With its Sept. 1 issue, Bloomberg Businessweek’s cover story again puts online video platforms in the media spotlight with favorable coverage, proclaiming YouTube to be “Hollywood’s new hit factory.”  This is a decidedly different take from Variety’s own ‘YouTube issue” last month, which suggested that “traditional” film and television sectors may be rendered irrelevant by the continued success of online video.  (DisCo mentioned Variety’s “YouTube issue” previously, noting how an odd anti-Internet op-ed was sandwiched between highly favorable coverage of social media video services.)

Businessweek shows that the disintermediation story doesn’t necessarily apply to all content producers.  As DisCo recently noted elsewhere, established incumbents are not invariably disintermediated by new technology, and the Businessweek cover story bears this out with stories of major online video acquisitions by established Hollywood incumbents. MORE »

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Monday’s announcement that Amazon would acquire Twitch for $1.1 billion was preceded several weeks ago by the gaming platform’s announcement that it would mute the audio streams of archived videos, due to unlicensed music. Among other gaming activities, Twitch allows users to watch both live and archived streams of other people playing video games. (According to Amazon’s press release, in July 2014, “more than 55 million unique visitors viewed more than 15 billion minutes of content on Twitch produced by more than 1 million broadcasters, including individual gamers, pro players, publishers, developers, media outlets, conventions and stadium-filling esports organizations.”) Twitch’s decision to use Audible Magic to identify and mute unauthorized in-game and ambient music in the streams of archived material was cited as evidence that Twitch was putting its copyright house in order prior to acquisition by a larger Internet company. The decision also was criticized as an example of what was wrong with our copyright system.

The Twitch muting policy applies to archives of both full streams and highlights clips. The policy raises interesting fair use questions particularly in the highlights context.The muting of music in the highlights resembles the Fourth Circuit’s troubling 2010 decision in Bouchat v. Baltimore Ravens. For the past 17 years, Frederick Bouchat has been enmeshed in litigation with the Ravens and the National Football League over the “Flying B” logo, which the Ravens used for their first three seasons. Prior to the Ravens’ first season in 1996, Bouchat had submitted a drawing of a logo to the chairman of the Maryland Stadium Authority, and a jury found that the Ravens had infringed the copyright in the drawing. A separate jury, however, awarded Bouchat no damages. After the infringement finding, the Ravens changed their logo, adopting the current “Raven Profile” logo. Of course, the Ravens could not remove the infringing logo from the historical record: it still persists in archival footage and photographs.

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A DisCo post last week described how Taylor Swift was using social media to promote her latest album, 1989. And previous DisCo posts have discussed the phenomenon of innovative artists embracing Internet platforms to reach new markets. Social media, however, has become far more than an alternative means for promoting and distributing entertainment content; often it is integral to the content itself.

Social media is a central theme of this summer’s sleeper hit, Chef. Chef Carl Casper, played by Jon Favreau, finds his career in trouble after engaging in a public dispute via Twitter with a food blogger, which he didn’t realize was public because he didn’t understand how Twitter operated. (His young son established the Twitter account for him.) Twitter also plays a critical role in the resurrection of his career, as his son tweets about his new food truck as they drive across the country. Further, Twitter helps reconnect the chef with his son. (Favreau insists that Twitter didn’t pay for the product placement.) Twitter is to Chef what AOL was to the Tom Hanks/Meg Ryan 1998 rom-com You’ve Got Mail.

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Despite inexplicable opposition from certain outliers, it’s becoming widely accepted that the Internet enables and democratizes creativity and its dissemination more than ever before.

Earlier this week, Taylor Swift released her new single, Shake It Off, complete with a music video, and announced the release date for her forthcoming pop album, 1989.  She did so in front of an audience, webcast live online.  In Ms. Swift’s own words, “they’re telling me we’re making history because this is the first ever worldwide live stream for ABC and Yahoo to get together and I’m so excited I can’t even!”  (It’s not clear whether she meant that it’s the first ever worldwide live stream for an album date announcement/single release party, or the first ever worldwide live stream for these companies together, or what, but her enthusiasm was contagious, and her fans didn’t seem to care.)  In the view of Claire Suddath, a writer for Businessweek, however, Taylor Swift followed all the rules and everything about this was completely expected.

This was contrasted with Beyoncé’s now-legendary promotion-free drop of her “visual album” Beyoncé on Instagram at midnight in December (which she later followed up with an equally unexpected promotion-free remix of ***Flawless, released over social media at midnight a few weeks ago).  “Weird Al” Yankovic did something similar this summer too, although he pointed out that he did it with his last album, before Bey, and that she was in fact ‘doing a Weird Al.’  While none of these examples involved displacing intermediaries and selling to fans directly like Louis C.K., Weird Al did notably take advantage of different video sites for each daily exclusive video release.

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Earlier this month, at the Black Hat 2014 conference, Yahoo announced that it would implement end-to-end encryption in its Mail service by 2015. This announcement came on the heels of Google’s June announcement of a Chrome browser extension that would make it easier to do the same for data leaving the browser for a specific recipient (Yahoo’s implementation is a fork of Google’s publicly released source code).

End-to-end encryption of message content through OpenPGP, even as implemented by the savvy engineers at Yahoo and Google, is by no means a privacy cure-all on its own. However, when end-to-end is viewed along with earlier developments, like an always-on secure connection (via HTTPS) for Gmail or multi-factor authentication, it’s becoming clear that the tech industry is taking improved consumer privacy seriously, both in word and deed. MORE »

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In June, when I wrote about the release of Amazon’s new smartphone, I promised a more comprehensive article about the competitive dynamics of the mobile ecosystem.  While tech journalists tend to fixate on new releases from household name companies such as Amazon’s Fire Phone, it is all too easy to miss the big picture.  Emerging markets pose the biggest threat to the current market leaders and promise to be incubators of disruptive innovations.

Although much of the focus in the developed world remains on the competition between Google’s Android and Apple’s iOS, a host of plucky competitors are targeting emerging markets.  And for good reason.  Not only is the smartphone adoption rate growing nearly twice as fast in emerging markets as it is in more established markets, certain characteristics make it easier for new platforms to establish a foothold in emerging markets, as the market research firm GSMA Intelligence stressed in a recent report:

Emerging markets represent the largest unrealised source of new mobile Internet subscribers.  Given that smartphone penetration is nascent, the take-up and use of mobile data is rising, lock-in mechanisms have yet to kick in for incumbents and subsidies are less prevalent, the markets present more fertile ground for challenger platforms.

In a nutshell, the advantages held by established competitors like Google and Apple don’t necessarily carry over into emerging markets.  The market structures and desired uses of mobile technology differ greatly in markets such as China, Vietnam and India than from those in the US, Europe, Japan and South Korea.

The most obvious reason for this is simply that the smartphone penetration rate is much lower in emerging markets, therefore less people are committed to a particular mobile platform.  Furthermore, characteristics such as price point and unique local content and services are the more important considerations for new users in those markets where lock-in factors, such as prior purchases, subsidized contracts and large mobile app suites, don’t factor in purchasing decision to nearly the same extent they do in more advanced markets.  Low price and local market customization are areas where smaller competitors can compete against industry leaders.

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DisCo readers may be familiar with a recurring theme pitting incumbents versus disruptive innovators. But new research seems to suggest that the relationship isn’t always adversarial.

The Knowledge@Wharton blog has an article about a soon to released paper by three professors, David Hsu, Matthew Marx and Joshua Gans, which illustrates that disruptive startups do not just compete with market leaders, but often partner with them as well.  The authors use the automated speech recognition (ASR) market as their test case, as the frequent technological disruptions in the field make it a paradigmatic industry to study; similar to Clayton Christensen’s disk drive market.

The study finds that 60% of the firms in the ASR market started out competing in the marketplace while 38% cooperated with market leaders (2% had a “hybrid” approach).  However, the blog notes that breaking it down by firms using a “disruptive” approach versus an “existing technologies” approach tells a slightly different story.

The researchers find that early adopters of disruptive technology were much less likely to cooperate with incumbents, with only 21% doing so, compared with 36% of start-ups whose businesses were based on existing technologies. But early adopters or disruptors were more likely to switch from a competitive to a cooperative strategy: 12.7% did so, versus 7.8% for non-disruptors. (The switch from a cooperative to a competitive strategy was not meaningfully different between the two groups.)

The authors use their research to give advice to startups: be open early on to the possibility that your competition/cooperation strategy could change over time.

The study’s authors also have advice for incumbents: it may be useful to let the disruptive startups slug it out among themselves and license/acquire/partner with the winner, rather than trying to develop the disruptive technologies in house.  As one of the authors of the study notes, predicting a winner is difficult:

You sort of have to predict the future. What we’re saying is, you don’t have to predict the future. There may be 30 start-ups out there trying different disruptive or potentially disruptive technologies. So, you can take this wait-and-see approach.

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Two weeks ago in Facebook’s Q2 earnings call, Mark Zuckerberg reiterated Facebook’s desire to become a more effective online “search” competitor, although in his description of the initiative it became clear that he was talking about becoming a more effective competitor in the “market for answers,” as the Wall Street Journal pointed out:

Facebook is trying to give people answers to what they’re looking for in hopes they’ll spend more time on the site or in the app, and in turn stealing searches away from Google or Microsoft’s Bing.

In fact, responding to an analyst’s question, Zuckerberg cited Facebook’s unique advantages in the answers market:

There is huge potential. There are a lot of questions that only Facebook can answer, that other services aren’t going to be able to answer for you. We’re really committed to investing in that and building out this unique service over the long-term. And I think at some point there is going to be an inflection where it starts to be useful for a lot of use cases. But that may still be years away. But we’re just committed to doing this investment and making this right.

Given our frequent musing here on the nature of competition online and its antitrust implications, Zuckerberg’s description of where Facebook is going was telling.  Namely, that the narrow market definitions that rely on colloquialisms (“search engines” and “social media”) do not reflect the true nature of competition online.

A fundamental tenet of antitrust law is that in order to figure out if a company is monopolizing a product market, one has to define what that relevant product market is.  Sounds simple enough, right?  Well, maybe not, especially in the online world.

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While reading Variety’s eye-opening article explaining how successful young performers are reaching a new generation through Internet platforms, you might have come across producer Kurt Sutter’s (potentially NSFW) open letter savaging Google about piracy allegations.  Sutter, who produces the FX drama “Sons of Anarchy,” announces the search company is “in the process of systematically destroying our artistic future.”

The attack is uncomfortably wedged between Variety’s impressive coverage of the rise of the Internet content creators, and stars on Google’s YouTube in particular.  In fact, Variety published a survey this morning which concluded that YouTube stars are more popular than “mainstream” celebrities among teens.  Hollywood, however, has no idea who these new stars are — a disconnect likely to widen as more young Americans cut the cord and trade the remote for the smartphone.  Amidst other coverage, one article concludes, “[Internet video brands] AwesomenessTV and Vice could very well be the next mega-brands; they demand our attention now”.

It’s difficult to square Sutter’s dire predictions that we will look back with regret on “the magical days when creatives flourished” when the several preceding articles highlight creativity flourishing on the Internet.  Situated as it is inside what might be called Variety’s Disintermediation Issue, Sutter’s f-bomb fusillade says nothing so loudly as ‘get off my lawn.’

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Last month a Paris appeals court annulled some €3.9 million (US$5.2M) in fines imposed on endive producers and their trade associations by the French Competition Authority (the Autorité de la concurrence). Not dissuaded, that French competition agency just slapped a €1.6M (US$2.1M) fine on Caribbean yogurt maker Societe Nouvelle des Yaourts de Littee (SNYL) for falsely questioning the safety and quality of a rival brand in Martinique and Guadeloupe, characterizing the practice as “abuse of dominance” in the marketplace. SNYL

This epitomizes a fundamental disconnect between antitrust law and competition policy in the U.S. and that of many other nations. (No, the French are not alone…) American antitrust principles and decisions generally limit the reach of competition law — aside from competitor collision like price-fixing cartels — to business conduct that uses market power in an exclusionary manner. As the Supreme Court emphasized in 1993, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.'” In sharp contrast, the FCA reasoned about yogurt that “the dissemination of misleading and disparaging remarks by a dominant operator against one of its competitors is a serious practice with regard to competition rules.”

“Between December 2007 and December 2009, SNYL broadcast information discrediting the sanitary quality of Laiterie de Saint-Malo products using the questionable results of bacteriological tests and questioning the irregular consumption deadlines affixed to its products,” the FCA reported in a (translated) statement. This led a number of retailers to pull Malo products from shelves for an extended period. “This behavior had the effect of limiting product sales of Laiterie de Saint-Malo in Martinique and Guadeloupe — an abuse of dominant position prohibited by Article L 420-2 of the Commercial Code,” the FCA concluded.

In the United States, legal standards for proving antitrust claims are rightly rigorous; they are strict in order to reduce the risk that enforcement of the antitrust laws may chill the very sort of vigorous, competitive conduct they are intended to encourage. It’s been true for at least 35 years that the Sherman Act “is not a panacea for all evils that may infect business life.” Legendary antitrust law scholars Phillip Areeda and Herbert Hovenkamp have advocated a nearly insurmountable presumption against deception and fraud serving as the basis for a monopolization claim, a presumption most courts have readily embraced. As one court of appeals cogently explained, “[i]solated tortious activity alone does not constitute exclusionary conduct for purposes of a [Sherman Act] § 2 violation, absent a significant and more than a temporary effect on competition, and not merely on a competitor or customer…. Business torts will be violative of § 2 only in ‘rare gross cases.’”

The difference is that between competition and consumer protection, which are quite distinct concepts in American jurisprudence. If a firm uses a monopoly to harm competition without business justification, that’s an antitrust violation. If a firm lies about a competitor’s products or runs false advertising, that’s a deceptive business practice. The two legal regimes are directed at different constituencies and conduct, which is why the Federal Trade Commission Act was amended in the 1930s to add a separate provision (Section 5) for “unfair or deceptive” business practices, and why the FTC accordingly is separated into its two principal divisions: the Bureau of Competition and the Bureau of Consumer Protection. Likewise, the Lanham Act specifically prohibits false advertising and provides a damages remedy for injured companies. Thus, false representations around a firm’s own, or it’s competitor’s, products can be legally actionable, as the Supreme Court again ruled this year in a case about beverage labeling (Pom Wonderful v. Coca-Cola). They’re just not an antitrust violation in the United States.

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