April 2005

Recent news accounts on Steve Ballmer’s visit with Europe’s top antitrust official, Neelie Kroes, again brings to light the concept of software bundling. With Microsoft’s Longhorn operating system still 18 months away, we’ll have a little reprieve at least from more antitrust actions directed against MS (maybe). But what the operating system bundles (and what it doesn’t) will surely be the subject of legal attacks.

It can be easy to bundle digital products, but when is it illegal? This is a difficult question to answer, made more difficult when viewed against the global regulatory scale. In my recent article published in the Intellectual Property & Technology Law Journal, I argue that while it is easy to think of bundling as anticompetitive tying, economic justifications show that this fear is overblown. Consumers generally prefer bundled products because they offer convenience and more value for the money. That’s why EU regulators need to adopt a “rule of reason” approach toward antitrust tying cases. This is the approach that the U.S. has essentially adopted, and represents a more forgiving standard than the hard and fast per se rule.

Why bundle digital products? What are the consumer and regulatory misunderstandings toward technology bundling? What is tying, legally speaking? What’s the international impact? Answers to these and other titillating questions here.

“Clear Channel to Dismantle Media Empire.” That’s the headline from pg. B1 of today’s Wall Street Journal. In the article, Sarah McBride reports that the media giant plans to spinoff its entertainment division “in the latest example of a media company deconstructing an empire built during the late 1990s.”

As I’ve noted in previous posts, media deconsolidation is all the rage these days. The list of high-profile media divestitures and divorces continues to grow: AOL-Time Warner, Disney-Miramax, Cablevision, Viacom, Liberty Media, Sony, and on and on. They all have been pondering or carrying out major spin-offs or restructuring plans in recent months. As McBride reports in the Journal today, “Clear Channel is following a media-industry trend of deconsolidation that has picked up steam recently.”

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My latest C:\Spin article, The Public Interest Tax on Communications, corresponded with last week’s National Association of Broadcasters show in Vegas. In this article I go after a weighty subject that is somewhat abstract but directly relevant to today’s communications industry – the “public interest” legal standard. Regulations predicated upon the public interest are essentially proxies for the public’s own taste and preferences. If there was a need for this requirement early in the days of broadcasting, today’s new technologies make it unnecessary and a costly way to regulate.

The public interest standard is overly subjective for a legal standard, which results in too much political pork and special interest hijacking. Consumers would be better off if we removed this language from our communications law. My article:

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NAB 2005

by on April 26, 2005 · 2 comments

Last week was the annual National Association of Broadcasters show in Las Vegas. I was fortunate enough to attend, and having finally accustomed to Eastern Standard Time, here are my thoughts:

* Every regulator needs to attend these trade shows, which represent market forces working to meet whatever needs or perceived needs exist. I was truly overwhelmed by the smart people in the electronic media industry.

* Most broadcast industry reps are free speech proponents and against broadcast indecency regulation. The National Association of Broadcasters Education Foundation (NABEF) announced the creation of National Freedom of Speech Week from October 17-23, 2005.

* Digital TV transition is still a mess. The congressional breakfast featured Sen. Conrad Burns, Rep. Joe Barton, and Rep. Fred Upton among others. Barton and Upton advocated for a hard cutoff date, something needed or else the broadcasters will never return the analog spectrum.

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No longer just a place for “conservatarian” icons to smoke pot or a hunting ground for modern-day pirates, the international waters (just off the shore of California) will soon harbor an innovative software engineering firm, according to a great post over at CNet’s News.com. Due to ridiculous limits on H1-B visas and other regulatory hurdles, the entrepreneurs at SeaCode did what freedom-loving businessmen have done for centuries, exploit loopholes in the law. SeaCode will employ 600 software engineers from all over the globe and house them on a boat 3.1 miles off the coast of California, just over the line into international waters. The programmers will all be registered as “seamen” with the Bahamas and will be able to take advantage of shore leave without H1-Bs. Not only will SeaCode offer wages of around $1,800 a month compared to about $500 a month in India, they’ll also not have to pay U.S. payroll taxes. Sounds like a win-win situation for the programmers, SeaCode and their clients.

I’m strongly resisting the urge to make a nautically- or piratically-themed joke.

As I’ve mentioned in previous posts (here and here), the potential for cell phone content regulation is something worth monitoring. There have been some rumblings in Washington already about the need for the wireless industry to take steps to shield children from potentially objectionable material even before it hits the market. And you’d have to be a fool not to realize that at some point very soon, technological & media convergence is going to bring adult-oriented fare to mobile devices. The question is, once that happens, will regulatory convergence follow technological convergence? More specifically, will broadcast TV and radio “indecency” controls be imposed on wireless content in coming years?

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[[cross-posted from the PFF Blog]]

There’s a crowd of people out there who still think that nothing has changed in our modern media world. They think that the same old newspapers, television, and radio outlets that dominated the media marketplace 30 years ago are still the only media outlets of importance today.

For example, Farhad Manjoo of Salon claims that “it’s hard to find anyone in the media world… who can furnish proof that new technologies are shaking the foundations beneath entrenched media giants. If anything, the Web and cable and satellite have expanded the reach of media conglomerates.” Using similar conspiratorial rhetoric, FCC Commissioner Michael Copps argues that “those who believe the Internet alone will save us from this fate should realize that the dominating Internet news sources are controlled by the same media giants who control radio, TV, newspapers, and cable.” And the ever-pessimistic Mark Cooper of the Consumers Federation of America has complained that “the Internet has not lived up to its hope or hype. It has become more of an extension of two dominant, 20th century communications media [television and telephony] than a revolutionary new 21st century technology.”

To these critics, left me just respectfully say, get a grip! Wake up and take a whiff of reality because the media world has already changed in amazing ways and the Internet and cyberspace ARE shaking the foundations of traditional media.

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Yesterday’s House Telecommunications Subcommittee hearing confirmed some of my worst fears about government regulation of new technologies / media, which I had discussed on Tuesday in this post.

Today’s Broadcasting & Cable includes a story about the hearing with the perfect title: “Hill Ponders Regulating Convergence.” That’s exactly what’s going on here with Congress and the FCC considering how to “level the (regulatory) playing field” as everyone tries to get into everyone else’s business. Illinois Republican John Shimkus is quoted in the story and what he said also frames the issue quite nicely: “How do we restructure the FCC to meet the new technological age. How do we justify different regulatory schemes when you are all competing in broadband.”

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PFF has just released my new PFF paper on the rising threat of cable and satellite censorship. In the paper, I provide a section-by-section analysis of the leading pro-censorship measure, S. 616, the “Indecent and Gratuitous and Excessively Violent Programming Control Act of 2005.” My analysis of the bill can be summarized as follows:

* Section 2’s pervasiveness rationale has never been applied to newspapers and the Internet, and would be constitutionally suspect for cable and satellite.

* Sections 4, 7 and 8 would impose mandates on warning systems and filters deployed voluntarily by programmers. These efforts might best be grouped under the theme ‘hanging the industry with its own rope.’ Ratings systems are subjective, and government shouldn’t have any say over them.

* Section 5’s significant fines would carry the “clear as mud” indecency enforcement to cable and satellite, expanding the current confusion on what is appropriate.

* Section 6 would potentially abrogate contracts between national networks and their TV affiliates by forcing networks to expand veto power over programming, despite the fact that local affiliates already have significant influence.

* Section 10’s proposal of a return of a “voluntary” code of conduct seems far from voluntary, with an implicit “or else” attached.

* Section 11 would exempt premium and pay-per-view channels, but what happens if S-616 forces popular content onto these networks and viewers follow? Would they then be regulated as well?

Please read the paper for more details. While the entire bill may not pass, given the atmosphere on the Hill and at the FCC today, portions of S. 616 could easily become law in coming months and years.

A story linked from Drudge describes a new service that Google is offering: saved search history. Create a Google login, and the search service will keep track of all your searches, as well as the results that you’ve clicked-through to access. Anyone who has used Westlaw or Lexis-Nexis will find the idea familiar–those services have offered it for years.

Reaction, however, has not been uniformly positive. Once again the privacy wingnuts (so said to distinguish them from from people with legitimate concerns about privacy) are all worked up:

“It’s really a bad idea,” said Dixon, executive director of the World Privacy Forum. “If you need to keep track of your past searches, I recommend using a notebook. It would be a lot more private and a lot less risky.”

Had Google or any other operator of a web server some kind of malicious intent, it could keep track of every page you access on its servers and every search term you send to it. If you’ve ever sent them your email address or some other personally identifying information–then bingo, they’ve got you! For better or worse, this is the way that computer networks work, barring those that employ extremely complex, unreliable, and slow misdirection technologies. Dixon might as well caution users to stay away from the Web altogether, because the privacy implications are about the same as Google’s new service.

Still, she is right that some people don’t like like to divulge any information at all, ever, whether they’re using a computer network or boarding an airplane. At least in the case of Google, as opposed to boarding a flight, these people have options: they can choose not to use the search history service, not to use Google at all, or even not to use the Internet, period.

But the people who harbor such concerns are clearly on the fringe; the success of online services testifies to that. These are the sort of people who exclusively use anonymous proxies to access the Internet and send all their email encrypted. The really radical ones live “off the grid” altogether and pay for everything in cash. These are not normal computer users–who do take their privacy seriously but have proven more than willing to divulge certain bits of information when there is a payoff to doing so. All of us make that compromise every day when we access the Internet.

So Dixon is right that some people might want to think twice about Google’s search history service. Normal users, however, will probably make their decision based solely on whether it’s useful to them. And that’s the way it should be, that users get to choose what they’re willing to accept.

What this episode reinforces, though, is that privacy “advocates” like Dixon don’t really speak for normal users but for the paranoid. Whether their paranoia is legitimate–who’s to say? But the next time that privacy advocates come out calling for government controls on innovative technologies–a regular occurrence–remember that their concerns are likely far different from yours and those of most users.