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October 25, 2018

Situational awareness: Twitter lost 9 million monthly active users last quarter, bringing its total down to 326 million, the company reports in its Q3 earnings. This could be a reflection of social media companies seemingly hitting a point of saturation, per Axios' Sara Fischer. Still, it beat revenue expectations and was profitable for its fourth straight quarter.

1 big thing: Trump's cellphone use makes everyone less secure

Donald Trump on a landline phone
President Trump on a landline. Photo: Jabin Botsford/The Washington Post via Getty Images

The New York Times report that China and Russia are eavesdropping on President Trump's cellphone calls is, in one sense, shocking. On the other hand, it's exactly what experts have warned about since before he took office.

Why it matters: Whether the risk is spilling state secrets or providing blackmail material, letting others listen in on the president's calls can't be a good idea.

Flashback: In January 2017, I co-wrote a story for Recode headlined "For the sake of national security, Donald Trump needs to trade in his cellphone."

  • He eventually did switch from an Android to an iPhone, but continues to make calls and tweet from mobile devices, raising a number of serious security issues.
  • There's the current issue of eavesdropping. As the NYT report notes, eavesdropping could happen if a device was compromised, but cellphone calls can also be intercepted because of flaws inherent in the cellular system.
  • His phone could also be compromised in other ways, opening up the potential for location tracking, covert audio recording or other surveillance. The NYT piece notes that Trump isn't even regularly swapping out the device as intended.

Former White House CIO Theresa Payton tells Axios that it's tough to assess just how bad things are "without knowing what information was accessed, when, and how." But, Payton, who's now CEO of cybersecurity firm Fortalice Solutions, adds...

"What it could mean, in a worst-case scenario, is that China and Russia have had access to the president's most intimate and delicate conversations, and that they could be using that knowledge to exploit perceived weaknesses and gain an upper hand in trade negotiations and possibly even military operations."
"If true, this may be the largest, most significant breach of White House communications in history."

And then there are his tweets. Regardless of what device they are sent from, the president's penchant for tweeting personal attacks, changes in U.S. policy and communications to foreign leaders poses creates a huge risk if someone were ever able to gain access to his account: Followers couldn't easily distinguish between his impulsive messages and those of a hacker.

What they're saying:

  • Sen. Mark Warner: "This is a big problem, if true. The intelligence community works hard to defend us against foreign espionage. The last thing we need is for the president to be jeopardizing national security through sheer carelessness."
  • Lawfare's Susan Hennessey: "The president of the United States is placing our national security at risk for some minor personal convenience. And he doesn't seem to care one bit. This should be understood as a breach of his oath of office."

The bottom line: It's past time for the president to use a more secure means of communication.

2. Verizon vs. AT&T: A tale of two media investments

Telecom giants AT&T and Verizon are both pursuing a strategy that marries content and distribution. But they are taking different approaches and, so far, are seeing radically different results, Sara reports.

Driving the news: Verizon admitted Tuesday that its media arm, Oath — which consists of AOL, HuffPost, Yahoo and other digital brands — is struggling to drive revenue.

  • Meanwhile, AT&T said Wednesday that WarnerMedia, its media division that was formerly called Time Warner, is flourishing.

Why it matters: Oath is driven by digital ad income, whereas WarnerMedia is driven by revenue from streaming subscriptions, its studio business and its digitally-sold television ads business.

  • The digital ad business continues to be a tough marketplace for media companies competing with tech giants like Google and Facebook, whereas those tech giants have yet to dominate subscription streaming, movies, and digitally-sold TV ads.

What they're saying:

  • Verizon conceded in its earnings press release that it expects Oath revenues "to be relatively flat" in the near-term and "does not expect to meet the previous target of $10 billion in Oath revenues by 2020." Oath was down 6.9% in revenue year over year.
  • AT&T CFO John Stephens told investors on a call Wednesday that higher subscription revenues at HBO and Turner as well as increased TV licensing revenues at Warner Bros. helped drive WarnerMedia's success. WarnerMedia's revenue was up 6.5% year over year.

Between the lines: While this was only the first full quarter of earnings reported for WarnerMedia under its new parent company, all signs point to optimism from investors.

  • Oath, on the other, hand, is facing a brutal outlook from both investors and media experts. Many, including former Yahoo CFO Ken Goldman, have suggested that Verizon should spin off Oath.
  • The company has lost the majority of its top executives since it was acquired last year, including CEO Tim Armstrong. As a result, Verizon says it's focusing its future investments on building out its national 5G network.

The bottom line: Even in an internet age, TV content still has value, regardless of which screens are used to view it. On the other hand, internet media continues to be a tough sale, even when you own the pipe.

3. Cheddar is buying Rate My Professors

Cheddar promo image
Photo: Cheddar

Cheddar, the streaming video network dubbed the "CNBC for millennials," is acquiring Rate My Professors, a popular website used by college students to evaluate their teachers.

My thought bubble: At first blush, the deal seems far afield for a news company. But it fits with the company's effort to become a compelling source of information for college students.

  • In May, the company acquired Viacom's "MTV Networks on Campus," the distribution platform for Viacom's college campus-based service, MTVU.
  • The live network, now called CheddarU, reaches 9 million students nationwide on 600 college campuses.

Go deeper: Sara has more here.

4. Tesla's surprisingly strong earnings

Tesla's showroom in Washington, D.C.
Tesla's showroom in D.C. Photo: Saul Loeb/AFP/Getty Images

Tesla turned in remarkably strong earnings, reporting $312 million in third quarter profit and free cash flow of $881 million — only its third quarterly profit in history. What's more, CEO Elon Musk says he expects continued positive cash flow and profits in all quarters going forward, with the exception of occasional debt repayments.

"We do not intend to raise equity or debt, at least that’s ... our intention right now. That may change in the future."
— Elon Musk

Why it matters: This could be a turning point for Tesla, Axios' Joann Muller writes. The operating improvements reported last night suggest the company has the potential to buckle down and deliver sustained profits after losing money for much of its 15-year existence.

Go deeper: Joann has more here.

5. Take Note

On Tap

  • Earnings reports include Amazon, Google parent Alphabet and Intel.

Trading Places

  • Snapchat is replacing outgoing chief strategy officer Imran Khan with two executives. Former Amazon ad sales exec Jeremi Gorman will be chief business officer. Former Huffington Post CEO Jared Grusd will serve as chief strategy officer, overseeing content, global strategy, partnerships, and corporate development.
  • Health insurer Anthem has hired former Google search executive Udi Manbar to lead its AI efforts.


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