Tag Archives: Facebook

EU copyright reform – A leap forward or step back?

Reforms to copyright law proposed last week by the European Commission would put the burden on Internet companies like Google, Facebook and YouTube to prevent online piracy and compensate content providers, like music companies and news providers. 

In a shift in policy the proposals issued by the European Commission would require websites that host video and stream music to shoulder more responsibility for rooting out copyright infringements.

Under the current rules, reports the Financial Times, YouTube, Facebook and other video platforms remove material on a case-by-case basis only after being notified by rights-holders. If adopted, the proposals would require them to run proactive software checks to determine whether content they are hosting contained copyright material.

Preventing Piracy

The European Commission proposal is intended to prevent piracy, which has haunted the music industry and recording artists which has shed more than 60% of its value since 2000, and to prop up content providers like newspapers and magazines, which have seen declines in print circulation.

leaked-copyright-communicationThe reforms aim the foundation of a long-running fight between struggling traditional media companies — from record labels to newspapers — and the technology groups that increasingly dominate online media.

Critics say the EC is seeking to shift the responsibility for identifying copyrighted content by requiring Internet companies that host user uploaded video, such as YouTube and Facebook, to proactively check for copyrighted material, rather than waiting to receive a take down request from a rights holder.

Industry trade publication TechCrunch reports that “The draft directive also includes a proposal for a new right for news publishers covering digital use of their content for 20 years. Unsurprisingly, Google is not a fan of this.”

This extended right is similar to ancillary copyright laws already enacted by governments in Germany and Spain which target search engines displaying snippets of news stories.

Mandatory Fee

The law as enacted in Spain included a mandatory fee for displaying snippets, one line summaries from publishers, and led to Google to pull its Google News service in the country. While many Germany publishers waived their rights in favor of retaining the traffic Google sends their way.

Whether YouTube’s free site is directly competing with paid services such as Apple Inc.’s Apple Music and Spotify AB is a matter of debate, reports the Wall Street Journal. According to a YouTube spokeswoman, “users come to YouTube to watch all kinds of different videos. The average YouTube user spends an average of an hour a month consuming music, far less than music-only platforms.”

The European Commission’s proposals, which come after a three-year review aimed at updating copyright law for the digital age, could take years to ratify. The proposals have been—and are likely to remain—the subject of heavy lobbying from copyright holders like record labels and newspaper publishers on one hand, and technology firms on the other.

Give-Backs?

It will be interesting to to see if the EU will be successful in rolling back what Internet users have come to believe is free content that until now has not been seriously policed.

A draft of the proposed EU reforms can be found here.

Image source:1709blog.com; openforumeurope.org

Panasonic, NEC & Sony are battling with IBM for patent sales leadership

Despite dramatically lower patent valuations, some big companies, including under-performing foreign holders, have taken the number of U.S. sales to new highs.

While IBM still leads, over the past three and a half years, it has been joined by IP-conservative firms from Japan, notably Panasonic/Matsushita, NEC and Sony. All four of these companies have something in common: poor recent financial performance.

In the January IAM Magazine, the Intangible Investor looks at the latest trends in patent sales among the biggest sellers. Activity is up and emerging are new leaders, like Panasonic, which leads even IBM in U.S. sales for the first half of 2015.

Analysis conducted by Brody Berman Associates in conjunction with Envision IP, a law firm that specializes in patent research, reveals that “for the three-and-a-half year period from 2012 to early August 2015, the leading seller by far was IBM, with 5,356 patents. Buyers include Google, Facebook, Alibaba and Twitter. In 2014 alone, IBM sold 2,187 patents, the most in any year over the period by any of the 12 leading tech companies analyzed.

Leading Patent Sellers

“Surprisingly, the number two, three and four patent sellers in the 2012-2015 period were all Japanese companies,” writes this reporter. “Panasonic/Matsushita, NEC and Sony, with 4,203, 2,131 and 1,578 respectively. This is a dramatic shift for conservative Japanese electronics giants, which rarely litigate patents to generate revenue or enable others to.”

Subscribers can link to IAM’s January issue here.

Intellectual Venture’s 70,000 patent portfolio appears to contain no patents originally owned by Apple, Google or Qualcomm, as Envision’s findings indicate. Several patents owned by IV investors appear in its portfolio, including those of Nokia, Verizon, Microsoft and Sony. Only 268 of the 19,559 US patents owned by IV were identified as having a litigation history, representing less than 1.5% of the portfolio.

Top 4 Patent Sellers

Among the top companies IV purchased from are Kodak (1,057), American Express (643), AT&T (358) and Philips (313) and Ericsson (273).

A list of IV’s 35 top sources for acquisitions can be found here.

Image source: Envision IP, LLC

More patent holders (and buyers) are valuing perception over reality

Lack of certainty and the high cost of monetizing patents are motivating some businesses to acquire impressive looking patents, not necessarily valid or essential ones.  

A reputation for innovation or R&D prowess has become a far more valuable asset since the American Invents Act was passed a few years ago.

IBM, among others, has sold unproven patents for tens of millions of dollars to the likes of Alibaba, Twitter, Facebook and Google, attesting to the power of source brand when it comes to invention rights.

In all but a handful of instances, no one gives a hoot about what an IT patent is really worth in the marketplace or even whether it is valid. There Perception-Realityis nothing new about securing batches of patents for affect, especially if it is unlikely that they will be enforced and subject to the scrutiny of litigation.

With licensing revenue down and patent sale prices 30% or more lower, there is little motivation for an alleged infringer to take a licence or settle a dispute.  The search is on to identify alternative methods of profiting from IP. Drawing upon a portfolio or family’s implied value can have more meaning than its actual worth — which is becoming increasingly more difficult to establish.

As Good as Gold

In the current (November) IAM The Intangible Investor looks at “Perception is reality for some patent holders.”

A golden reputation for innovation is easier to establish than value for most individual rights. Thus, a patent portfolio or family in conjunction with a recognizable brand can constitute a formidable pairing. “Perceived patent value” holders, those with a
reputation for innovation, may be in a better position to profit today than business that actually hold valid and infringed patents. Proven patents need to survive the PTAB and perform in court, and require capital to monetize; a reputation for IP can be built over time and managed.

We may recall the Intel Inside® advertising campaign of a decade or more ago that touted the branded processor inside the PC. It not only encouraged product sales but provided the company with the ability to license at a premium the patents covering the component.

There was less a qualitative difference in the microprocessor (vs. say AMD’s) than an implied one based on Intel’s consciously cultivated, and largely deserved, reputation for innovation. 4If issued patents are even less reliable than in the past, then invention rights that appear to be good are the biggest winners. It is no coincidence that the most significant R&D spenders also happen to be among the world’s most valuable brands and significant patent holders. The top ones exceed or are just under $10 billion in annual R&D spend.

Reputation, whether it is deserved or not, makes buying decisions easier — a welcome relief to at least some cash-rich buyers in the market for coverage who cannot wait for patents to issue.

The full IAM piece, “Perception is reality for some patent holders,” can be found here.

Image source: askskipper.com; wparesearch.com

Obama Drinks the Kool-Aid on Weaker Patents, “Trolls”

The President’s confusion about innovation and what needs reform will likely undermine American competitiveness.

In a recent Fireside Hangout on Google+ President Obama said that the U.S. needs to go much further on patent reform, singling out patent trolls, “who don’t actually produce anything themselves” and are “just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

The President’s inability to recognize who in fact is gaming the patent system, and what is to blame for tech companies’ frustrations regarding patent enforcement, will have a material impact on the American people and the economy.

Below is an excerpt from the remarks he made on Google+ last week:

Question: High tech startups are an important engine of the American economy. When I go around and talk to other entrepreneurs, what I hear is that they’re afraid that if they become successful, they’re going to be targeted by patent trolls… What are you planning to do to limit the abuse of software patents?…

Obama: A couple of years ago we began a process of patent reform. We actually passed some legislation that made progress on some of these issues. But it hasn’t captured all the problems.

The folks that you’re talking about are a classic example. They don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them. Sometimes these things are challenging. Because we also want to make sure that patents are long enough, and that people’s intellectual property is protected. We’ve got to balance that with making sure that they’re not so long that innovation is reduced.

But I do think that our efforts at patent reform only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.

Myth-Baiting

One wonders how the myth-baiting question about trolls potentially “targeting entrepreneurs,” and Obama’s disturbingly uninformed response, got to be featured in Google+ post-State-of-the-Union Fireside Hangout? President Obama is depicted on the chat as social media-savvy, commiserating with diverse innovators, a forward-thinking and transparent chief executive.

TechCrunch, one of most virulently anti-patent publications, wasted no time in jumping on the President’s comments and making them sound even more misguided than they are: “He url[Obama] admitted that there was a problem, and that there were some companies who were clearly not doing anything other than trying to ‘extort’ money from others. Furthermore, while he pointed to the patent reform bill that passed in 2011, he also admitted that it really only went ‘halfway’ towards reforming the patent system as far as it needed to go.” (For some reason the 47 minute chat is marked “private” on YouTube. You can view it here via Mashable.)

What Invention Theft?

President Obama made no mention of the rampant invention theft by tech companies that takes place in the U.S. and abroad at a cost of billions of dollars to small and medium-sized businesses, to universities and to American jobs.

Non-practicing (patent-holding) entities (aka “trolls”), which include inventors, SMEs, are a convenient scapegoat for tech companies that lack the patents they need for freedom to sell products, or do not want to pay for access to rights to do so. The economics of invention theft are in their favor, given the poor likelihood of detection, the cost of litigation, and the uneven chances of plaintiff success.

Despite owning a lot of patents, many tech companies fear strong rights, especially in the software area, because patents are potentially disruptive to their business and future, and the possibility of a product-halting injunction is always in the air. (Financial services is another industry that would just as soon see the meaning of patent rights gutted.)

NPEs have been accused of filing more suits than operating businesses. This is true because there are there many more infringed inventions today; NPEs are more experienced generating returns on patents; and they often have access to capital to fund costly suits that others do not. In short, NPEs are better suited to monetize IP rights, and more patent holders are willing to sell to or partner with them — a partnership that strikes fear in the hearts of businesses from Silicon Valley to Seoul.

Not all Trolls are Alike

There are some NPEs who abuse the legal system by asserting questionable patents and angling for a quick settlement to make an expensive defense to go away. Such dubious IP holders are in it for the nuisance value. Most of the patent assertion that I and others are aware of involve good quality patents that are valid and significantly infringed, sometimes knowingly, some times not. The economics of litigation today are such that a quick settlement is rarely profitable given the risks and costs. If a patent holder does not have quality patents and is not eligible for significant potential damages, it almost never makes sense for a holder (or good contingent law firm) to spend its time and money.

Google+, is a social network akin to Facebook. Google has made no secret of its disdain for patents, especially software patents which have the potential to endanger its dominant position as the Internet search provider of choice. (It will be interesting to see if Google attempts to suppress the distribution of this post.)

Sadly, President Obama has emerged as a champion of the technology establishment in Silicon Valley and elsewhere, who stand to lose more from strong patents than gain. Perhaps his support represents pay-back for the support it provided for his re-election. Going up against well-funded political action committees (PACs) is no easy feat.

America’s future will suffer if patents are further weakened and legitimate patent enforcement made even more difficult than they have been over the past few years. (The SHEILD Act, for “Saving High-tech Innovators from Egregious Legal Dispute,” would have a non-practicing patent holder who fails to win a suit it brings, pay defense legal fees in an attempt to foster a double standard. NPEs exist in part because SMEs and others lack the time, experience and financial acumen to go against businesses with virtually unlimited litigation budgets.)

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It’s short-sighted of the President to cede the future of American innovation and job creation to technology businesses that use their formidable resources to defend their turf rather than break new ground, or permit others to.

Illustration source: pcmagazine.com; topnewstoday.com

Selling Prices of NPE-Owned Assets Lag Despite High Quality

Some buyers prefer to pay a premium for a large but still vague patent portfolio than for a handful of proven rights.

“So, sue me,” seems to be the attitude of operating companies when confronted with SME or NPE-held patents that may read on their products and command high potential damages awards or settlements.

Strategic buyers are currently willing to pay a significant premium to market to operating companies for large portfolios (e.g. Google-Motorola) at a market-acceptable price-per-patent. A few extraordinary patents owned by NPEs appear to hold less interest, even if they are more valuable or have been upheld in court. The current acceptable price per patent seems to be under $1 million.

While cost should never trump quality for buyers of significant portfolios, buyers are showing that size and reputation for innovation does matter when it comes to what some companies are willing to pay. Also, no one wants to be accused of overpaying of having to play catch-up because of R&D miscalculations or legal oversights. For cash-rich and increasingly IP-savvy companies like Google and Apple, it is possible to become patent-competitive quickly, unlike Microsoft, which took a decade or more.

imgresThe effect is that many successful IT businesses are acquiring larger portfolios or families when they may currently require only a handful of patents for leverage. A few are able to slice and dice and resell or license parts from the portfolio to mitigate the acquisition cost and facilitate ROI.

A good example is Microsoft’s $1.1 billion acquisition of 925 AOL patents in April. A large part of that portfolio was re-sold to Facebook for $550 million leaving MS with key licenses and 275 patents. Microsoft paid $1.3 million per patent.

Acacia Technologies purchased ADAPTIX from private equity firm Baker Capital for $160 million in January for its 230 patents, some focusing on lucrative 4G inventions. The patents (acquired for approximately $695K each) were then licensed both to Microsoft and Samsung. The licenses may have enabled the purchase.

“Large patent holders have more liberty to generate sales than NPEs,” an IP industry deal-maker told IP CloseUp.

“Most NPEs buy small, focused and typically overlooked litigation-quality patents that need to be enforced to extract full value. For operating businesses, asset and seller reputation helps to command a higher purchase price, but what matters more than who is selling is the quality of the patents, focused evidence of use [what the patents, in fact, read on] and perceived pricing fairness. Currently, few large buyers consider enforcement an option.”

PatentFreedom’s database depicts the largest NPE holders. Of them InterDigital has sold for $375 million to Intel, or $220K per patent. Surprisingly few of even the largest NPEs have sold to an operating company. NPEs typically need to enforce patents to realize a significant return on them.

Defensive aggregator RPX bought NPE Digitude’s portfolio of what were AMD patents for $48 million. Altitude Capital Partners was a Digitude investor.

Jiaqing “Jack” Lu, PhD, CFA is the Chief Economist and a Senior Director for IP Market Advisory Practice (IPMAP) at the Applied Economics Consulting Group, Inc. In his article, “There is No Patent Bubble, Nor NPE Mania,” he notes that “some observers noticed that both the Nortel-Rockstar and Motorola-Google deals were concluded on a $750K per patent basis. Therefore, as the story goes, market price per patent was about $750K per patent.”

Dr. Liu goes on to show that “[The] average prices of the deals with non-NPE parties are two to three times of the prices of those with at least one party being a NPE. Especially, NPE buyers seem to pay average prices that are closer to what non-NPEs are paying, while NPE sellers are likely to receive the lowest prices among all market players.”

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Operating companies are buying bigger portfolios at higher cost for multiple reasons, not just direct income.  High portfolio cost is less troubling to them than the perceived proper average cost per patent, as if buying in bulk can explain efficiency. Keeping the right patents out of the hands of the wrong holders (competitors or NPEs) also is meaningful to these buyers.

Strategic buyers are making it clear that it in some cases overpaying for a portfolio of assets or family of patents, including patents they are not likely to need or have little market value, is not always a bad thing if it facilitates their needs. It is somewhat important for them to obtain patents they need or may require (or that others do) without looking like they are desperate or are mitigating R&D or legal oversights.

Typically, less than 5% of an IT patent portfolio has any value. The percentage in an acquisition, I understand, is only slightly higher.

Seldom do we see a large company pay say $100 million or more for six extraordinary NPE-held patents. Even if they are worth ten times that, and even if they can be used against competitors. Their value will need to be proven repeatedly, a task most operating companies are unwilling, or unable, to perform, despite the brand presence they may add. .

One likely impediment for operating companies in acquiring NPE-owned patents is the difficultly of securing board-level buy-in, especially if enforcement is not an option. Another is the perception that litigation-tested patents are unseemly. Some of these businesses believe it is easier to buy a whole company (Motorola) than the 100 or so assets they believe they require for leverage.

It is only a matter of time when a financial buyer (i.e. hedge fund. private equity firm) buys an expensive patent portfolio, or IP-rich IT business, to keep it out of the hands of a party that needs the rights but does not act swiftly.

With some repackaging an investor with sufficient capital and vision can re-sell the portfolio, or company, to the right operating business for a hefty profit. It requires both smarts and guts. The investor would need to understand the assets thoroughly, as well as the demand. It also would need to be willing to enforce them, if necessary.

Illustration source: lexisnexis.com

Some Businesses are Benefiting from a Late Start in Patents

Google, Facebook & Others are Suddenly IP Players

Buying late and paying a premium for the patents that a company needs is no longer just a viable IP strategy, it is a surprisingly lucrative one.

This is the subject of my latest The Intangible Investor column appearing in the current IAM magazine. The recent moves of companies such as Google, Facebook and Microsoft that have been relative latecomers to patents, and are being forced to play catch-up, are an illustration that they have learned from their early miscalculations.

Once laggards, these businesses are benefiting from a late start, quickly amassing fully embodied patent families that they can rely on now, as opposed to gambling their fate on R&D and patents yet to issue.

“Balancing the right amount and type of research and patent filings with rights that are in-licensed or otherwise acquired is a strategy that more businesses are learning to employ.

“For those that are cash rich and creditworthy, it can make sense to buy patents after an industry starts to mature if it means securing the rights that they and others need. Overpaying rarely enters into the equation.”

For now, inefficiencies in the market are making prices for must-have patents affordable to those with sufficient cash or access to capital. Affirming patent value helps smaller players, too.

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For the full column, subscribers can visit The Intangible Investor. 

Image source: patentpracticeliability.com

Value of Microsoft’s Facebook Stake Drops Below $1B

MS Supports FB’s Success; Promotes It’s Own

Facebook has been shedding market value like a wet collie its winter coat.

With Facebook’s share price down to just $72.7B as of May 22 from $104B three days after its IPO, Microsoft does not appear to be too concerned. Its $1.2B stake has decreased just a few hundred million. (Who remembers that MS owns 1.6% of FB’s shares?)

The competitive auction for 850 AOL patents and patent applications won by Microsoft a few weeks ago now comprise the core of FB’s growing patent portfolio. And, both Facebook and Google have been buying significant numbers of patents from IBM.

With $70B in 2011 revenues Microsoft’s Facebook shares may be a veritable blip on its financial radar. Still, it raises interesting questions.

Facebook was reputedly steaming that it did not have a real opportunity outbid Microsoft in the AOL patent sale. Microsoft stated that it wanted to partner with Facebook to acquire the patents but that AOL was said no to team bidding, possibly because of potential anti-trust issues.

With MS’s help Facebook wound up with hundreds of patents that will equip it against Google and any potential competitors like Twitter and LinkedIn. This no doubt pleased Microsoft as well, who also goes head-to-head against Google in markets than include the search engine, email and mobility, and is no doubt concerned about Twitter.

In 2007, Microsoft beat out major players like Google to buy a 1.6% equity stake in Facebook for $240 million. At the time, Facebook was valued at $15 billion. Five years later, Facebook’s valuation has soared — giving Microsoft a stake worth more than $1 billion at the time of the IPO. But rest assured, it’s not investment income that Microsoft is after.

*     *     *

Even Microsoft lacks sufficient capital to afford Facebook at its inflated pre-IPO price — but it doesn’t need to own the social networking leader to succeed. All it may really need is patience. 

A growing Facebook is a boon to Microsoft and a threat to Google. However, FB’s post-IPO share price has quickly fallen some 20% below its offering. Many tech high-flyers, even the few that prosper, often find their stock going through dramatic peaks and valleys. Facebook’s early falling stock price has caught many off guard.

It remains to be seen if this dip in Facebook’s uncharacteristically high offering price will permit MS to buy more shares now or in the future, and whether the purchases will be for investment or strategic purposes. (I believe that Goldman Sachs, lead banker on MS’s IPO, has a major stake in FB.) Microsoft probably has all the FB shares it needs for now. It likely only needs a few percent more for a board seat, Department of Justice scrutiny permitting. My guess is that at the right time and price MS may quietly accumulate more shares.

If Facebook continues to secure IP rights intelligently, as it has, it will continue to be attractive to MS as a partner, investment or surrogate. Remember it’s not necessarily the patents a company owns that count; it’s the ones it controls.

If good performance does not lift Facebook’s stock back to IPO levels, Microsoft won’t cry. It will be the likely winner.

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The New York Times Deal Book is running series of interactive images that illustrate post IPO performance of major tech companies like Google, Microsoft and Apple.  It’s surprising how volatile their shares can be in the early years. Apple, BTW, was down 25% from its offering price three years following it. (If we had only known then what we know now.)

Illustration source: technobaboy.com; tmz.com  

Bold Patent Moves Bolster Facebook, MSFT

Cash Rich, IP-Savvy MSFT Embraces Role of Patent Dealmaker

After acquiring 800 patents and scores of applications and licenses from AOL for $1.1B just two weeks ago, Microsoft has said that it has flipped the bulk of the portfolio, 650 patents, to Facebook for $550M, securing the IP assets and licensing MSFT needs while recouping almost half of its original potentially bargain cost.

It was reported today in Venture Beat that MSFT wanted to partner with FB all along, but that AOL put the cabash on it. IP CloseUp is not buying that.

In a pre-IPO buying frenzy that has to concern some shareholders, FB has a costly portfolio of quality patents to its $1B acquisition of Instagram two weeks ago. You have to wonder if investors believe that despite FB’s lofty market valuation whether it has the firepower to succeed as a major growth company. These recent moves are sure to help. In March, Yahoo sued Facebook, alleging Facebook violated ten Yahoo patents related to online advertising and web communications.

“Stinking Mad”

Sources have told IP CloseUp that Facebook was “stinking mad” that it did not land the AOL patents when they went up for bid several weeks ago, confiding that the failure had more to do with process than cost. MSFT emerges a huge winner, with patents its needs for far less than their true market value (see “Could AOL Patent Sale Have Netted More Than $1B?”) and cash in hand.

You have to wonder how the AOL deal got done. With investor pressure from Starboard Value the company may have been spooked into taking what appeared to a best offer before others were on the table.

“The market was talking about $300M,” speculated one observer. “MSFT may have offered a billion plus if the deal got done immediately.” It did, much to Facebook’s chagrin (and Google’s and Apple’s) and others who may have wanted a shot at controlling AOL’s excellent portfolio, which included original Netscape Internet patents.

A post on the IAM Blog today raised good a question. Will a Department of Justice anti-trust team soon be mobilized to see how recent patent sales are being orchestrated given that some appear to be barely marketed?

*     *     *

For the patent wars this marks new territory. Smart combatants with cash and guts are well-equipped to play. 

Illustration sources: hubspot.com; heavy-downloads.blogspot.com

Occupy IP: New Economy Businesses Clash with Old

It May be Too Much, Too Late for Content Providers Finally Trying to Tame the Internet; a Fresh Approach is Needed

[The following appears as an “Insider Views” commentary on Intellectual Property Watch]

Have copyright holders become their own worst enemies?

Poorly drafted bills in the U.S. Senate and Congress designed to curb music and other Internet piracy, in some cases by holding information aggregators who enable it responsible, is fueling a new wave of anger towards lawmakers and copyright holders.

SOPA, Stop Online Piracy Act, and PIPA, The Protect IP Act, will need to be heavily reworked if they are to pass and be accepted.

Part of the problem is that for the past 20 years or so the music industry failed to successfully enforce its copyrights on the Internet and curb piracy from Asia. Now, experiencing the desperation of a dying industry, it believes it must do something. They reason that even the Wild West was tamed, eventually. A generation of file-sharing listeners and content users does not agree. There is fear that any intervention in the Internet or restriction is a potential threat to individual freedoms and will promote spying and stifle innovation. Many believe that controls do not have to play out that way.

In my not-so-humble opinion the Internet — and social networks in particular– can and should have some borders. Rampant abuses, not just to copyright holders but individuals’ personal information, have been swept under the rug. It’s difficult to say what form the oversight should take, or how much is onerous, but the current situation is dangerous and too important to ignore.

The film and book publishing industries are not far behind the foibles of the music business. Google has tried to post all books and force blanket agreements on authors, great for readers and even some writers, but not for those who live by book sales. For better or worse content-capturing or file sharing has become to many an acceptable way of life, and piracy is now simply the new technology doing its digital thing — not.

Enablers or Pirates?

Some say content providers need new business models that incorporate innovative technologies and the current culture. I’m not so sure the problem is that easily resolved. Sweden-based Spotify, for example, relies on copyrighted content deals negotiated directly with the labels and some artists. Not all agree that is they best place or deal for their content. Eventually, they may not have much of a choice. The major recording artists at least may have some bargaining leverage, the lesser names not. The French, ironically, have been tougher on file sharing than most countries, possibly because of its history of  respect for artists and innovators.

Part of the problem in the U.S. is that (1) it is the largest content provider, (2) expectations have changed from years of failed enforcement, (3) content can be expensive, and (4) today, well established, new economy information aggregators and social networks are o.k. bending privacy and ownership rules. (Their advertisers don’t seem to mind.)

Google, Facebook, YouTube and other business models depend on compelling but highly accessible content to prosper. So, to put it crudely, it’s sort of Hollywood (content providers) vs. Silicon Valley (device and distribution owners).

While there have been attempts to work together, the fundamental differences between old and new economy businesses have kept them apart. A few artists may benefit from the free Internet visibility which may support their (paid) performances or what they can sell or license; most will not.

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Useful Background:

Below are links to several stories and a video which help to put into context the controversy over Internet piracy and regulation. Caveat: They provide good perspective but should be digested with a hefty grain of salt.

Remember CNN-Money is owned by content provider Time Warner and YouTube distributed is owned by Google. Wikipedia has a somewhat similar perspective to Google.

– Short video: “What Is SOPA?”

_____________________________________________

– Anti-Regulation: The Wikipedia perspective.

– Story from CNN-Money: “SOPA Explained: What it is and Why it Matters”

– From the Wall Street Journal: “What is SOPA Anyway? A Guide to Understanding the Online Piracy Bill”

– Astute Op-Ed (please read this): “It’s a mistake to think the danger is from big media choking the Internet.”

Image sources:
http://www.cwu.edu/~ryanma/piratecopyright.html
http://redd4a3.wordpress.com/2011/08/08/intellectual-property-and-my-copyright-stance-and-policies/

Facebook Success Dissected in “Social Network” Movie

Flash of Anus –

The Social Network is currently the top grossing movie in the land. It’s the story of how Facebook, now with 500 million users, was founded, built and fought over.

The New York Times devoted no fewer than three articles to the movie today, and on Sunday it ran a long piece, “Mark Zuckerberg’s Most Valuable Friend,” focusing  FB’s Chief Operating Officer, Cheryl Sandberg, who assures readers that Mark is not a bad guy, just misunderstood.

WhetherZuckerberg is upstanding or not, or to what extent West Wing writer Adam Sorkin’s account is fictionalized, does not concern me.

What does is how innovation can survive genius and greed on its way to providing a sellable product and a reasonable return.

Twice Removed

Zuckerberg grew up suburban Westchester County, two towns over from where I once lived, and one from where screenwriter Sorkin grew up. It’s as competitive in the Ardsley public schools as it is in Palo Alto or Great Neck or Tokyo. But for people like Zuckerberg, it is too small a playing field.

He is portrayed as a kind of savant. A brilliant but nasty wild child destined to program and programmed to win. He has no patience for social conventions, such as small talk. He’s a sort of dyspeptic Leonard Hofstadter from The Big Bang Theory on steroids. Money doesn’t motivate him, mastery of the media (and meeting girls) does. The Internet in 2003 was a perfect foil for his mix of talents and anger.

Zuckerberg’s other motivation: Being accepted in spite of his arrogance, lack of good looks and annoying impatience with all organisms mortal. He is a man on a mission, concocted from equal parts raw intelligence, business instincts and ego-mania. He is simultaneously profound and profoundly pathetic.

An ex-girlfriend in the movie says that he will likely go through life believing that he is hated because he is a nerd, but it is because he is an asshole. A young female attorney on his defense team who has gotten to know him better declares, “You’re not an asshole; you’re just trying to act like one.”

Diluted Equity

Getting strategically diluted from 34% to .02% by VCs, what is done to FB’s original CFO in the film, is not something new to Silicon Valley. Whether Zuckerberg made it happen or allowed it to is unclear.  Seeing this behavior portrayed here casts the web’s favorite togetherness tool in a less than positive light. A more apt name for this film may have been the The (Anti) Social Network: The hustlers, the once loyal friends, the Brahmins and the groupies. TSN is a well-played by Sorkin and director David Fincher (Zodiac), even if much of it may be exaggerated.

In fairness to Zuckerberg, it could have been Gates, Jobs, Ellison or a dozen other megalomaniacs portrayed knocking down obstacles to their manifest destiny like bowling pins on a slippery silicon alley. Their reasons vary, and for Zuckerberg, at least, money, clearly, is only a part of it.

Up for Grabs

The “ah-ha” moment, or Flash of Genius, is probably the least accurate aspect of the innovation process portrayed in this movie and others, but it looks so impressive on film that even Sorkin, whose father was an IP lawyer cannot resist. Genius is typically not simple or kind. The most savvy technology folk know this and to negotiate the vortex it typically generates.

TSN suggests that good ideas are up for grabs, especially when they are works in progress. Had Zuckerberg not been able to take Facebook to a market value of $25 billion the various players would all be fighting over toothpicks instead of equity rights, and nothing much would matter. Pay the speeding ticket the young lawyer urges Zuckerberg, and then get on with your life.

The unfortunate reality is that to prosper business needs A.H.’s as much as the nice guys. They both need good lawyers.

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Illustration source: http://tratohechocom.blogspot.com/2010/04/cuatro-figuras-del-presente-siglo.html


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