Presidential Campaign Enters Final Stretch; Apple to Unveil New iPhone; Russia`s Possible Involvement in U.S. Election - Part 2

CHARLIE-ROSE-SHOW-01

ROSE-SHOW-01

iPhone; Russia`s Possible Involvement in U.S. Election - Part 2>

Thompson, Geoffrey Fowler, Dana Priest >

until the election. A new CNN poll has Trump leading Clinton among likely

voters, 45-43. That`s a national poll. Clinton still holds a comfortable

lead in many swing state polls such as Pennsylvania and Florida. They will

faceoff on the first presidential debate on September 26, that`s 3 weeks.

Apple is set to announce a variety of new products at its annual media

event tomorrow in San Francisco. The unveiling of the new iPhone 7 has

been highly anticipated, despite Apple efforts to keep new features secret,

many are speculating about possible changes to that world`s bestselling

smart phone. U.S. Intelligence officials are reportedly investigating what

may be an extensive covert Russian campaign to disrupt the upcoming

presidential election. Officials are concerned about possible Russian

attempts to break into electronic voting systems. Russian hackers were

allegedly responsible for hacking the DNC and other political organizations

this summer although the Obama administration has yet to blame Russia

publicly for these intrusions. >

Entertainment; Policies; Government; Hillary Clinton; Donald Trump; Polls;

Russia; Security; Internet>

GEOFFREY FOWLER: In the U.S. they`re going for that very high end premier phone, that Note 7 was, you know, if you buy outright it`s like $850 price point. And how we buy phones has changed as well, in terms of now we`re now mostly paying out of pocket almost the full expense of the phone rather than the subsidy of 200 to 300 years ago. So, it`s really making people think a lot more which of these phones am I going to want.

CHARLIE ROSE: In terms of Samsung, what happened to the Note 7, speaking of introducing new products?

GEOFFREY FOWLER: You can light a fire.

CHARLIE ROSE: What does this say, Nicholas?

NICHOLAS THOMPSON: Well, one thing it says is that this is the best possible moment for Apple to introduce the iPhone 7. I mean this is a problem.

CHARLIE ROSE: The Note 7 was catching on fire.

NICHOLAS THOMPSON: A major recall, right? And so, if you have a major recall of your main competitor it`s a great time to put out a new product, right? And so, a lot of people are going to say, oh, you know what, I sent back the Note 7. I`m going to buy the iPhone 7. I don`t think it says anything in particular about Samsung, right? Companies release products, sometimes the product fail. Samsung, actually, has a really good track record. It`s just incredibly bad timing for them and great for Apple.

CHARLIE ROSE: When we look at these and what`s happening to Apple and where it`s going, as well as Facebook, what is the competition today and what are they looking at? Is it artificial intelligence, for example, between Apple, Amazon, Google, Facebook and Microsoft?

STEVEN LEVY: Definitely. I mean, where Apple has really lagged is in services. Apple music they did a big pitch. And, you know, if I really winning people over with that, there`s a lot of problem in the product. Some people think we`re going to have a better Apple music tomorrow. But, you know, Apple`s cloud doesn`t really compete all that effectively with Google`s powder, Amazon`s cloud. Amazon is really the head of the rest of it, yeah, in all of that. And really that is the business model of the future. Apple has done a fantastic job making money with hardware there. But, you know, the success can`t continue unless they keep -- they bring that success of services.

NICHOLAS THOMPSON: And this is incredibly interesting because Apple is great at hardware. To make a great hardware product, you get the whole company focus, you get a launch state. You do it. To make a great services product you have to keep iterate it every day. And there is a question on whether Apple is even structurally set up to be a good services company, right? There set up -- there`s a product division there. There`s an engineering division. It`s not set up so that there`s individual product division, the same way as other companies. So that may explain the corporate DNA, the corporate structure, and in fact it has a history of that, and so now people who work at Apple, most account employees are a little bit slower to wanting to go into the services division because they think it`s not going to succeed. So it`s not even clear if Apple is set up to compete in a way that Steven is saying they need to compete in the future.

STEVEN LEVY: What they`ll saying, the channel then, what they would say is actually we`re better poised because we -- the whole enchilada period, right? Where they have always say is that no one has our advantage of doing all the software and all the hardware. And so, they were explaining SIRI to me, and how they improved SIRI`s ability to recognize what you said. They said because we have the hardware we can improve our recognition software by placing the microphone in different ways, and doing the other things, you know, on the phone to enhance our software there. So, they think that that is their big advantage and that they do software and the hardware.

CHARLIE ROSE: Geoffrey, you wanted to say.

GEOFFREY FOWLER: Yeah. One of the things that Apple has -- has going for it in keeping people loyal is what I like to call the happy trap. That`s this notion that, you know, you`re trapped in that Apple ecosystem, all of your family and friends also use Apple, so you can share photos, that`s a service, you have iMessage, so you can share, you know, messages with them and you can do all this sort of new animations and what not. They`re coming to the new IOS 10, that`s coming as well. So, what Apple has to do is keep building that trap, so that it`s just sort of more of a pain to leave the Apple ecosystem than it`s worth.

CHARLIE ROSE: What`s the new IOS going to be about?

GEOFFREY FOWLER: Well, it`s got a couple of new features. I`ve been testing a beta version they made available to the public for the last bit. The biggest change I think really is, two of them, one is in net messages. So now, you can do very interactive thing, you can draw notes, it`s a little bit more like Snapchat, actually, and again it will only work with other people who are using Apple devices. And the other thing to its photos app, where, you know, photos is the number one thing people do with their phones these days. And it now has the intelligence built into the phone, not in the cloud, but in the phone for privacy reasons, that it will scan those images, try to make some sense of them, identify this is a picture of a dog, this is a photo of your friend Steven, and pull it up for you.

CHARLIE ROSE: Geoffrey, where are we in the battle between Apple and the FBI?

GEOFFREY FOWLER: Well, I believe the FBI said it that it figured out how to crack that phone itself.

CHARLIE ROSE: Right. Put that into bad business.

(CROSSTALK)

STEVEN LEVY: We haven`t heard the last of that.

CHARLIE ROSE: Yeah.

STEVEN LEVY: Because, you know, as long as, you know, the FBI, you know, other government agencies can`t get hold of that encrypted content. They`re going to want it. So, I think that showdown is going to come around again. It really is going to be, you know, probably up to the next president to really decide where we are on that. We have not come up with a definitive encryption policy to say how hard the government is going to push.

CHARLIE ROSE: They`re going to take it to congress for sure.

STEVEN LEVY: Yeah. I mean, so now, you know, Facebook and WhatsApp they`re doing that same kind of encryption there. So, this isn`t going away. We`re going to see that battle, maybe it won`t be Apple this time. Maybe it will be Facebook that has to answer to that.

CHARLIE ROSE: OK. Apple in the marketplace, how is it doing in terms of its stock and in terms of whatever changes there has been, and is it coming back.

HENRY BLODGET: The main issue is that this product, again, the iPhone, is running its course. It`s now maturing. Sure we`ll get a new one tomorrow. Maybe we`ll get a much bigger one next year, and you`ll have a lot of upgrades. But the product cycle is maturing. And it`s just -- it`s the most profitable product in the world. So, you`re looking and try to replace that with some new thing is very difficult. The watch has done OK, but hasn`t lit the world on fire. So, it`s really just growth. This is a huge company, it is got a very good business, it`s still generating a ton of cash, but where is the growth it`s going to come from.

CHARLIE ROSE: So that`s coming from China.

HENRY BLODGET: That`s right. And there will be market growth but the smart phone market as a whole really has slowed down. It`s a much more mature market even in China where Apple actually has been losing share to some of the cheaper manufacturers.

CHARLIE ROSE: That was always a fear, wasn`t it?

HENRY BLODGET: Absolutely. And Apple folks or fans will say they have the high end and that`s where the profit is and that`s true, but that profit pool isn`t growing that aggressively. As they move to a services model, you actually that`s where you want a much wider ecosystem. You want to have the phones in as many hands you can.

CHARLIE ROSE: How much has been in the stock price from its high to date?

HENRY BLODGET: 20 percent off its high. It`s not severe at all. It`s hanging in there so incredible profitable generating tons of cash.

CHARLIE ROSE: What is the Google market at?

HENRY BLODGET: I haven`t checked the latest.

(CROSSTALK)

CHARLIE ROSE: Didn`t Google pass the halfway point or not?

(CROSSTALK)

NICHOLAS THOMPSON: I was just saying Apple is almost exactly the same price it was a year ago. It went up and has been going down a little bit since December.

CHARLIE ROSE: So, we talked about here video. Facebook obviously video is important to Facebook, it`s important to clearly to all new apps are crazed about video. Where are we and how has this shift taken place?

HENRY BLODGET: It seemed like a couple of years ago they missed a product cycle where everyone was expecting something brand new to come out. There was a lot of focuses on it, it was going to be a T.V. and it was gonna revolutionize T.V. and the T.V. just sort of disappeared.

Projection is not gonna happen. And the speculation is that Apple has been trying to figure out exactly how to work and create a new interface for T.V., maybe a new hardware set but working with the content providers and it`s been very difficult to do it.

CHARLIE ROSE: What do you mean?

HENRY BLODGET: Well, I think at least it has been reported and the Wall Street Journal has done some great reporting on this. Apple has gone in and basically said we`re Apple. We would like your content. We want to package it and sell it through and they said that`s great.

But it`s going to be under these very stringent term and they have not come to terms yet. T.V. is the next big digital media market that`s going to get ultimately disrupted, but it`s going to take a long time. There`s a golden age for television contempt.

You`ve got companies like Apple is starting to make their own content. They`ll put together some sort of service. Ultimately, the T.V. world will change and are form over the next 10 to 20 years and Apple should be in a position to get a big piece of it but it will take time.

CHARLIE ROSE: Have you decoupled?

HENRY BLODGET: From apple or television?

CHARLIE ROSE: Cable.

HENRY BLODGET: I have not because I`m a sports addict, Charlie. But pretty much everything else, I served very well.

CHARLIE ROSE: Go ahead, Geoffrey.

GEOFFREY FOWLER: I didn`t cut the cable but I shaved the cable which is an increasingly popular option where you just get down to the basic channels and HBO and you supplement it with these other apps. But, you know, Apple promised us with the Apple T.V. that is going to fundamentally change the television experience and has put out the best streaming box out there now for sure.

Most likely actually a giant phone on your wall but it still hasn`t really, you know, made the experience where I just pick up my remote and say, I want to watch the game and there`s the game, because it doesn`t have that content yet.

And that`s we were referencing earlier that they just can`t get the immediate companies on board. They don`t trust Apple because they saw what happened with music.

UNIDENTIFIED MALE: ITunes.

CHARLIE ROSE: Can you argue as long as the big sporting events there will always be a place for cable and network.

STEVEN LEVY: Sporting events, you see them on Twitter now. So, they are moving. You know, when they first moved to the sporting events to cable, remember they were putting play off games in cable, they said, you always be able to watch it on broadcast. That doesn`t happen anymore.

CHARLIE ROSE: Tennis is covered by ESPN.

STEVEN LEVY: Yeah. So now I think one day they`ll be able to say I`m sorry, you can only watch it on this on-line service there. Whoever going to come up with the right one is going to get those games.

NICHOLAS THOMPSON: One thing that`s interesting from Apple`s perspective of all this is as people stop watching their T.V. or the market breaks down, people spend a lot more time watching videos on their phones. When you think of on-line video, you think about the T.V. business where Apple is making a plan, has been super successful.

But then you also think about the time people spend on snap shot or the time they spend making videos on business insider, the time they spend watching all kinds of videos on their devices. And that`s more time looking at your screen which is good for Apple because as we`ve been talking about, they`re great at making hardware and making devices that you always want to look at.

CHARLIE ROSE: Is it inevitable that they want to be a much bigger content provider?

NICHOLAS THOMPSON: I don`t think it`s inevitable they want to be a bigger content provider. I mean, they made a big play at that. I don`t know where it is going but, you know, I`m not as excited about that as I am about the Apple card.

STEVEN LEVY: The only one of the big players is that hasn`t made a sitcom yet, right?

(LAUGHTER)

CHARLIE ROSE: Been successful in terms of its video efforts and Amazon.

STEVEN LEVY: Amazon, I think they put a beach head there. I mean, I think Netflix has to be looking in the rear-view mirror.

HENRY BLODGET: Netflix is a wonderful model. It`s basically a much more modern T.V. network. It`s the way to think about it. They have a much more flexible whenever you want, wherever you happen to be. It`s just a much better model than the old television network.

And the television network is probably the most prime for disruption in the T.V. world. Because Charlie Rose can go anywhere, whoever is going to cut you the biggest check, you will be happy to be distributed by them.

CHARLIE ROSE: Send them my way, will you. Geoffrey go ahead.

GEOFFREY FOWLER: Where Apple is really sort of falling behind is what`s just around the corner with video and that`s virtual reality. Their current generation phones really cannot be used for virtual reality experiences and by everything we`re hearing so far doesn`t sound the new iPhone is going to have that either.

Will take a much more higher resolution screen like Samsung has put on their phones. So, you know, that`s something I`m listening for tomorrow for sure.

STEVEN LEVY: So my bet on Apple long-term is there is one thing at Apple that we don`t know about. It`s some building somewhere or maybe the basement of a giant spaceship they`re building in Cupertino. That there is an augmented reality that is doing something far advanced than what we know now.

If I were Apple, I would be looking not at virtual reality but augmented reality. They`ve got a lot of engineering talent and that seems to be sort of squarely an applesque enterprise to do.

NICHOLAS THOMPSON: More task to hire the best engineers and the best companies.

STEVEN LEVY: I wouldn`t be surprised if it come out somewhere all of these augmented reality engineers, they`re sort of getting sucked into the Cupertino vortex.

CHARLIE ROSE: Geoffrey, what`s the next big thing? Is it artificial intelligence which we already see? Is it virtual reality which we are know about? Or is it some new thing that they are just beginning to talk about in Silicon Valley?

GEOFFREY FOWLER: Yeah, I`m really interested in that augmented reality or mixed reality as you might hear folks talk about. There`s a company in Florida of all places not here in Silicon Valley but Florida, called magic leap that is working on some stuff that they`ve been very secretive about, very apple like in math.

But sounds like incredible and it`s ability to sort of make you feel like virtual things are in the room with you. I totally agree if I were Apple, I would either have my own team developing that or buy magic leap in a hurry.

STEVEN LEVY: Google has a lot of money in magic leap and Google is on the board of magic leap.

CHARLIE ROSE: Whose been the most impressive, Facebook or Google in terms of looking at company development and scooping up the best.

STEVEN LEVY: I think it`s Facebook.

CHARLIE ROSE: Really?

STEVEN LEVY: I mean, you know.

CHARLIE ROSE: Instagram being a good example.

STEVEN LEVY: What`s happened is the only way you disrupt a giant like Facebook as dominance in its field is to wait for the next paradigm comes along. For this paradigm in mobile, you can`t beat Facebook. But if something new comes along, maybe then there`s the opportunity to do it.

So Mark Zuckerberg says, you know what? This virtual reality might be the next paradigm. I`m going to buy the leading company in virtual reality and make a ten year investment in developing what virtual reality or mix reality looks like.

NICHOLAS THOMPSON: Instagram, What`s Up, a very powerful set of acquisitions along with other acquisitions along the way. But that said, Google has done extremely well in an artificial intelligence in buying up companies and prioritize that and making it big part of the company.

So, Google cannot be counted out.

CHARLIE ROSE: Has Apple done that?

NICHOLAS THOMPSON: We don`t know what Apple has done because we know far less than Apple. Google let`s everybody in, walk around and everything. But with company Apple, you got to stay far away. To the extent they are haven`t done it, it is probably because they`re so focused on their core products. Google does everything.

UNIDENTIFIED MALE: They stepped up their hiring.

CHARLIE ROSE: Geoffrey, they`re going to be in the car business.

GEOFFREY FOWLER: Certainly seems that way. Everybody wants to get it in some form or fashion either making the car or making the software that runs it. It makes sense. It`s one of the biggest, most expensive pieces of technology in our lives that is sort of still running on very, very, very old technology.

HENRY BLODGET: Charlie, there`s a mass hallucination in Silicon Valley and that is that Apple will suddenly going to produce automobiles and sell them. This is all the rage a year ago. Not going to happen. Apple car, they`re going to make cars, they`re gonna compete with Porche and BMW? Going down the road. No.

NICHOLAS THOMPSON: Hundreds of engineers they`ve got working there. They`re going to fire them all. They`re not gonna work anything.

HENRY BLODGET: Look, it`s possible. But it is a long way down the road to do this.

CHARLIE ROSE: One of their executives...

HENRY BLODGET: The most successful new car company in the last almost hundred years and they are in a good position but extremely difficult. The idea again that Apple is going to suddenly roll out a car with all the dealerships and it`s going to become a very big business over night just seems an credible leap. Software and services within cars, absolutely. And they are in a great position to do that. But in terms of actually producing the automobile, I`m extremely skeptical.

NICHOLAS THOMPSON: I`m not completely confident but I would say in 2021, we`ll see some kind of an Apple car. We will go back in show. We`ll talk about it in five years.

CHARLIE ROSE: Who else? Google car will be clearly.

STEVEN LEVY: Uber`s running self driving taxis in Pittsburgh now.

CHARLIE ROSE: Wow.

HENRY BLODGET: Even with Google, it`s a leap to assume they`re actually going to manufacture cars. Self driving cars were clearly headed there and who is going to create the technology and how are they going to operate and so forth.

NICHOLAS THOMPSON: Google is not good at hardware.

STEVEN LEVY: If you have the software, you have the car there. The expensive part maybe they could have someone else, you know, but it could be an Apple car not made by Apple.

CHARLIE ROSE: And have John and I design it.

STEVEN LEVY: That`s right.

NICHOLAS THOMPSON: It would be a giant iPad with wheels.

(LAUGHTER)

CHARLIE ROSE: So looking at the decision in Europe and the tax questions for Apple, what are the ramifications of that?

HENRY BLODGET: It`s just exposed -- it is absurd, Charlie. Apple set up 20 years ago a way to dodge taxes in the U.S. by funneling them through a subsidiary perfectly legal. It all collects there. The idea is eventually it will be taxed in the U.S. when they bring it home but they will not bring it home until they get a tax holiday.

Meanwhile Europe spotted this huge pile of chips lying on the table and made a dive for it and has now seized it and suddenly the U.S. is saying this is outrageous, how could you do this? What this hopefully will lead to is congress to act to reform the U.S. tax code for a global economy.

Where we acknowledge that our companies operate all around the world and in fact in many cases have more sales outside the United States than inside the United States.

CHARLIE ROSE: Isn`t that bad management to bring that cash home if you were Tim Cook. That would be managerial malfeasance.

HENRY BLODGET: At a 35 percent tax rate, yes. That`s why they have been keeping it where it is. But given the current situation, maybe again congress comes in with a lower rate or maybe there`s a tax holiday which is all the companies wait for which makes this whole thing so absurd because you know at some point there will be a repatriation holiday where you bring it home.

But I think Apple`s position is perfectly logical, which is, look, we`re just taking advantage of the tax laws as they are. It would be against our fiduciary duty to bring it home and pay the tax.

STEVEN LEVY: When does the fiduciary duty end? How many accountants do you have to hire and come up with crazy schemes to fulfill your fiduciary duty there, right?

NICHOLAS THOMPSON: There`s also a question like, if you create, what Apple did is that they basically created an entity that the the U.S. tax law looks Irish and Irish tax law looks non-existent, right? So, they did this like very funny thing. They have an actual real physical plant. They do real stuff in Ireland and then they have this sort of vapor thing, right?

Is it in your fiduciary duty to take a risk like that and somebody will notice and you`ll suddenly get hit with something hard. I would think it will be in Apple`s long-term interest to be a little more clear and a little more don`t play by the exact letter of the law but actually play about what`s real and what`s fair in the future, so you don`t have a day where you`ve got a huge tax bill which is not good for any company.

CHARLIE ROSE: Thank you all, a pleasure. We`ll be right back. Stay with us.

U.S. Intelligence officials are reportedly investigating what may be an extensive covert Russian campaign to disrupt the upcoming presidential election. Officials are concerned about possible Russian attempts to break into electronic voting systems.

Russian hackers were allegedly responsible for hacking the DNC and other political organizations this summer although the Obama administration has yet to blame Russia publicly for these intrusions. President Putin has denied any Moscow involvement. He and president Obama discussed cyber security at the G20 Summit on Monday, agreeing that the escalation must be avoided.

Meanwhile, democratic presidential candidate Hillary Clinton suggested during a press conference that Russia is trying to sway the election in Trump`s favor. Joining me from Washington is Dana Priest of The Washington Post. She and her colleague broke this story yesterday. Tell me exactly.

You say they are investigating what they see as a broad covert Russian operation in the U.S. to sow public distrust in the upcoming presidential election and U.S. political institutions. How firm do they believe this is true? What is the evidence they have? And when will we know more?

DANA PRIEST: Well, I think they believe the election part of it is one part of a broader what they call covert influence operation on the part of the Russians inside the United States.

This is something that the Russians have been doing in Europe for the last several years since perhaps 2012 in particular when they saw their influence waning, when they really got worried about NATO expansion, when they took over Crimea, and now we`re seeing it come to the United States.

And part of that operation is they believe to disrupt or at least to sow distrust in the U.S. election process. And they aren`t saying what particular part of the process because they probably don`t know, but their willingness, the Russians, to get in and at least cause the American public to question the results of the election.

They don`t think that the Russians are trying to sway the election to one candidate or another. But really they are trying to weaken the American public`s trust in the system. In the system of elections but also in our government at large, and that`s the larger covert influence operation that they`re looking at.

CHARLIE ROSE: In fact, government depends on credibility and respect for the institution of government.

DANA PRIEST: Right. Yes. And in Europe, you know, again this is a covert operation, so it`s not supposed to be revealed. They are very clever hackers so it is very difficult to attribute it directly to them. But in Europe, they`ve done a whole range of things.

Everything from funding campaigns, not entire campaigns, but funding individuals, giving loans and then also hacking into election commission for instance. They did that in Ukraine. They did what`s called a denial of service attack in which it almost shut down the Ukrainian election commission. Done the same things in Latvia, Estonia.

They are using the range of cyber tools, but also influence and influence is a difficult thing to prove, but I think the law enforcement agencies here have made it a bigger priority to try to prove influence as well or at least to detect it and report it to the larger intelligence community.

It`s really two sides. You have the domestic side which is led by the FBI and the Department of Homeland Security, but you have the international side and is led by the intelligence community at large all being coordinated by the office of the director of national intelligence.

Because the foreign assets will be looking at what Russia`s intent is, what kind of operation they`re pursuing. They`re gonna be gathering intelligence from abroad to see what Russia is up to, who they are using, that sort of thing.

CHARLIE ROSE: Three questions. One is, are intelligence officials convinced it`s coming from the Russian government or from non-governmental hackers of the like?

DANA PRIEST: The influence operation, they are convinced, is a government operation. Because they`ve seen this template in Europe. They`ve actually been briefing members of the Hill on the European template and in the context of their new concern about United States.

So, you know, so they`re seeing -- they have more evidence in other countries right now, but they have seen with the DNC hack with the probing of the election records in the two states and with the hacking that they believe is gone on in other parts of the republican and democratic party.

They believe that this is part of the broader influence campaign. What they haven`t done and why you haven`t seen any reaction on the part of the white house is they haven`t gotten the kind of firm attribution they call it to the DNC hack for example that would allow them to trigger sanctions against the individuals that did it. Like in the Sony hack, they actually named PLA, the army there.

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