuse by F1 teams. John Defterios spoke to the company's CEO in Abu Dhabi.
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR (voice-over): If there was one issue which left the 2013 F1 racing circuit with a black eye, most would point to the controversy around tires. The topic heated up in June with multiple blowouts at the British Grand Prix at Silverstone, and it remained the prominent talking point ever since.
MARCO TRONCHETTI PROVERA, CEO, PIRELLI: We had some damages for a few weeks after Silverstone, but then, I think, today people understood it wasn't Pirelli's fault.
DEFTERIOS (on camera): But inside racing, that may be the case, but how about globally to the tire brand, would you say?
PROVERA: Our people also via the blogs, internet, they saw in the last few months things going back to normal, so the comments today are more in line with reality and consumers have not been affected.
DEFTERIOS: During this period of intense negotiation, the chairman and CEO of Pirelli decided to put himself here, at the opulent and quiet Emirates Palace. This is far removed from the Yas Marina Circuit at the other end of Abu Dhabi and, very importantly, from the racing media.
DEFTERIOS (voice-over): Marco Tronchetti Provera of Pirelli is in year three of his agreement with F1. Looking to expand it to 2016 provided, he says, all parties, including the teams, adhere to the rules.
PROVERA: I think we went beyond the limits, I'm sure, and now we want to be very well regulated because we can do whatever is needed, but with due respect of the rules. That means tires have to be used within the limits we provide to the teams.
DEFTERIOS: Ferrari's Fernando Alonso last month claimed the quality of the tires is on the very limit, but the CEO says tire performance was not the problem.
PROVERA: I have to say that he was very nervous when he said that. It was not because of tires, it was because he wasn't able to win for a number of reasons. But tires were given just for the use they're made. If they use them not properly, it's not out fault.
DEFTERIOS: Pirelli Tire earned $1.5 billion on sales of just over $8 billion last year. F1's collective TV audience of a half billion viewers is helping them build the brand in fast-growing emerging markets despite all the hiccups.
DEFTERIOS (on camera): Even with the debate after the British Grand Prix and discussions in Asia, you still think it's brand positive?
PROVERA: Yes, it is and we have all the marketing analysis made around the world, and the always come as positive. So, that's why we continue, otherwise we leave.
DEFTERIOS (voice-over): As the curtain closes on this F1 season, the real challenge is whether the next generation of tires can be properly tested to avoid the publicity rolling into 2014.
John Defterios, CNN, Abu Dhabi.
LAKE: There is the old proverb, "People in glass houses shouldn't throw stones." What about Google Glass houses? The company's chairman Eric Schmidt called the NSA spying program an "overreach." But Google itself has been the target of privacy complaints. An interview with Eric Schmidt after the break.
LAKE: Welcome back, I'm Maggie Lake. Here are the top news headlines this hour. The trial of deposed Egyptian president Mohammed Morsi was adjourned until January 8th after a ruckus pre-trial hearing. Morsi and his co- defendant shouted down the judge claiming he's Egypt's legitimate leader. Morsi faces charges of inciting violence. Four men have pleaded not guilty to charges stemming from September's mall attack in Kenya that killed at least 67 people. (Or) all four are believed to be from Somalia and are charged with committing a terrorist act. They were denied bail and are set to go on trial next week.
The United States will review security at airports following Friday's shooting in Los Angeles. Terminal 3 at LAX is open for the start of business week although security is tighter. Suspect Paul Ciancia is still hospitalized in critical condition charged with murdering a federal officer. SAC Capital has settled its case with U.S. prosecutors. The hedge fund owned by billionaire Steven Cohen agreed to plead guilty to criminal insider trading charges and pay a $1.8 billion fine.
Edward Snowden is defending his leaks of NSA secrets in an open letter published in Germany's "der Spiegel" magazine. He calls for a manifesto for truth. He wrote that the recent calls to reform U.S. surveillance programs prove he was right to leak the classified information.
ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: I was shocked that the NSA would do this. Perhaps a violation of law but certainly a violation of mission. If it's true, and we don't know, maybe there are other disclosures coming, it would indicate that the National Security Agency had been looking between data centers in leading companies like Google. Now, Google's technology is heavily encrypted internally, heavily fortified, and we've announced that we're making it even more so. We're using encryption and other powerful algorithms to make it very difficult that the U.S. government can get your information or the Chinese government.
KRISTIE LU STOUT, CNN INTERNATIONAL CORRESPONDENT: Google is answering. You're responding in many ways - a legal response and also through greater encryption.
SCHMIDT: But it's just terrible policy, right. So as an example, in the United States it appears as though according to the documents, the National Security Agency tracked everyone's phone calls.
SCHMIDT: In order to identify 300 suspects, we had to track according to the disclosures, 300 million people's activities. Doesn't seem right. Seems like overreach. Over and over again, this needs to be organized, right? There are legitimate uses of this. This is clearly an overstep. In this particular case, we assume that there was monitoring between different computer systems. With encryption we can stop that.
STOUT: Google's calling this overreach - you're clearly angry about this.
SCHMIDT: We are.
STOUT: I want to show you this - of course you've seen it already. This is the NSA slide seen around the world showing how they were able to infiltrate Google systems. You're smiling because you know exactly what we're talking about. And there's this smiley face on that. What does that reveal about the psyche of the NSA?
SCHMIDT: Well, we don't know who wrote this slide. Let's assume that it's accurate.
SCHMIDT: But from a Google perspective, any internal use of Google services is unauthorized and almost certainly illegal.
STOUT: Did it surprise that the NSA were able to do this - that they have the skills to infiltrate Google?
SCHMIDT: Well, in the first place, we don't know that the NSA was able to claim. This is a claim.
SCHMIDT: The NSA certainly is technically very, very good. And so, could they do it? Sure. Should they have done it? Absolutely not.
STOUT: Now let's talk about the patent wars because Google has been hit by another lawsuit by the so-called Rock Star Consortium which includes Apple and Microsoft. What's going on here? How nasty is it going to get?
SCHMIDT: It seems like everyone's collecting patents so they can sue each other, to eventually end up in some kind of a settlement.
SCHMIDT: So, this was actually started by Nokia maybe five years ago. And in the software industry before that, no one really sued each other because the patents were confusing and many of them were invalid and so forth. We have been forced to defend ourselves and validate almost every one of these patent claims, and we will continue to do that. The fact of the matter is that this overwhelming use of patents ultimately hurts innovation.
SCHMIDT: Because while Google can do very well and Samsung and all of our partners can do very well, it makes it that much harder to create a new competitor in the space because that competitor cannot get access to all the patents needed to do so. It ultimately hurts consumers
STOUT: Now, there is this mysterious floating barge. We've got a picture of it right over here - up the coast of San Francisco. A Google barge. What can you tell me about that?
SCHMIDT: There are some answers Google cannot produce and that would be one of them.
STOUT: I mean, is it a showcase? Will it be a future showroom for Google Glass?
SCHMIDT: I actually have studied the market for barges and barges are going up in value today.
STOUT: Is it a floating data center?
SCHMIDT: Think of it as an investment in barges.
LAKE: Well, it has been a comeback year for Greece, that's the message from the country's tourism minister at the World Travel Market in London. Find out why after the break.
LAKE: The World Tourism Organization says global travel continues to grow - up 5 percent in the first eight months of 2013, compared to the same period last year. Tourism ministries and industry leaders are vying for a greater share of those international tours at the World Travel Market that opened today in London. Jim Boulden went to check it out.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: With ethnic music and local foods, countries are flying the flag at the World Travel Market Show in London this week. Though for some destinations like Kenya, it's about rebuilding and reassuring the travel business that it's open for business after the West Gate Shopping Mall massacre. Though Kenya says it did not suffer a hit in tourism.
MURIITHI NDEGWA, KENYA TOURISM BOARD MANAGING DIRECTOR: There was no revision of the travel advisories, so I think that in itself gives it a positive aspect in terms of tourism into the country.
BOULDEN: But Egypt has suffered from travel warnings issued by governments of key source countries. That hit tourism hard.
HISHAM ZAZOU, EGYPTIAN TOURISM MINISTER: August was the worst.
BOULDEN: But the tourism minister is trying to convince tourists not to worry.
ZAZOU: The situation is not like before. The attacks in the past - the tourists was the targets. Today, the tourists is not the target. It's an internal Egyptian/Egyptian issue.
BOULDEN: While neighboring Libya is trying to put its battered country back on the tourist map.
ABDURRAZAG GUERWASH, WINZRIK GROUP: We have nice beaches -
GUERWASH: -- and (inaudible) along the coast is really (inaudible) and we care to see some people. And we have (AUDIO GAP) at sea.
BOULDEN: For some countries, it's not about rebuilding your reputation for tourism, it's about doing things like sports tourism. Poland of course had European football championships last year, next year it has the Volleyball World Cup. It may be a niche sport, but some of Poland's top players were on hand to play up the countries sports prowess. It did catch the eye of this Polynesian dancer.
After opening the Russia stands, the head of the U.N.'s tourism arm told me travel is on the increase this year, thanks mainly to people coming to Europe.
TALEB RIFAI, WORLD TOURISM ORGANIZATION, SECRETARY-GENERAL: So, we have almost 5 percent growth in Europe which is very unusual, almost at the world average. Now, if you think of this taking place after the very good year of 2012, then we're doing fine in terms of the economic difficulties.
BOULDEN: The WTO says there were one billion international travelers in 2012, and estimates that'll rise to 1.8 billion by 2030. Countries and cities here are pulling out all the stops to get travelers to notice them, as we start to book our 2014 getaways. Jim Boulden, CNN London.
LAKE: Well, recession-hit Greece is one of those countries trying to lure tourists back to its shores. Jim spoke to the Greek tourism minister who told him visitor numbers are stronger than ever despite the country's economic woes.
OLGA KEFALOGIANNI, GREEK TOURISM: Actually it's a record year for Greek tourism and it's very important because it's actually a comeback year for -
KEFALOGIANNI: -- Greece.
BOULDEN: How did you do that? Was there - is the people decided they wanted to come back to Greece? They wanted to help the economy? Did you do something different to advertise it more, to promote Greece more?
KEFALOGIANNI: Well first of all we have been very targeted in our campaign and our promotion activities, and on the other hand, I think it was very important that Greece had projected the message of stability both from the political and also the economic side. And this is what actually helped. Greece was back to business and people have a great time coming to our country.
BOULDEN: There's a lot of questions about the islands and some of the smaller hotels going out of business or not keeping themselves in a way that would be conducive to tourists. Was that true or was that just misinformation and people were getting the wrong message?
KEFALOGIANNI: Well, the truth is that there was a lot of exaggerators and negative publicity, and I think that this falls under this category. Overall, I think the tourism sector showed a lot of resilience throughout this crisis and the recession that Greece has been having, and it's actually the center of the (inaudible) help the economy get back on its feet again. So I think that overall, we could say that it's not only a very good year in terms of as I said arrivals and revenue, it's also the tourism helped to sustain global economies and local communities.
BOULDEN: Given the fact that so much else in the economy is not doing well, has tourism become a larger part of the economy, and is that a bit worrisome because then you'd be relying more and more on fickle travelers?
KEFALOGIANNI: The truth is that tourism has always contributed a lot to the Greek economy, and of course it's important that right now we have a sector that can continue to contribute largely to Greek economy which is going through a very challenging period. And McKinsey studies and other studies have shown that the Greece can further rely on tourism in the years ahead in order to (inaudible) economic situation.
BOULDEN: Is it going to rely too much on tourism, though? I mean, it needs to have other industries in other ways of raising revenue, obviously.
KEFALOGIANNI: Obviously, but we are seeing that we haven't explored all the potential that tourism has, and this is why what we aim to promote here at the WTM is a (secret) Greece, show more destinations in Greece, destination for year-round tourism, not just for the summer months, so not just for sea and sun. And this can really help also with the other sectors of the economy because we also aim to combine tourism with the agricultural center while promoting Greece's culinary destination, for the amazing food and the locally-grown products.
LAKE: Tomorrow on "Quest Means Business" you can see my interview with Zimbabwe's tourism minister. He'll be telling me about Zimbabwe's strategy to boost tourism and with it the nation's economy. That's tomorrow evening on "Quest Means Business." Now, let's take a look at markets. Most European markets finished the day with modest gains. London's FTSE rose 0.4 percent led by solid earnings from HSBC as you could see. All of them up about a third of a percent - Zurich's SMI just the lagger there, that market down, closed in the red down about a quarter - rather about a half a percent actually. And if we shift to U.S. markets, we could see that we ended with modest gains - you could say up 23 points for blue chips, that is about a tenth of a percent. Not really any catalyst to drive markets higher. The S&P 500 and NASDAQ also finished higher. S&P continues to hover right around that record range. The one loser today, of course, as we've been talking about earlier in the show, is Blackberry. That stock down about 16 percent. OK, time for your weather now, and Tom Sater joins us from the Weather Center. Hey there, Tom.
TOM SATER, CNN METEOROLOGIST: Hi, Maggie. Beautiful day there in New York City.
LAKE: It is.
SLATER: Been a little bit -
LAKE: Yes, a little chilly though, depends on your definition of beautiful. I liked it -
SLATER: -- absolutely.
LAKE: -- but it's been a little chilly.
SLATER: You know, I thought we'd go ahead and just show our viewers what it looks like in Central Park. I mean, the autumn colors - absolutely beautiful, but you're right, it is chilly, it is 9 degrees Celsius which is 48 degrees Fahrenheit, but it feels a little cooler with the winds. Losing the sun a little bit behind a few clouds, but a lot of sunshine earlier in the day. If you are traveling, no problems on the east coast of the U.S., but I want to focus in Europe because it was one week ago we had a violent windstorm that did take the lives of a few, not just in areas of Britain, but into the northern areas and the countries of Europe too.
We have some delays that our possible into Tuesday - Amsterdam, again, another wind-maker, not near as strong, but there could be some significant delays. These are just based on computer models - notice in Stockholm as well. Let's break this down for you because it was a week ago as mentioned that the surfs were churning. This picture was just from Sunday. So again, on the coast of Northern France, we've got a satellite picture shows a surge of moisture now making its way. This is a dip in the jet stream, and this is where we're going to find the power.
But we have an area of low pressure spitting in Scandinavia, we've got another surge of moisture that is already entering now parts of the U.K. So, we'll focus on this area as well. The area of low pressure thunderstorms have been producing some pretty strong wind gusts, mountain snows elevations in the Alps too. More on that in a minute because we've also had a few tornadoes. Take a look at areas of the U.K. Here comes our next surge of moisture. Nothing violent with this, but it was 24 hours ago. Barely see a little thunderstorm cell there, dropped a tornado, but not just in this town in France. We had three different cities that reported a least some damage and we have pictures - not of France, excuse me - Netherlands. Let me go ahead and show it to you. This is what we call a rope of vortex. It's not as wide as we see in some areas of the world, but they can still do damage.
Now, take a look at this, this is almost like a ribbon if you will and it did and was strong enough to produce some damage of course on roofs, throwing furniture, ripping off the sides of some buildings here. No reports of any fatalities which is very good news, but again, here it is the second weekend in a row where we had a significant storm system that did some damage. The good news is that we didn't have of course the fatalities. Five degrees in London at this hour, Amsterdam is now at 8. There's still going to be another surge of some strong winds, but if we focus down to the south, notice that thunderstorms in parts of Corsica, and so (today) we had winds up to 75 kilometers per hour and still will be a focal point for the possibility of tornadoes. Because the storm system is really churning in the Adriatic, we have of course now San Marcos is flooding now, in Venice and now we take a look at the forecast at 11 a.m. tomorrow morning, we're looking at a little bit of a surge. Now, normal high tide is 80 centimeters. Look for it to reach about 105 centimeters, which is only about 80 percent of the city, but it does go to show us that well it's on the rise, and we're going to find these numbers for your highs tomorrow.
Rome 19 and Madrid 22, Paris 12, 11 in London. Maggie, back to you. Have your jacket, keep it handy.
LAKE: All right, Tom, thank you. Thank you so much, Tom Sater in the International Weather Center. Well coming up next, the budget business model gets a makeover - frills are back in fashion as Ryanair embarks on a charm offensive to attract customers.
LAKE: Europe's biggest budget airline has hit investors with a second profit warning in just two months. The stock fell more than 12 percent to 5 euros 33 cents. Ryanair warned annual profit is set to drop for the first time in five years. The reason, lower fares, tougher competition. Ryanair also announced new ways to win over customers. From February Ryanair will allocate all seats on all flights. It's part of CEO Michael O'Leary's new strategy to provide better customer service.
Well in the United States discount carrier Spirit Airlines prides itself on its ultra-low fares. Richard Quest spoke to Ben Baldanza, Spirit's president and CEO on Friday, and asked will Spirit follow Ryanair's example and become warm, cuddly and friendly?
BEN BALDANZA, PRESIDENT AND CEO, SPIRIT AIRLINES: We have some ideas about how to become more friendly, but that doesn't really mean changing our business model. We think what we need to do, Richard, is to better align the expectation of the customer to the actual delivery of a product. So, if in the U.S., for example, Southwest Airlines gets a much better customer rating than say JetBlue or Virgin America. Yet, both of those latter two airlines provide a better physical product than Southwest, more leg room, more free snacks, you know, more inflight entertainment and such, but Southwest gets better ratings, and that's because Southwest does a better job of letting customers understand what they get when they buy Southwest.
So we believe that when customers understand the value proposition of Spirit, how they will spend less money to get where they go and they will land with more money in their pocket when they fly Spirit, that that's the way to become more warm and friendly is to not let them be surprised at what they find at Spirit.
QUEST: Spirit tends to be at the forefront of changes. What do you believe - looking at your results and what's happening now in the industry in the United States, what for you is the most significant change underway now?
BALDANZA: We start from a different premise than most airlines in that we start from saying how low can we make the base fair, and we'll do everything we can to make the ticket prices low as possible and that really is two things. That's having the lowest cost possible but also unbundling as much as possible, so give consumers a lot of choice but not mandate that they buy certain things - let them pick that they want to buy those things.
QUEST: The problem with that of course is that as many airlines that do unbundling, many of the low cost carriers are now bundling again. You'll be aware of course, adding in a bag, adding in seat selection, all because it's incremental ancillary revenue, it raises the amount you get from the passenger. So, are you also looking at that other side of the equation for the business traveler?
BALDANZA: We don't try to cater to the business traveler, by that, I mean the corporate business traveler. Our target customer, Richard, is the customer who pays for the ticket him or herself. And if someone's paying for the ticket themselves, then they tend to be much more price conscious, so our low fair, high choice strategy gives them the ability to start with a very low base fare and then only pay for the extras that they really care about. Far be it from me to choose that you want to carry bags or you like to eat onboard, or you want an aisle or window seat. We'll let you pick those things and only pay for the things you want and save money on the things you don't.
LAKE: We'll be right back after this break.
LAKE: As Twitter prepares for its IPO, there's a new star on top. Katy Perry has dethroned Justin Bieber as the most popular person on the social networking site. The 29-year-old pop star knocked the Canadian crooner out of the top spot on Monday morning. Just a short while ago, Katy Perry had more than 46.5 million followers on Twitter. That's extraordinary. That's about 30,000 more than Bieber at the moment. Now, Bieber, not to fret is already looking to move on. He's invested in a social media web site called Shots of Me. It'll be released on the Apple Store later this week.
And that is "Quest Means Business." I'm Maggie Lake in New York. "Amanpour" is next.