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YOUR MONEY

Leaks, Spies and Privacy; Netflix Revolution; $550 Million Super Bowl Boost

Aired January 25, 2014 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, CNN ANCHOR: The Web sites you love, the government that's supposed to protect you and the hackers trying to steal your identity. They have one thing in common. They want your information and the less you know about it, the better.

I'm Christine Romans. This is YOUR MONEY.

Marissa Meyer joins other tech CEOs saying the government needs to be more transparent about its data collection.

But who's the bigger spy? The NSA or your e-mail provider?

Tech companies insist collecting your information is for your benefit.

(BEGIN VIDEO CLIP)

ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: If we can anticipate the things you might want to know or some of the questions you may have, we just make you smarter. So we want to go from sort of you telling us what you -- what you want to know to us suggesting things that you might want to know, that might make your life better.

(END VIDEO CLIP)

ROMANS: The president says NSA surveillance is key to national security and has not overstepped.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Nobody's listening to the content of people's phone calls.

(END VIDEO CLIP)

ROMANS: And just recently, Target and Neiman Marcus, retailers you trust, forced to admit your information was stolen in their care.

The economists calls Bruce Schneier a security guru. He is the author of the book "Liars and Outliers."

Welcome to the program. You say surveillance is the business model of the Internet. When it comes to the sites we all love to use, Facebook, Gmail and others, you're saying we're not customers. We are the product. BRUCE SCHNEIER, COMPUTER SECURITY EXPERT: Well, it's true. I mean, think about Google and Facebook. They're free services and the reason they are free is because the sites, the companies are collecting your information and using that for manipulation, to persuade you to buy things, to part you from your money. So we are definitely the products in these -- in these services being sold to advertisers. It's not necessarily bad, but we have to recognize it.

ROMANS: Well, it feels like the Wild West out there when you look -- I mean, it's one thing to have a free e-mail service, right, and then you know that there -- there's a reason why you're a product, you're using their service for free. But when you go to buy something at the point of sale and you can be hacked. When you use a phone call and you can be hacked by your government.

You can be hacked, your e-mail at the store and the government, I feel like everyone wants to hack my life. Is that what is happening here, Bruce?

SCHNEIER: You know, it is and it isn't. I mean, it is kind of a Wild West out there and lots of hacks do happen. The Target breach is a great example. Right? It's -- tens of millions of credit card numbers stolen. More personal information stolen. But largely the credit card companies made good on that. So does that affect consumers? Not really. Right? The system was able to deal with that.

You look at government intrusion. Well, that's a bigger deal. Right? The NSA, the FBI, DEA. There's a lot of spying. Other countries.

ROMANS: Yes.

SCHNEIER: And now we have also hackers. A lot of people are after information. There is some protection, but largely, attacking is easier than defending. And that's fundamentally a problem.

ROMANS: As you point out, Bruce, you know, the NSA didn't build a spying system from scratch. It actually took the idea right from the corporate world. And we wouldn't know how deep it went if Edward Snowden hadn't told us about it.

I want to bring in CNN business correspondent Zain Asher.

Zain, what does a man who started all this have to say about it?

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Well, Edward Snowden had a few interesting things to say yesterday. First of all, he says he's not planning on coming back to the U.S. anytime soon. But he did also say that, you know, whistleblower protection laws in this country are too weak, too ineffectual. But he also emphasized that this whole sort of indiscriminate mass surveillance isn't really the way to go. He really focused on the fact that it is all about targeted surveillance.

I want to talk a bit more about what Bruce said that I find particularly interesting. This idea that we are the products. You know, the difference between Facebook and Google spying versus the NSA spying is really the -- with Facebook and Google, they have an incentive to make their users trust them.

ROMANS: Right.

ASHER: And that is what -- yes. That's where you have the checks and balances. Right? So they want their users to trust them that is why they allow you to opt out, for example, or they update you on their privacy laws whereas the NSA doesn't have that. And that's what makes the NSA a little bit more scary.

ROMANS: And I think that's what Marissa Meyer's point was this week, the Yahoo! CEO who said that her, you know, this was hard on the trust of her own customers, what we're seeing from the NSA.

You know, Bruce, CEOs are asking the government for more transparency. Meanwhile, everyone else wants to know what the Internet knows about them and how hackers are getting their credit card information. You know, it's all kind of rich really that there's all this opinion out there about spying and whose credibility is hurt by whom.

We're not going back to a world without e-mail. We're not going back to a world without social media. So what needs to change?

SCHNEIER: Or a world without cell phones. I mean, transparency is important. And while it's true that the companies want us to trust them, they get us to trust them often by lying, by obfuscating. It's actually very, very hard to set Facebook's privacy settings. And while you can set them to whether your friends can see you post, you're not allowed to set them as for the advertisers can see what you write.

So there's actually a lot hidden and that's just true for the NSA, too. I mean, a lot of this works because we don't really know what's going on. So transparency both for corporations and for governments is extraordinarily important here.

ROMANS: Bruce, I wonder --

SCHNEIER: Transparency --

ROMANS: Do people really care? I mean, is it something that we complain about because this is the United States, we cherish our freedoms and we don't like totalitarianism, right? But at the same time, we're going out there, people willingly put all this information online. People willingly swipe their card all over the place even though they know maybe they shouldn't or they should change their PIN and people willy-nilly call, call, call.

SCHNEIER: Well, people actually do care. You know, it's interesting, when you actually survey people and you ask them, do they care about their privacy, do they want companies to do this, they say no. Often they had no choice in the matter. I mean, as you said, we can't go out e-mail. You can't go without credit cards.

If you're not on Facebook and you're 22, you don't have a social life. So a lot of these systems have become so embedded in our lives that we don't really have a choice so the market's failing. It is not that there is a more privacy friendly Facebook alternative you can choose.

ROMANS: I see a bull market --

(CROSSTALK)

SCHNEIER: You have no choice here.

ASHER: And also, Bruce, I mean, there's a lot that we choose to be blind to not to know because we don't bother to read the sort of agreement, the privacy agreement on Facebook. A lot of people don't. I mean, I can't say for sure that I read the whole thing.

ROMANS: I haven't.

(LAUGHTER)

ASHER: But it's --

SCHNEIER: But nobody has. But remember what's salient. Right? What's salient when you go online, when you use your cell phone, is to talk to your friends, to get your information. That's what's right in front of you. All the stuff about privacy and freedom and the NSA and surveillance and advertising, that's all very diffused.

As people, we're really bad at near-term gain versus long-term harm. It's like dieting. We have trouble doing that. Doesn't mean we don't care. But I mean, at the moment, we can't make good decisions.

ROMANS: And the day that somebody can scrutinize my diet without me knowing about it then I'm really in trouble. Now we've gone too far.

Bruce Schneier, Zain Asher, nice to see both of you. Have a great weekend.

You might feel like you need to be some sort of modern-day superhero to protect your credit card, your bank accounts and your online information these days, come to think of it. What would you pay? What would you pay to be completely unhackable?

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Fifty bucks a month. Nobody is really trying to, like, hack me, but I've had to, like, change my credit cards before and stuff like that. Pain in the butt.

UNIDENTIFIED MALE: At least $30 a month or so, you know, to have that security that I don't have to worry about anybody looking over my shoulder.

UNIDENTIFIED FEMALE: Well, maybe a million? Yes.

UNIDENTIFIED FEMALE: $25 a month. Maybe more. It would depend if it really worked.

UNIDENTIFIED REPORTER: How about you?

UNIDENTIFIED MALE: I'd probably pay more for real security, but I don't think it's possible yet.

UNIDENTIFIED FEMALE: Since I've been lucky enough not to have been hacked yet, I think $100 would be, you know, sufficient.

UNIDENTIFIED MALE: I would say at least 40 or 50 bucks. It would be a great price. I mean, if you can go with that, that would be awesome.

KATE BOLDUAN, CNN ANCHOR, NEW DAY: I think a good $100, I would pay to be completely unhackable. If you'd say I needed to pay more, I would do it. But then again, in terms of what they're going to find in my e-mail, it's really not worth hacking anyway.

(END VIDEO CLIP)

(LAUGHTER)

ROMANS: Then, of course, our own laziness often plays right into the hands of criminals. If your password is "password" or "123456" or "monkey" you're helping hackers steal your information. Those three are at the top of a new list of the 25 most commonly stolen passwords.

Head to CNNMoney.com to see the rest of our list and learn more about how to protect yourself and your money.

All right. Coming up, iTunes killing record shops. Amazon ending bookstores. Does Netflix destroy cable? That's next.

(COMMERCIAL BREAK)

ROMANS: Female billionaires are rare. Self-made even more rare. There are 1400 billionaire around the world and according to "Forbes" only 138 of them are women. Now one more woman joins Oprah Winfrey, Meg Whitman, Tory Burch and Spanx CEO Sara Blakely on that list.

Who is this self-made success story?

Give me 60 seconds on the clock. It's "Money Time."

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Sheryl Sandberg of Facebook is now a billionaire. Surging Facebook shares pushed the estimated value of her holdings over the billion mark. At 44 years old, she's one of the youngest female billionaires ever.

Will Michigan the Motor City? Governor Rick Schneider offered $350 million to help Detroit exit bankruptcy and protect pension. The cash will help the city, but won't close the estimated $3 billion funding gap.

Target will no longer offer health insurance to part-time workers. Instead it will encourage them to sign up for Obamacare. Target will also cut 475 jobs around the globe. Company under pressure after one of the biggest customer data breaches history and a disappointing holiday season.

A sweet deal for Candy Crush. The makers of the addictive game have trademarked the word "candy." The game brings in $1 million a day.

Netflix stock is climbing after the best subscriber growth in three years. The online streaming site drew 2.3 million more American households in the fourth quarter, plus another 1.7 million abroad.

(END VIDEOTAPE)

ROMANS: Netflix is killing it because more than two million people decided they now want to watch their original shows, "House of Cards" or "Orange is the New Black." That brings it to 33 million people. Of course subscribers of Netflix and Netflix, it wants to become maybe a movie studio?

That little red envelope is all grown up. And maybe it's a cable killer?

Brian Seltzer is CNN's senior media correspondent and the host of "RELIABLE SOURCES" here on CNN. You can check it out Sundays at 11:00 a.m. Samuel Burke is the tech business correspondent on CNN Internet.

So, Samuel, first. What is Netflix doing right?

SAMUEL BURKE, CNN TECH BUSINESS CORRESPONDENT: It's all about the original series that you've heard about. "Orange is the New Black," "House of Cards," and a lot of very supposedly smart analysts on Wall Street said yes, but Hulu is coming along and Amazon is coming along, but they don't have those glitzy series that everybody is talking about.

ROMANS: Potential cable killer or no? It's not really eating into the premium, sort of the HBOs of the world at this point.

BRIAN STELTER, CNN SENIOR MEDIA CORRESPONDENT: No, you know, it's a rising tide that's (INAUDIBLE) all boats right now. Netflix is producing -- distributing original shows just like so many other channels. And Netflix is acting more and more like a cable channel. Now over time maybe there's a small number of people out there that will say I only need Netflix. But for now Netflix is additive to your existing TV subscription.

(CROSSTALK)

ROMANS: But the $7.99 for Netflix are what 80 bucks for your cable box.

STELTER: Yes, the average Americans paying almost 90 bucks so who's going to 90 bucks over eight bucks in the long run?

BURKE: How about the whole country?

STELTER: In the long run. BURKE: The whole country is choosing both.

STELTER: But not in the long run.

BURKE: The vast majority of people are addicted to cable television.

ROMANS: Right.

BURKE: That's good for channels like CNN that we're on right now. I don't personally see that changing but I'm glad Netflix is out there adding even more options. And I thought what was remarkable of the quarterly earnings that they reported was that this was a quarter where they didn't have any big new shows. The only thing they really introduced in the fourth quarter was a show for kids called "Turbo" and yet people still kept signing up.

ROMANS: My biggest surprise was that the DVD by mail service is still growing. I mean, I think it shows you that people keep the technology they adopt where they're comfortable with. You know? So you've got this big boom of people who are still going to do it this way.

BURKE: But you know why? Some of them -- still many of them zombie accounts. People having -- cancel their accounts so it doesn't cost Netflix anything to send DVDs to nobody but they're still paying the $7.99 a month.

ROMANS: So it's laziness.

BURKE: It happens with a lot of companies. There are a lot of people sign up for a gym in January but after that it turns into a zombie account.

ROMANS: It's laziness. It's laziness.

STELTER: So has dial-up Internet customers, right?

BURKE: Exactly. Yes.

ROMANS: A total laziness. So here's my question. What happens next for Netflix? This is a company when they had the Qwikster debacle not very long ago people said it would be a busy study case book study of how you ruin your business. And look, we're talking about a Netflix on fire brand.

STELTER: And I think the question analysts have now is how much bigger can it get? If it's at 33 million or so in the U.S., 44 million customers worldwide, how big can that number get? And there's wild speculation about can it be 60 million in the U.S.? Can it be 90 million in the U.S.?

BURKE: Or outside the U.S. International growth is going to cost this company very little. They don't have to build new stores in Europe or new stores in Latin America. They already paid for the infrastructure. All they have to do is offer it up.

ROMANS: Are we going to see them at the Oscars some day with a film? STELTER: They have a nominated documentary. It's called the "Square." So -- they have one in five shot of winning at the Oscars this year.

ROMANS: So they're there already.

STELTER: They're there, but, you know, they lost at the Emmy back in September. So I think they're going in a little sensitive about the Oscars this year.

ROMANS: I know. But three years ago, we would have laughed at the thought of Netflix at the Oscars, right?

STELTER: That's true.

ROMANS: I mean it's --

STELTER: And it's great to have more options now.

ROMANS: Absolutely.

STELTER: And that's what I love about Netflix is it's another way to get content. It gives us more options than ever to watch.

ROMANS: And for those of us in the content business, we like lots of content and ways to get it.

BURKE: Absolutely.

ROMANS: Thanks, guys. Samuel, Brian, nice to see you.

STELTER: Thank you.

ROMANS: Coming up, want to go to the Super Bowl? Tickets running around about 4,000 bucks a piece. Some corporations are doling out 100 times that much to entertain their clients at the game. They won't be struggling to stay warm. They won't be standing in line for the bathroom, plus they get to deduct half the cost on their taxes. That's next.

(COMMERCIAL BREAK)

ROMANS: The Super Bowl plus New York City equals hundreds of millions of dollars. The host committee says the Big Apple will get about a $550 million economic boost and a big chunk of that cash comes from some of America's biggest companies.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Richard Sherman will be there, Peyton manning, too, and so will the biggest names in corporate America, Bank of America, Goldman Sachs, Pepsi, Tiffany, Hertz, all Super Bowl host sponsors paying $1 million each for branding and access.

LARRY DEGARIS, PROFESSOR OF MARKETING, UNIVERSITY OF INDIANAPOLIS: How you describe the Super Bowl is Mardi Gras for corporate America because everybody is there.

ROMANS: But that's just the start. A suite costs around $400,000. There are 220 of them. That brings the league and the host committee $88 million alone.

Here's what 400 grand buys. Thirty seats, food and drink, parking, special access to events, plus the chance to impress clients and cross a few things off the bucket list.

The best part for corporate America? It's tax deductible. But that's bad news for the average Joe.

DAVID CAY JOHNSTON, TAX PROFESSOR, SYRACUSE UNIVERSITY: It's pushed up crisis. It's pushed them up so much that tickets now are out of the reach of ordinary Americans. In fact, there was a game in Indianapolis in October where the average price of a ticket was almost equal to the average gross pay of half the workers in America, at $500.

ROMANS: That's the knock on the Super Bowl. A bash for the wealthy who get a tax break for partying in luxury boxes and the rest get higher prices for the cheap seats.

Here's the simple math. Take that $400,000 suite, 50 percent is tax deductible, the other half, 200 grand is subject to about a 40 percent tax rate. That equals $80,000 of potential tax revenue gone.

And it's not just Super Bowl suites. Check on hotel rooms, dinners, limos, even private jets. But companies say that's the cost of doing business. Eventually creating jobs and making the economy work for everybody.

DEGARIS: It's not a junket for the employees of the company. It's a business development venture. So you send your salespeople to the Super Bowl to build relationships, to do business.

ROMANS: To some, it's a super sides example of the inequality in America and unlikely to change any time soon.

(END VIDEOTAPE)

ROMANS: It's the cost of doing big business in America. Think about all the other big sporting events of the year. The Final Four, the Daytona 500, the Kentucky Derby. Businesses entertain clients at all of those events. And most are getting a nice juicy tax break to do it.

Coming up, a CNN reporter roughed up by Chinese authorities this week.

(BEGIN VIDEO CLIP)

DAVID MCKENZIE, CNN CORRESPONDENT: This is not illegal, what we're doing. We are reporters.

(END VIDEO CLIP) ROMANS: It started when our David McKenzie tried to report from outside a Beijing courthouse. Why it matters to your money, after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I want you to hit me in the face.

UNIDENTIFIED MALE: What?

UNIDENTIFIED MALE: I want you to hit me in the face.

UNIDENTIFIED MALE: All right.

UNIDENTIFIED MALE: You know I want you to hit me in the face bad.

UNIDENTIFIED MALE: Right.

UNIDENTIFIED MALE: Take your best shot.

UNIDENTIFIED MALE: I said forget about it.

UNIDENTIFIED MALE: Come on, we have fights all the time. Were you worried now you're going to hit me in the face. Hit on the face.

(END VIDEO CLIP)

ROMANS: With apologies to Martin Scorsese and his 1980 film the stock market is less raging bull and more aging bull. A rocky start to the year for stocks. Four down days in a row this week and whispers this old bull is due for a correction.

Why? Every match can't be a first round knockout like last year. The Dow up 26 percent. The S&P 500 more like 30 percent. The Nasdaq last year, up 38 percent. With barely a stumble. And the bull is no amateur. The bull market turns 5 years old in less than a month, a full year older than the average bull market.

I'm not ready to say the bull market is over but we have not had a real correction, a 10 percent pullback since last summer. We're not even close to that yet. But no question, this year will not be as easy for your 401(k) as last year.

A lot of what happens to your investments depends on the economy of America's great friend and trading partner, China. One weak manufacturing number from there is what set off all that Wall Street selling this week. China is on track to be the world's largest economy by the year 2020 which makes our David McKenzie's scuffle this week with Chinese authorities all that much more disturbing.

McKenzie was roughed up by Chinese authorities and thrown into a van. He was covering the high-profile trial of a human rights activist in Beijing. This is frankly a typical peril of reporting in China. The contradiction is obvious here. China wants you to be free to buy its shoes and electronics but not free enough to report stories within its borders. And buy, we do, with abandon. America's trade deficit with China, a whopping $300 billion last year. For every dollar in goods the U.S. exports to China we import four times as much. We could export more if it were legal to send old tanks, guns, defense technology, which China wants, but it's not legal since that violent 1989 crack down on democratic protests in Tiananmen Square.

EU nations along with the U.S. have since embargoed anything that can enhance China's police state. This week's events demonstrates the culture clash between countries that want to do business with each other under their own rules.

Thank you or starting your Saturday smart with us.

Coming up on a brand new YOUR MONEY at 2:00 p.m. Eastern, five years after the bust, housing is back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It gives you a grown-up feeling of, I own a home and this is my slice of the American dream.

(END VIDEO CLIP)

ROMANS: Why rising prices and rising mortgage rates have some first- time home buyers rushing to get into the market.

Right now on the "CNN NEWSROOM" we are one-day away from the biggest night in music, the Grammy Awards taking over L.A. So what have been the biggest nomination surprises? What are the biggest snubs? Your full backstage preview coming up next.