An expert panel convened on Capitol Hill this morning, discussing new research on the detrimental effect that regulatory uncertainty has on Internet investment (as well as additional copyright law and policy challenges, which we live tweeted on @DisCo_Project).
The new research quantifies the impact of Internet regulations, including intermediary liability limitations, by showing their effect on early-stage investment. A new report by Fifth Era and Engine finds that legal uncertainties for digital content intermediaries discourage early-stage investment around the world, reinforcing findings from a 2011 report that found early-stage investors in the United States were considerably less likely to invest in new online services exposed to legal risks.
In a similar vein, another 2011 paper found that changes in copyright policy changes could spur demonstrable investment in new online services. Comparing investment in online services in the U.S. and Europe in the wake of the 2008 Cablevision case — a federal appellate court ruling widely heralded as giving additional legal certainty to online platforms — researchers found that U.S. investment increased considerably. In contrast, a follow-up study by the same authors explored the impact of judicial decisions in Europe that increased legal exposure for online platforms, and found decreased investment when applying the same methods.
The Fifth Era report reinforces this conclusion, providing further evidence that additional risk and uncertainty in the online environment decreases investment. This conclusion is not entirely surprising — but the authors’ specific findings provide impressive data on how severely risk can stifle early-stage investment.
Today, the Wall Street Journal published an article after getting its hands on a confidential FTC memo from the now settled U.S. antitrust investigation of Google. The document, an internal memo by the FTC’s Bureau of Competition recommending that that the Commission proceed with an antitrust case against Google for a variety of allegedly anticompetitive actions, was mistakenly released in response to a FOIA request. The Journal also reports that the FTC’s Bureau of Economics disagreed with the Bureau of Competition, recommending that the agency not proceed with charges — a recommendation the agency ultimately followed. Also, and perhaps most interestingly, the Bureau of Competition’s recommendation advised against proceeding with the most high-profile accusation, search bias, which is now the focus of the European Commission’s competition investigation. As most DisCo readers probably remember, the FTC eventually voted to close its investigation of Google (and dismissed the search bias accusations outright) after the company addressed several of the practices outlined in the Bureau of Competition’s memo.
Although the WSJ article is certainly an interesting read, the fact remains that there are many checks and balances within the FTC and — with the benefit of hindsight — it is pretty clear that the Commission’s decision not to proceed on the charges of “search bias” was the right call.
Let’s look at what has happened in the marketplace since the FTC settlement.
We in Europe know that petrol (gas) prices are usually double that of the United States. Vehicle ownership can overall cost you EUR10,000 annually. All this makes transport systems ripe for disruption in the digital era. Throw in ongoing high unemployment and economic uncertainty, and the enablers of disruption – like collaborative consumption – have shifted from nice idea to necessity for many.
It is this sharing economy that has fuelled increasing disruption in the field of mobility. Until recently mobility had been enhanced by services like apps for maps and transit timetables, but was yet to be truly disrupted as media, music and travel bookings have been.
Now digital innovation and the competition it fuels is coming thick and fast. There are hundreds of taxi apps alone, offering their platform to consumers for free. The lack of lock-in has been a consumer boon: the apps have to impress immediately or the customer will ditch them. Which is about as far away from the old taxi cartels as can be imagined.
But are Uber-headlined fights with legacy systems and regulators the full story? Is the US the source of the best innovations? I would say no. In hindsight, 2014 was the year that a diverse range of European innovators started to reach critical mass at home and achieve major expansion globally.
European digital policy debate is in flux. In the new uncertain mix we find new EU leadership figures; gridlocked legal proposals on data protection; Parliament nakedly chasing after Google; and posturing by the French and German governments to ban or regulate certain platforms in order to create ‘platform neutrality.’
This final demand occupied the minds of panelists at a recent CCIA event at Bloomberg last week. It was a relief to hear figures such as Kaja Kallas MEP, Chris Sherwood (Allegro Group), Adam Cohen (Google) and Brian Williamson (Plum Consulting) agreed that the shadow boxing needs to end. They collectively pinned down the problem: Europe can’t afford to be fighting imaginary opponents or dancing around the issues holding back digital companies. Europe keeps trapping itself by looking backwards.
For Kallas, the invention of debates around ‘platform neutrality’ is “protectionism in disguise.” She’s not wrong. The French and German governments have failed to make an adequate case about why certain digital companies need special regulation ; they simply resort to alluring phrases and words like ‘neutrality.’ This tactic dresses up the favours they’d like to do for Europe’s non-existent search engine champion, but it doesn’t change the market reality. Digital innovations are continuing to integrate into the economy, meaning the idea of ‘platform neutrality’ is quickly moving from the category of ‘flimsy’ to ‘irrelevant.’
Tuesday night’s The Daily Show interview of Abbi Jacobson and Ilana Glazer, the creators and stars of the Comedy Central TV show Broad City, underscores the transformative role of the Internet in democratizing the entertainment industry.
Jacobson and Glazer launched Broad City in 2009 (when they were 25 and 21) as a web series on YouTube. The 25 episodes about the misadventures of two Jewish women in their 20s in New York City built a cult following and attracted the attention of Amy Poehler. Poehler helped migrate Broad City to the Comedy Central cable network (owned by media giant Viacom), and Poehler now serves as one of the show’s executive producers.
During Tuesday’s interview, Jon Stewart said that because of the Internet, “it feels like there’s more opportunity than there ever was for people” to break into comedy. “It’s been democratized to some extent.” Jacobson and Glazer agreed. Stewart then asked, “Do you think a show like this, voices like yours, unique and joyful, could have gotten on the air without the Web?” Jacobson and Glazer replied no.
On two sides of the country yesterday two branches of the federal government engaged in legal processes likely to affect competition in the music industry.
As DisCo previewed, yesterday the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights considered the competitive challenges in the music publishing industry, and the effects on competition, innovation, and consumers. Witnesses from across the music ecosystem discussed the continued need for the consent decrees. Several urged that the consent decrees be strengthened with additional transparency safeguards, while others claimed they may no longer be necessary (at least in theory if you ignore all transaction costs and have a perfect marketplace). Over the last year alone, four federal courts have found evidence that the same publisher behaviors that gave rise to the consent decrees in the first place still continue today, suggesting that the consent decrees remain necessary to curtail anticompetitive behaviors.
Just as the Senate hearing ended in D.C., jury deliberations in the Blurred Lines case (which we covered when Robin Thicke initiated the litigation by filing for a declaratory judgment) resumed in California, ultimately ending in a judgment against Robin Thicke and Pharrell Williams, for millions in actual damages plus profits. Several observers have said that is “horrific” and “really dangerous”, as well as “a bad result” that is “bad for pop music” and “could make songwriting and recording a minefield for every artist”.
Günther Oettinger, the European Commissioner for Digital Economy and Society, recently gave a keynote address at the #Digital4EU Stakeholder Forum, in which he discussed the importance of a Digital Single Market in Europe and uniform Internet regulations. He also spoke of the need for Europe to catch up in digital innovation. Although I plan to address some controversy in the remarks, it is important to note that much of what Oettinger said was on target. Streamlining digital rules across the 28 member states of the European Union and ensuring that Europe produces (and attracts) more programmers and IT experts will go a long way to making Europe even more competitive in the digital economy. (I have also discussed some other issues not addressed by Commissioner Oettinger, which would also go a long way into making Europe more competitive.)
On the more worrying side, Oettinger’s speech veered fairly overtly into jingoistic territory:
The Americans are in the lead, they’ve got the data, the business models and so the power… They come along with their electronic vacuum cleaner and suck up all the data, take it back to California, process it and sell it as a service for money.
This is not surprising. Politicians playing to a domestic audience is par for the course. Furthermore, consumers and innovation across the world benefit from more competition, whether it comes from Silicon Valley, Berlin or Beijing. Besides a stylized version of how Internet companies actually operate, what was misguided is the notion that using the size of European markets (the EU is the world’s biggest economy) to drive companies to adopt European regulatory standards as the de facto global standard is going to benefit European companies (whether they benefit consumers is an entirely different matter). This was an implicit assumption underlying Oettinger’s remarks, and was made explicit in other commentary from top European politicians:
Still, said Jan Philipp Albrecht, chief negotiator for the European Parliament on the EU’s new data protection law, “If you can achieve…a standard [globally] that is somehow near…your own, then this is an advantage.”
The Wall Street Journal surmised the takeaway from this series of statements as:
Their hope: As rules such as the right to remove Web links to personal information spread, European companies would get a leg up in the next era of Internet commerce.
But is this correct? To answer that question, it is helpful to break down this line of thinking into two questions: (1) whether large markets can drive regulatory norms, and (2) whether high levels of regulation would advantage European enterprise.
At a hearing on Capitol Hill tomorrow, a Senate subcommittee will hear different perspectives on the degree to which competing music publishers should be permitted to coordinate licensing activities through performing rights organizations (“PROs”), such as ASCAP. Music publishers have expressed a desire for fewer antitrust constraints on their coordinated behavior, while users and distributors of music will call for greater transparency in the music marketplace.
The hearing occurs during an ongoing Justice Department review of the consent decrees that govern PROs.[FN1] Music publishers and PROs are presently subject to oversight to the extent that PROs coordinate behavior among publishers who ostensibly should compete with one another. Competitor coordination usually violates antitrust law, but because collective licensing also helps reduce the high transaction costs in music licensing, exceptions have been made for PROs. A PRO can offer a single performance rights license to a user or distributor for all the works controlled by multiple publishers – one-stop shopping for a huge number of works. But because one entity is nevertheless coordinating business transactions for a large group of companies that should be competing, antitrust oversight remains necessary.
Smart phones have changed how we communicate, listen to music, and access the Internet. They are also changing what we have in our wallets and making consumers question whether we need wallets at all. By now, you have probably heard about Apple Pay and Google Wallet, and how you can quickly pay for various items by just tapping your smartphone at a Point of Sale terminal. However, smart phones are now facilitating a change in one of the most basic and essential contents of a wallet – the driver’s license.
At least three states – Delaware, Iowa, and North Carolina – are now in a race to see which can be the first to provide a driver’s license on a smartphone app. These states are developing technology that would have the same information that is on traditional paper and laminated driver’s licenses, but on an app that would be provided by a state DMV.
Having your driver’s license on your phone could provide numerous benefits. Some may find it easier to access an ID via smart phone than trying to pry a traditional ID from a wallet. A digital driver’s license could be a great backup for some people, like my mom, who sometimes leave their IDs in a different wallet or purse. Traditional IDs can break, become distorted, or fade over time, so a digital driver’s license could save people the frustration of visiting a brick-and-mortar DMV for a new license or waiting for it to be delivered after accessing a DMV’s website.
Trade across the seas dates back thousands of years, and trade deals nearly as long. Since the 17th century those deals have been brokered in secret by nation states; processes that no longer seem appropriate in the digital age.
Unsurprisingly, governments are struggling to keep up with how the internet has upended trade negotiations. Internet communities not only stopped the proposed Anti-Counterfeiting Trade Agreement in 2012, in 2015 most of organizing and coalition-building against TTIP – the proposed Transatlantic Trade and Investment Partnership – is also taking place online.
Researcher Matthias Bauer, for example, has found that 85 per cent of all TTIP-related positions in German online media are originally authored and spread by anti-TTIP groups. Germans and others are bombarded with opinions that TTIP is about lowering standards, privatizing public services and leaving Europeans at the mercy of voracious American multinationals. Some are happy to blur the lines between effects of trade and globalization, or prone to use anger at mass-surveillance as a reason to rule out such deals before they are drafted.
In this environment little credit is given to the European Commission for its efforts to increase transparency. This frustrates the Commission, while many activists consider it a case of ‘too little, too late.’ Putting the big P politics aside for a moment, it seems that one reason for the indifference from stakeholders is that the extra transparency is so insignificant when taken out of its specific trade negotiation context. Isn’t transparency what we expect of every leader and company today?