Under Fire and Losing Trust, Facebook Plays the Victim

On Tuesday morning, Facebook employees were quiet even for Facebook employees, buried in the news on their phones as they shuffled to a meeting in one of the largest cafeterias at the company’s headquarters in Menlo Park, Calif. Mark Zuckerberg, their chief executive officer, had always told them Facebook Inc.’s growth was good for the world. Sheryl Sandberg, their chief operating officer, had preached the importance of openness. Neither appeared in the cafeteria on Tuesday. Instead, the company sent a lawyer.

The context: Reports in the  and thethe previous weekend that Cambridge Analytica, the political consulting firm that advised President Trump’s electoral campaign on digital advertising, had effectively stolen personal information from at least 50 million Americans. The data had come from Facebook, which had allowed an outside developer to take it before that developer shared it with Cambridge Analytica.

Facebook tried to get ahead of the story, announcing in a blog post that it was suspending the right-leaning consultancy and that it no longer allowed this kind of data sharing. Its users—a cohort that includes 2 billion or so people—weren’t ready to forgive. The phrase #DeleteFacebook flooded social media. (Among the outraged was WhatsApp co-founder Brian Acton, who in 2014 sold Facebook his messaging app for $19 billion.) Regulators in the U.S. and Europe announced they were opening inquiries. The company’s stock fell almost 9 percent from March 19-20, erasing about $50 billion of value.

QuicktakeFacebook and Cambridge Analytica

In most moments of crisis for the company, Zuckerberg or Sandberg have typically played damage-controller-in-chief. This time, the employees got all of 30 minutes with Paul Grewal, the deputy general counsel. the news reports were true—a blame-deflecting phrase that struck some as odd—Grewal told them, Facebook had been lied to. Cambridge Analytica should have deleted the outside developer’s data, but it didn’t. Reporters were calling this a breach, but it wasn’t, because users freely signed away their own data and that of their friends. The rules were clear, and Facebook followed them.

One employee asked the same question twice: Even if Facebook played by its own rules, and the developer followed policies at the time, did the company ever consider the ethics of what it was doing with user data? Grewal didn’t answer directly.

A Facebook spokesman declined to comment for this story, referring to a January post by Zuckerberg stating the CEO’s aim to get the company on a “better trajectory.” On Wednesday afternoon, Zuckerberg published a post promising to audit and restrict developer access to user data. “We have a responsibility to protect your data, and if we can't then we don't deserve to serve you,” he wrote. “I've been working to understand exactly what happened and how to make sure this doesn't happen again.”

Read more: Silicon Valley Has Failed to Protect Our Data. Here’s How to Fix It

Of course, Facebook has weathered complaints about violating user privacy since its earliest days without radically altering its practices. The first revolt came in 2006, when users protested that the service’s news feed was making public information that the users had intended to keep private. The news feed is now the company’s core service. In 2009, Facebook began making users’ posts, which had previously been private, public by default. That incident triggered anger, confusion, an investigation by the U.S. Federal Trade Commission, and, ultimately, a consent decree. In 2014, the company disclosed that it had tried to manipulate users’ emotions as part of an internal psychology experiment.

As bad as each of these may have seemed, Facebook users have generally been unfazed. They’ve used the service in ever-greater numbers for greater amounts of time, in effect trading privacy for product. They were willing to give more and more data to Facebook in exchange for the ability to connect with old high school friends, see pictures of their grandkids, read only the news that they agree with. The concept was dubbed Zuckerberg’s Law in 2008, when the CEO argued at a conference that each year people would share twice as much information about themselves as they had the year before. Notions of privacy were eroding, Zuckerberg said in 2010. “That social norm,” he added, “is just something that has evolved over time.”

For a while, the only thing Facebook needed to do to keep growing was to remove barriers to downloading and using the product. By 2014, it had reached almost half the world’s internet-connected population, and Zuckerberg realized the only way to expand further was to add people to the internet. While Facebook invested in internet subsidy programs in developing countries, it also went on an acquisition binge, buying up popular social software makers such as Instagram and WhatsApp.

These moves led to annual revenue growth of about 50 percent, with most of the increase coming from mobile ads, and converted the company’s Wall Street doubters. Last year, even as Facebook was forced to acknowledge that it had played a role in the Russian disinformation campaign during the election of Trump, investors pushed its stock price up 53 percent.

But the big blue app, as employees call Facebook’s namesake service, hasn’t changed much in years. The company has tweaked its algorithm, at times favoring or punishing clickbait-style news and viral videos, but most people use the service the same way they did two or three years ago. And some people are simply over it. In North America, Facebook’s daily user counts fell for the first time in the fourth quarter, and time spent on the site declined by 50 million hours a day. Facebook claimed that this was by design: Zuckerberg was focusing on helping users achieve “time well-spent,” with the news feed de-emphasizing viral flotsam.

The company positioned its new algorithmic initiative as a reaction to a study co-authored by one of its employees, arguing that while Facebook could be bad for users' mental health if they used it passively, more active use was actually good for you. The study could be viewed as a rare show of corporate transparency or a novel way to goose engagement.

Some of the moves, however, look even more desperate. Now, when people stop going on Facebook as often as usual, the company sends them frequent emails and text messages to encourage them to re-engage. It’s also getting more aggressive about suggesting what users should post.  According to some employees, the focus on time well-spent just means the company will point to metrics such as comments and personal updates as signs of growth, rather than genuinely improving the user experience.

In the long run, Facebook wants to make its product even more immersive and personal than it is now. It wants people to buy video chatting and personal assistant devices for their homes, and plans to announce those products this spring, say people familiar with the matter. It wants users to dive into Facebook-developed virtual worlds. It wants them to use Facebook Messenger to communicate with businesses, and to store their credit-card data on the app so they can use it to make payments to friends.

Employees have begun to worry that the company won’t be able to achieve its biggest goals if users decide that Facebook isn’t trustworthy enough to hold their data. At the meeting on Tuesday, the mood was especially grim. One employee told a reporter that the only time he’d felt as uncomfortable at work, or as responsible for the world’s problems, was the day Donald Trump won the presidency.

BOTTOM LINE – As its share price tanks and regulators circle, Facebook is struggling to answer basic questions about its next moves, even from its own employees.

Read more: http://www.bloomberg.com/news/articles/2018-03-21/under-fire-and-losing-trust-facebook-plays-the-victim

For Chinas Wealthy, Singapore Is the New Hong Kong

When more than 80 of China’s wealth managers gathered recently at the Shangri-La hotel on Singapore’s resort island of Sentosa, the chatter during tea breaks kept returning to one theme: Hong Kong is starting to be eclipsed by Singapore as the favorite destination for the wealth of China’s rich.

At stake for banks in both cities is a huge pile of money. China’s high-net-worth individuals control an estimated $5.8 trillion—almost half of it already offshore, according to consulting firm Capgemini SE. For some, the city-state of Singapore is preferable because it’s at a safer distance from any potential scrutiny from authorities in Beijing, according to interviews with several wealth managers. Multiple private banking sources in Singapore, who would not comment on the record because of the sensitivity of the subject, report seeing increased flows at the expense of Hong Kong.

The rich may be feeling exposed by changing banking practices. Hong Kong has signed tax transparency agreements that for the first time last year required all banks to report their account holders’ information to Hong Kong tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China. Singapore will have similar agreements with 61 jurisdictions. But they don’t include either Hong Kong or Beijing, meaning its accounts and account holders aren’t visible to the Chinese government. “Many rich people from the mainland believe Hong Kong is still a part of China, after all,” says Xia Chun, chief research officer at Noah Holdings Ltd. of Hong Kong, an asset management service provider. “They think there’s no difference in putting money in Hong Kong, compared to Beijing.”

At the same time, more Chinese banks in Hong Kong are “trying to synchronize their internal systems with those on the mainland to improve service efficiency,” says Eva Law, the Hong Kong-based founder of the Association of Private Bankers in Greater China Region. “This also means the clients’ information will become more transparent and the mainland can identify fund flows more easily, or will have fuller and faster access to your asset holdings, thus enabling easier investigation and tracing.”

Overall, Hong Kong remains the primary destination for China’s offshore money, according to a Capgemini survey, followed by Singapore and New York. Yet the number of Chinese high-net-worth individuals who view Hong Kong as their preferred overseas place of investment is down to 53 percent, from 71 percent two years ago, according to a survey in July by Bain & Co. More than 20 percent favor Singapore, up from 15 percent two years ago. “Singapore is the Zurich of the East,” says Xiao Xiao, the Beijing-based chief operating officer of Chinese wealth manager Fortunes Capital.

“We see Singapore, not Hong Kong, as the bridgehead of China’s investment overseas,” says Li Qinghao, co-founder of NewBanker Tech Consulting, which organized the Sentosa conference last year. About 78 percent of S$2.7 trillion ($1.9 trillion) in assets under management in Singapore comes from overseas sources. Morgan Stanley, JPMorgan Chase & Co., and other firms with big private banking operations are building up their teams of China relationship managers in Singapore.

China has been tightening its grip on Hong Kong. A year ago, Chinese financier Xiao Jianhua was reported by local media to have been seized from a Hong Kong hotel by Chinese authorities and taken to the mainland. The incident followed the disappearance of several Hong Kong booksellers who sold books critical of China’s Communist Party and were reported to have been taken involuntarily across the border.

Then there are the increased restrictions on Hong Kong’s financial practices, such as a 2016 crackdown on sales of certain types of insurance products to mainland Chinese. The products pay dividends over a number of years and are essentially viewed as investments—and potentially a way to send money out of China and evade capital controls. “The Hong Kong market is now heavily affected by mainland China,” says Guan Huanyu, president of Beijing-based wealth manager Zhenghe Holdings, who attended the Sentosa event.

While Hong Kong’s Securities & Futures Commission doesn’t break down the origin of funds, its data show that growth in the city’s private banking business has been slowing. Hong Kong logged 10.7 percent growth in private banking assets under management in 2016, down from 18 percent in 2015.

Singapore has additional attractions for the wealthy of China. Mandarin is one of its four official languages, and it has world-class health facilities and international schools. Not far from the Shangri-La Hotel, Sentosa’s casinos are a popular draw for Chinese tourists. Mainland Chinese were the largest foreign buyers of luxury properties in Singapore during the first half of last year, according to consultancy Cushman & Wakefield. Real estate is far cheaper than in Hong Kong.

But mainly, the rich like to diversify—not only among asset classes, but among political regimes. “Most of our clients have undergone a shift from poor to rich,” says Kou Quan, vice president at Tianjin-based Xinmao S&T Investment Group. “And they’re all worried about becoming poor again.”

    BOTTOM LINE – Hong Kong’s financial sector is becoming more entwined with the mainland, prompting more and more of China’s rich to turn to Singapore.

    Read more: http://www.bloomberg.com/news/articles/2018-02-06/for-china-s-wealthy-singapore-is-the-new-hong-kong

    Everything That Could Go Wrong for This Drugmaker Did

    Opioids. Vaginal mesh. Testosterone. These have become some of the ugliest words in the pharmaceutical industry, telegraphing medical treatments gone awry, in some cases leaving behind disabled customers, epic legal battles, and vast capital destruction. Some of the industry’s largest companies have been mired in lawsuits and government probes over these issues. But no company has been haunted by the drug industry’s worst nightmares as mercilessly as Endo International Plc.

    Just about everything that can go wrong in the world of pharma has gone wrong at Endo, which makes both branded and generic drugs. Through a dealmaking spree largely led by its former chief executive officer, the company amassed debt of more than $8 billion—five times its market capitalization. That might be tolerable for a high-growth company, but Endo faces cratering prices for generic medicines even as it must deal with a slew of litigation involving its products.

    The new leadership says the Dublin, Ireland-based company can fix all this; it will just take time. “It’s very important to know that we’re not running or hiding from our challenges,” says CEO Paul Campanelli. “We’re well-equipped to handle these types of issues.”

    That includes writing massive checks to get beyond some of Endo’s legal woes. As of November 2017 company officials have agreed to pay more than $3.5 billion in settlements in more than 46,000 suits over its vaginal mesh inserts alone. Endo may have to shell out more to resolve all the mesh cases, according to its U.S. Securities and Exchange Commission filings. Analysts say that should largely contain the problems over the vaginal device, but it will still drain much-needed cash.

    “This is not a growth story,” Gabelli & Co. analyst Kevin Kedra says. “There’s significant pressures, mostly stemming from the debt load, and they’re probably not going to be able to make a significant dent in that until 2019.”

    Campanelli has been slashing costs to help keep Endo’s finances in check. The company now operates with a staff of around 2,700, down from about 6,000 before he took the job in September 2016. It also stopped marketing its opioid pain drugs at the end of 2016.

    Opana
    Photographer: Rich Pedroncelli/AP

    Litigation related to Endo’s marketing of opioids remains the biggest wild card. The drugmaker faces at least 125 cases filed by U.S. state attorneys general, counties, and municipalities, alleging its salespeople downplayed the health risks of the extended-release version of its painkiller Opana while overstating its benefits, according to SEC filings. Other opioid makers, such as Johnson & Johnson and Purdue Pharma LP, face identical claims. The companies have denied the allegations.

    The states and local governments have hired lawyers who helped negotiate the tobacco industry’s $246 billion master settlement in the late 1990s to handle the opioid suits. There’s no exact figure for the damages sought, and estimates of potential damages vary widely. Bloomberg Intelligence litigation analyst Holly Froum figures the total liability for all opioid makers, including Endo, could be as little as $5 billion or as high as $50 billion. “It’s obviously in a very early stage, and these things typically take years to resolve,” Campanelli says.

    The company has shown it can be proactive when the need arises. Its extended version of Opana became the subject of controversy: The drug has been linked to outbreaks of viral infections like HIV as people abusing it spread diseases by sharing needles. U.S. regulators took the unprecedented step last June of asking the company to take the drug off the market. Endo could have appealed that decision, but Campanelli opted to comply—cutting off a drug that racked up around $533 million in sales in a three-year period starting in 2014.

    Campanelli is busy putting out fires that were years in the making. In 2013 the drugmaker hired Rajiv De Silva, an ex-Valeant Pharmaceuticals International Inc. executive and former McKinsey & Co. consultant. At the time, Valeant was blazing a new trail for Big Pharma expansion: buying up other companies, cutting research, and jacking up drug prices. With De Silva as CEO, Endo became a prolific dealmaker, acquiring companies and drug rights—from acquisitions in the hundreds of millions of dollars to vying for assets in the $10 billion-plus range against Valeant. De Silva insisted at the time that Endo wasn’t another Valeant, which ran into massive financial and legal troubles, and said he was doing deals to build a company that didn’t need to rely on deals to grow. He declined to comment for this story.

    De Silva’s biggest acquisition was the $8.05 billion purchase of Par Pharmaceutical in May 2015, which gave Endo a large foothold in the generics business. Endo, which assumed Par’s debt, financed the deal with borrowings and proceeds from a $2.3 billion equity offering. The Par buyout came at the height of the company’s run: Endo’s stock price peaked around $96 in April 2015. That was more than triple the level when De Silva took over. But concerns over litigation and debt, as well as post-Valeant angst over specialty drugmakers, conspired to drive the stock down over the following year. Ultimately, Campanelli replaced De Silva. “We said from Day One, we’re not fixing this in 12 months,” Campanelli says.

    Testim testosterone gel.
    Photographer: Jacqueline Larma/AP Photo

    Another hangover from the De Silva era is Endo’s testosterone litigation. The company faces about 1,300 patient suits claiming its testosterone-boosting gels caused fatal heart attacks in some users. How those suits might fare remains uncertain. Two federal court juries in Chicago last year held AbbVie Inc. responsible for injuries suffered by men taking its AndroGel testosterone booster—a product similar to Endo’s—and awarded a total of $290 million in damages. But one of those verdicts was later thrown out by a judge. In November, Endo’s Auxilium unit won the first case to come to trial over its Testim testosterone gel.

    Still, Endo’s problems could get worse. The company is likely to face many more Opana suits before any settlement is reached, says Richard Ausness, a University of Kentucky law professor, and Endo may be forced to take extreme measures to pay them out. It could adopt the playbook used by companies sued for selling asbestos-laced products in the 1980s and 1990s by setting up a bankruptcy trust to resolve opioid cases, according to Ausness. That would allow the company to hold down settlement amounts, he says.

    “Their debt numbers look terrible. And when you factor in the thousands of opioid suits they may wind up facing, they may have no choice but to ask the bankruptcy courts to help them dispose of those cases,” he says.

    Campanelli has heard the B-word before. “The use of the word ‘bankruptcy’—it’s not something that we’re contemplating at this point in time,” he says. “We’re looking to collaborate to deal with the opioid situation. If we ever got to that process, and I’m not saying that we’re thinking of it, it would be years and years before we would be addressing it.”

    It’s also possible that any opioid manufacturer settlement could be structured in such a way that Endo doesn’t end up underwater. “There could be some giant master settlement—it would just make life that much more difficult for Endo, but I don’t think these state AGs are going to make Endo go out of business,” says Gabelli’s Kedra.

    Despite the financial and legal clouds, Endo officials say they’re concentrating on expanding the business and working on new injectable drugs. The company is also developing one of its key products, Xiaflex, which is used to treat a hand deformity and curvature of the penis, for new uses such as improving the appearance of cellulite. Cosmetic drugs, such as Allergan Plc’s Botox, have turned into powerhouses for pharma companies, and Campanelli has been praising Xiaflex’s prospects. “It fits the model of the new Endo,” he says. Campanelli, however, still has plenty of problems from the old Endo to fix first.

      BOTTOM LINE – Generic drugmaker Endo has agreed to pay billions of dollars in settlements for vaginal mesh suits—and possibly faces much more for testosterone and opioid claims.

      Read more: http://www.bloomberg.com/news/articles/2018-01-26/everything-that-could-go-wrong-for-this-drugmaker-did

      Cutting Down on Cow Burps to Ease Climate Change

      In a cream-colored metal barn two hours north of Wellington, New Zealand, a black-and-white dairy cow stands in what looks like an oversize fish tank. Through the transparent Plexiglas walls, she can see three other cows in adjacent identical cubicles munching their food in companionable silence. Tubes sprout from the tops of the boxes, exchanging fresh air for the stale stuff inside. The cows, their owners say, could help slow climate change.

      Livestock has directly caused about one-quarter of Earth’s warming in the industrial age, and scientists from the U.S. departments of agriculture and energy say bigger, more resource-heavy cattle are accelerating the problem. Contrary to popular belief, cows contribute to global warming mostly through their burps, not their flatulence. So about a dozen scientists here at AgResearch Grasslands, a government-owned facility, are trying to develop a vaccine to stop those burps. “This is not a standard vaccine,” says Peter Janssen, the anti-burp program’s principal research scientist. “It’s proving to be an elusive little genie to get out of the bottle.”

      The effort isn’t entirely altruistic. Grasslands is dedicated to boosting New Zealand’s dominant agriculture and biotech industries, and the country’s biggest company, Fonterra Co-operative Group Ltd., a $14 billion dairy processor, has vowed to increase its milk exports without increasing carbon emissions. But 2017 is set to be the third-hottest year on record—the top two were 2016 and 2015—so the globe can use all the help it can get, business-minded or not. “It’s essential to reduce global livestock emissions in order to reduce climate change consistent with what countries signed up to under the Paris Agreement,” says Andy Reisinger, deputy director of the New Zealand Agricultural Greenhouse Gas Research Centre.

      Janssen.
      Photographer: Jake Mein for Bloomberg Businessweek

      Janssen and his team are trying to purge cow stomachs of methanogens, the microbes that convert hydrogen into methane, a potent greenhouse gas. It’s an unexpectedly delicate and difficult task, because cows rely on a host of other bacteria, fungi, and protozoa in their guts to digest the grasses they eat. Researchers have tried feeding them oregano, tea extracts, probiotics, antibiotics, seaweed (too toxic), coconut oil (too expensive), chloroform (too carcinogenic), and even leftover grains from beer brewing (which made cows poop more nitrous oxide, another greenhouse gas).

      So far no vaccine has progressed far enough to be given to the cows in the cubicles, where methane output can be measured. The vaccine must first be successfully tested in the lab and on sheep. Although the scientists have figured out how to produce the desired antibodies in the cows, the animals continue to merrily burp. Janssen’s team is looking for proteins they can use to concoct a stronger vaccine, one that will better prime the cows’ immune systems to attack methanogens. A single methanogen genome has 2,000 proteins, so they’ve narrowed their search to a handful of candidates, which they think could knock out the gassiest microbes.

      A cow is led into the methane measurement center.
      Photographer: Jake Mein for Bloomberg Businessweek

      The hunt for a vaccine costs about $1.4 million a year, about two-thirds of which comes from the New Zealand government. Industry supplies the rest. The money is part of a $7.5 million pool for curbing farming gases meant to address New Zealand’s status as the world’s highest per capita methane emitter. Janssen says it may take five years or longer to create the right vaccine, but it will do much more to reduce bovine emissions than a treatment that Dutch company DSM is developing for bucket-fed cows. That’s because the vaccine will work just as well for grazers. “There aren’t too many ruminants in the world where the animals never get to eat grass,” he says, noting that even cows fattened with feed in a controlled environment typically start out in pastures.

      DSM used computers to create a methane-blocking molecule called 3-nitrooxypropanol, or 3-NOP, that appears to cut burped methane by about a third when sprinkled on a cow’s food. The company, whose annual research and development budget is $500 million, is waiting for approval from the U.S. Food and Drug Administration, which is likely to take at least two more years. “For developed countries, this is the most promising technology at this point,” says Alexander Hristov, a Penn State professor of dairy nutrition who’s tested 3-NOP for DSM. The New Zealanders are leading the vaccine hunt, he says, but they haven’t developed a proven product they can offer to farmers.

      Dairy cows at Massey University, which supplies cows for AgResearch.
      Photographer: Jake Mein for Bloomberg Businessweek

      Janssen, a bespectacled man with the lanky limbs of a longtime mountain explorer, says his team is also working on substances similar to 3-NOP that could be given in pill form. A complicating factor: No one knows how low-methane a cow can go without hurting its health or productivity. Trials suggest cows that burp less seem to cope fine, but scientists want to make sure there are no unintended consequences, such as reduced milk quality or quantity. “We need to understand where that tipping point is,” Janssen says.

      Humans are the final hurdle. Canadian scientists created low-polluting pigs almost a decade ago, but people wouldn’t buy the genetically modified pork. “Farmers will produce what the consumer demands,” says Tim McAllister, who’s conducting trials of 3-NOP and other methane-reduction techniques for the Canadian government at the Lethbridge Research and Development Centre in Alberta. Soaring global demand for meat makes climate concerns pressing. North of Wellington, the cows seem content in their tanks, turning to watch as Janssen strides between their boxes. For now, their burps are packed with methane, but they may not have to be.

        BOTTOM LINE – Researchers are painstakingly hunting for compounds that can quell methane-packed cow burps but will still have to sell regulators and the public on the science.

        Read more: http://www.bloomberg.com/news/articles/2017-11-29/cutting-down-on-cow-burps-to-ease-climate-change

        Apples Billion-Dollar Bet on Hollywood Is the Opposite of Edgy

        Days before Apple Inc. planned to celebrate the release of its first TV show last spring at a Hollywood hotel, Chief Executive Officer Tim Cook told his deputies the fun had to wait. Foul language and references to vaginal hygiene had to be cut from some episodes of , a show featuring celebrities such as Gwyneth Paltrow, Jessica Alba, Blake Shelton, and Chelsea Handler cracking jokes while driving around Los Angeles.

        While the delay of was widely reported last April, the reasons never were. Edits were made, additional episodes were shot, and Apple shifted resources to another show. When was released in August, it didn’t make much of a splash. The early stumbles highlight the challenges ahead as Apple mounts an ambitious foray into showbiz. The company plans to spend $1 billion on TV shows over the next year and has hired a team that’s already bidding for projects against the biggest media companies in the world.

        With $262 billion in cash and securities in its coffers, Apple has the money to make as much TV as anyone, but some in Hollywood are beginning to wonder whether it has a clear strategy. The most valuable company in the world, Apple is under the constant glare of regulators, reporters, and competitors. Furthermore, the people who use the hundreds of millions of Apple devices have pretty mainstream views about the brand’s appeal. Macs, iPhones, and iPads are also often in the hands of children—a group unsuited for much of the edgy programming that’s fueled the new golden age of television.

        The secretive company says little about its plans. No one in Hollywood knows where the shows will be available to watch, how much they’ll cost, or even how Apple will publicize them. But in recent weeks, a visit to Apple offices in the Culver City suburb of Los Angeles has become as much a rite of passage for Hollywood producers, agents, and filmmakers as dining at Spago. So clues are beginning to emerge, based on interviews with more than a dozen people who’ve met with Apple executives or work there.

        The company has had many fits and starts in Hollywood over the past two years, with as many as four different executives claiming to be responsible for its big move into Tinseltown. To lead the latest charge, Apple hired Jamie Erlicht and Zack Van Amburg, former heads of Sony Corp.’s TV studio. The two men have sterling reputations as key members of the studio that produced . They’ve hired other industry veterans to oversee the development of new shows. They also plan to hire at least 70 staffers—including development executives, publicists, and marketers—to fill out their division. “They are professionals with deep relationships with many of the people who make some of the best shows on TV today,” says Jon Avnet, who directed 10 episodes of Sony’s TV show .

        Erlicht and Van Amburg have agreed to remake Steven Spielberg’s anthology series  with NBCUniversal and are in the bidding for another show, about morning TV show hosts played by Reese Witherspoon and Jennifer Aniston. Apple wants to have a small slate of shows ready for release in 2019. “I think for both NBC and Apple, it’s about finding that sweet spot with content that is creative and challenging but also allows as many people in the tent as possible,” says Jennifer Salke, president of NBC Entertainment.

        However, Apple isn’t interested in the types of shows that become hits on HBO or Netflix, like —at least not yet. The company plans to release the first few projects to everyone with an Apple device, potentially via its TV app, and top executives don’t want kids catching a stray nipple. Every show must be suitable for an Apple Store. Instead of the nudity, raw language, and violence that have become staples of many TV shows on cable or streaming services, Apple wants comedies and emotional dramas with broad appeal, such as the NBC hit , and family shows like . People pitching edgier fare, such as an eight-part program produced by filmmaker Alfonso Cuarón and starring Casey Affleck, have been told as much.

        Yet like Netflix Inc., Apple is thinking globally. The company hired Amazon.com Inc. executive Morgan Wandell to oversee its international division and is about to hire Jay Hunt to oversee development in Europe.

        All this has led many producers to label Apple as conservative and picky. Some potential partners say they walk into Apple’s offices expecting to be blown away by the most successful consumer technology company in the world only to run up against the reality of dealing with a giant, cautious corporation taking its first steps into a new industry.

        Apple isn’t the first tech company to underwhelm Hollywood. Yahoo! Inc. and Microsoft Corp. spent millions of dollars on TV shows before pulling back within a couple of years, frustrated by the slow pace of development and their inability to attract audiences. Even Amazon, at first considered a success story, is now drawing complaints from writers and producers over casting decisions and instances of buying scripts but not producing them. The online retailer also fired its studio chief in October over allegations of sexual harassment.

        Streaming video is just one of many fronts in the global battle between technology titans. After years of flirting with Hollywood, Silicon Valley companies are finally writing big checks, spurring a doubling of video production over the past decade. Amazon spent an estimated $4.5 billion this year on movies and TV shows, while Facebook and YouTube will spend more than $1 billion each. Netflix, which plans to spend $8 billion in 2018, dwarfs them all.

        Yet no one arouses more interest in Hollywood than Apple. One reason it quickly climbed the list of places to pitch new shows: the almost cult-like attachment many have for its phones. “Their brand is the most important thing,” says Avnet, who’s made shows for Snapchat and YouTube and is in the process of making one for Facebook.

        By funding original shows, the company also can remind customers to think of the Apple TV streaming device before the Roku or Amazon Fire TV Stick and to use Apple’s year-old TV app instead of Amazon Prime Video or YouTube. With iPhone growth slowing, the company is looking to other divisions to deliver sales. ITunes, Apple Music, and the TV app are part of its services business, where CEO Cook wants to double revenue by 2020, to about $50 billion.

        Yet Apple isn’t trying to compete with Walt Disney Co. or Netflix to become the biggest backer of TV shows and movies on the planet. Instead, the company wants its shows to complement those of other networks and streaming services that consumers already watch on Apple devices. Its new shows, however, will no longer be placed on Apple Music, which will limit its focus to music-related video.

        Whether Apple can channel consumer demand in TV as well as it does in smartphones remains to be seen. Around the time Apple delayed the release of , its top brass also decided the TV unit should move up the release of , a reality competition series in which entrepreneurs pitched celebrity investors on their idea for an app, so it would make its debut on Apple Music in time for the company’s Worldwide Developers Conference in June. Apple execs loved the show and thought it would endear the tech giant to software writers. The show wasn’t supposed to be released for a couple of months, and there was no marketing plan in place—a vital step in the age of too much TV. Apple pressed ahead, and the show came and went with little fanfare beyond a couple of savage reviews. The show is “a bland, tepid, barely competent knock-off of ,” according to ’s Maureen Ryan. “There’s no reason” for Hollywood to lose sleep over it, she wrote. Apple is betting the same won’t be said about its broader TV strategy.

          BOTTOM LINE – Apple will spend $1 billion next year on programming for television. By sticking with mainstream shows, it could miss out on viewers who increasingly favor edgier fare.

          Read more: http://www.bloomberg.com/news/articles/2017-10-25/apple-s-billion-dollar-bet-on-hollywood-is-the-opposite-of-edgy