Aereo, SCOTUS, and the Cloud

aereo_scales-justice_content-2__largeThis week the Supreme Court of the United States (“SCOTUS”) heard oral argument in American Broadcasting Companies, Inc. v. Aereo, Inc. Aereo, a startup with nearly $100 million in funding, lets subscribers view live TV through a tiny antenna that can be controlled over the Internet and on mobile devices. The case is one about copyright infringment, and a key issue is whether Aereo is engaged in the “public performance” of copyrighted material. If Aereo loses, it is unlikely it has a tenable business because the licensing fees it would have to negotiate and pay to TV stations would be crippling. The larger concern is whether, if Aereo loses, it would any longer be permissible for cloud services, such as Amazon’s MP3 locker or Dropbox, to allow users to store copyrighted material and then reproduce/call the material from the provider’s servers to the user’s computer.

In light of the drama I looked back at my early thoughts about Aereo, which I shared over email in July 2012. My thoughts on the business case have evolved some since, but it was a fun exercise anyway. Here is the [slightly] edited email:

“I’ve been a proponent of TV anywhere for some time.  I . . . think a 3rd party, [rather than content] programmers or cable distributors, will play a vital role in making it a reality.  The problem with operators like Comcast being the source of TV anywhere is that they are still forced to ink deals with the programmers under the same expensive terms since their current, traditional deals would be put in jeopardy if Comcast tried something more innovative or consumer friendly. 
Between Aereo and Nimble, it is a tough call.  I worked with Chet [Kanojia] (CEO at Aereo) when he sold Navic to Microsoft. With his TV business expertise and [Barry] Diller’s backing, I think Aereo is well positioned. . . If the goal is to get consumers to cut off their cable service providers, consumers will need the combination of Hulu, Netflix, HBO Go and Aereo to fulfill all their viewing needs.  It seems that so far Aereo only gives viewers freely available networks (~20 channels).
[As for Nimble,] on one hand all it does is supplement current cable subscriber’s viewing experience by allowing them to have already-paid-for TV on the go, much like Sling Box.  On the other hand, I suspect Nimble is also trying to provide non-subscribers with access by using Nimble-registered cable accounts to rebroadcast channels to Nimble users.  This type of intermediary behavior was expressly prohibited by Sling Box’s terms of use because of copyright concerns.
Legally, if Nimble pursues the latter model, it stands the risk of being shut down.  Using music streaming as analogy, it would be in the netherworld of Grooveshark.  However, without the latter model, I don’t see much value in a service that merely acts as a portable DVR.  Cable providers can easily replicate that service.  Continuing the music analogy, Aereo is like Pandora because it seems technically to abide by copyright law by using a separate antenna for each user on its service and thereby, not publicly rebroadcasting channels.  The sacrifice is that it [provides] . . . a less customized product [or slate of channels than Nimble].  Finally, I would equate TV anywhere efforts by the likes of Comcast to Spotify because both services require making costly deals with resistant content providers.
Overall, I’m skeptical about Nimble.  But if it is legal and inexpensive, the opportunity to disrupt artificial geographic territories and customize content is the bigger opportunity.  Otherwise, I’d bet on Aereo as the natural evolution toward filling the web TV gap and disconnecting from cable operators.”
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Where’s My Robot?

jetsons_rosie

Leo McGarry: My generation never got the future it was promised… Thirty-five years later, cars, air travel is exactly the same. We don’t even have the Concorde anymore. Technology stopped.

Josh Lyman: The personal computer…

Leo McGarry: A more efficient delivery system for gossip and pornography? Where’s my jet pack, my colonies on the Moon?

— The West Wing, “The Warfare of Genghis Khan” (2004)

The exchange above is from one of my favorite TV shows of all time. It is not the first time the sentiment has been expressed. It is a recurring trope in television and other media. There is even a rock band of the name We Were Promised Jetpacks. But the question ventures beyond jetpacks to other types of futuristic technologies contemplated in fiction such as The Jetsons and Back to the Future II.

Where are the hover cars and jetpacks? Where is the phantom renewable energy source that can light cities and power intergalactic travel? Progress with the former seems stunted to small planes with retractable wings that  function amphibiously on roads. Jetpack flights are still seen as dangerous events undertaken only by daredevils. Both are just too impractical. Technologically, making a car stop in mid-air the way breaks function on roads seems to press too hard against the laws of physics. Logistically, taking plane-cars to a runway every day would not save time or speed up travel as expected, and the FAA’s mandate of 1,000 feet of vertical separation between planes would create serious traffic issues. Plus, the safety issues are many.

As for that alternative energy source, finding it might help speed up things with that hover car mid-air stop. But instead, we are relegated to a fight among solar, wind, hydropower, and a host of potentially controversial alternatives. No mystery source seems any closer. Sure there have been positive strides made with hybrid cars and a concerted effort to reduce our carbon footprint. Public market interest in Tesla is exciting but certainly not determinative in any way. (Remember when First Solar’s market cap was 10x what it is today?)

Of course, there has been progress. This entire conversation seems to forget about the tremendous advances in medicine and life sciences. The mapping of the human genome last decade may eventually prove to be the source of cures and remedies for invasive diseases—even cancer. Outside medicine, even if the rapid exchange of information and communications was not as popular a topic among science fiction writers of 50 years ago, it is hard to deny the impact of the Internet.

The frustration with software-based advances stems from their iterative nature. It is probably true that rapid and repeated improvements made to how we socially network, shop, or are targeted by advertisers do not really move the needle on human progress. But the transfer of everything—all our records, behaviors, and conduct— to digital may help us attain one of those futuristic visions from the past just yet: artificial intelligence.

The demand and investment in data scientists can make us better at predicting behavior baed on past and concurrent data. It can make us better at breaking down unstructured data that does not come with neat labels and meta context (e.g., videos or prose).  While I have not spent time with the machine learning folks at MIT or NYU’s Courant Institute, I believe that focusing on these data processes should improve computer generalization, which can eliminate the need for human interaction with data in favor of machines that can navigate new problems or situations simply by learning from experiences with past ones. If this sounds familiar, it should. After all, is that not how we as humans adapt and know how to respond when encountering new, strange situations?

The theory behind artificial intelligence is vast and machine learning is but one aspect, and both are beyond my capabilities. However, the point is that even though the ability to extract raw data dumps about almost anything imaginable might not seem incredibly exciting, the Internet’s and social networking’s facilitation in creating copious amounts of commercially valuable data for analysis may, as a byproduct, jumpstart interest in STEM education and true innovation. And if the improvement in human knowledge and skill that results from this catalyst is to lead to any of sci-fi literature’s promises, it is most logically going to be artificial intelligence.

Whether going down this road leads us to jovial Bender bots or Matrix or Terminator like robot overlords is for you to speculate. Cue ominous end titles . . .

The Mobile AdScape

With all the talk of mobile ad “platforms,” SSPs, and DSPs, it can be a bit trying to tell mobile adtech companies apart and decipher what they really do (or claim to do). Wouldn’t it be nice to have at hand a neat visualization of the market (e.g., LUMAscapes) whenever the lines started blurring and your head started spinning? Cue mobyaffiliates and its market map of mobile advertising.

The infographic isn’t always 100% accurate or detailed enough for an advertiser or investor trying to dig deeper into a particular adtech solution. For example, Chartboost, which recently raised $19M in funding, appears in the “App Promotion” category. The company also provides ad serving tools and essentially functions as an ad network for developers/publishers with excess inventory. So there is much more overlap than portrayed by the market map below. Regardless, it’s a useful reference tool and a helpful start for anyone looking to learn more about mobile advertising.

Copyright Trolls – Firm Standing or Stuck Under a Bridge?

I recently came across an entrepreneur who was looking into the Righthaven lawsuits in which the copyright troll, Righthaven, suffered fatal blows to its business model of suing alleged copyright infringers.  Righthaven received the go ahead to sue on behalf of partner newspapers for the alleged copying of the newspapers’ content.  The courts decided against Righthaven on the basis that the company did not have standing to sue.

Question 1

The entrepreneur posed the following question:  does the ability to sue for copyright infringement require owning the copyright itself?  In other words, did newspapers have to sell their copyrights to Righthaven in order for the troll to have the right to sue?

In Silvers v. Sony Pictures Entertainment the court held that an assignee (person receiving rights from the copyright owner) who has no legal or beneficial interest in the copyright cannot sue for infringement.  A copyright owner cannot assign/transfer the bare right to sue under the Copyright Act.

Section 501(b) of the Copyright Act gives standing/ability to sue to owners of exclusive rights in a copyright. These exclusive rights are defined in section 106 of the Act.  Because Silvers did not possess any of these Section 106 exclusive rights, such as the right to reproduce or make derivative works from the copyrighted work, she could not sue. Thus, for Sony to have given her the right to sue, it also would have had to transfer a beneficial/exclusive right.

Question 2

The entrepreneur’s natural next question was why can’t the copyright owner simply hand over a 0.01% share of ownership in the copyright and thereby grant legitimate standing to sue?

In abstract theory, this should work.  But as flexible as modern copyright law is regarding divisibility of copyright ownership (relative to older versions of the act), I doubt an owner could draft an agreement that transfers a section 106 exclusive right without jeopardizing the copyright owner’s absolute control over the copyright.  This is not to say that an agreement couldn’t transfer a percentage of profits derived from the copyright. However, such an agreement would not constitute a transfer of exclusive rights under section 106, and then you’d have lack the standing to sue again.

In the end, the problem with transferring exclusive rights, even if done in a de minimus fashion, is that the transferee could then exploit the copyright in a way that is inconsistent with and/or harmful to the copyright owner.  In the Monty Python case (Gilliam v. ABC), the Monty Python writers suffered such an injury.  Fortunately for Monty Python, the court interpreted their contract very narrowly to find that Monty Python had conferred the right to make a derivative movie off their copyrighted script but reserved final approval.  Therefore, they could prevent exploitation of the movie that was inconsistent with their wishes.

However, the outcome of that case was dependent on contract-specific language and narrow interpretation of that language by the court.  Today, work for hire contracts (in which the creator of a script or software gives up ownership completely to the employer) would take care of the uncertainty.

The demise of Righthaven, thus, is a blow to all copyright trolls that don’t own the copyrights they are trying to monetize in court.

Facebook is to Zynga as a Clownfish is to a Sea Anemone?

The days leading up to the highly anticipated Facebook IPO have been met with market excitement.  Comparisons of Facebook to Google and speculation about whether the company is over- or under-valued have been rife for some time.  Facebook has convincingly overcome concerns about negative cash flows and lack of a monetization plan that plagued it in the media a few years ago.  However, concerns about Facebook’s business model seemed to have revivified as investors struggle to identify the company’s bread and butter and more importantly, to understand its relationship with social gaming behemoth, Zynga.

I remember hearing estimates in 2009 that Zynga made up 40% of Facebook’s revenue.  That is why I was taken aback by the market’s surprised reaction when it traded up shares of Zynga upon finding out the company composes 12% of Facebook’s total revenue.

A breakdown of Facebook’s revenues from Zynga shows that Zuckerberg’s company derives its revenue from the gaming company through the sale of virtual goods and other add-on features in games (Payments) and through ads that Zynga buys to cross promote its own games to captive Facebookers (Ads).  Moreover, an increasing proportion of this revenue comes from Payments revenue.

 

In some ways, the Payments model is not very different from the way Apple charges iPhone application developers a cut of the revenues made from the Apple App Store.  Facebook’s cut of Zynga’s Payments revenues is reported to be 30%.  Facebook’s relationship with Zynga deviates from Apple’s relationship with its app developers in at least one key respect—Facebook also reaps ongoing benefits from Zynga’s success in the form of advertising revenue.  The larger Zynga’s customer base grows, the more it is willing to invest in advertising and the more people that fall into the target audience Zynga wants to reach.  Increased advertising by Zynga benefits Facebook.  Additionally, while iPhone app users pay once for an app (say $0.99), Zynga users may keep buying add-ons within the same game (say $0.99 per virtual good).  Finally, while I have not searched Apple’s financials to confirm, I seriously doubt any one app developer makes up 12% of Apple’s app store revenues, let alone 12% of the diversified company’s total revenue.

Thus, Facebook’s near-term future is highly levered to Zynga’s success.  This leverage presents problems in the eyes of some for several reasons.  First, sustaining revenues from gaming alone is not Google-esque.  Google effortlessly fused the worlds of media and technology in a revolutionary way.  It was able to use its technology to appeal to advertisers very broadly.  A dependence on gaming leaves Facebook less diversified, less appealing to advertisers universally, and potentially vulnerable.  This factor doesn’t bother me much because other apps will fit into the Facebook ecosystem as the social networks becomes increasingly ingrained into the way we think about the Internet and computing.  Plus, there is a trend in various sectors to solve problems through gaming anyway.

The bigger problem is a more general business issue.  Dependence on one company can become unhealthy if the equilibrium is rattled.  Right now Facebook and Zynga have symbiotic interests.  Both businesses align well with each other.  However, if Facebook were to decide to invade Zynga’s turf and start competing with the game developer, or if Zynga can successfully create its own network of users outside of the Facebook platform, the relationship won’t be quite as hunky dory.

Some have countered that Facebook has an exclusive arrangement with Zynga whereby Zynga agrees to use Facebook currency and develop certain games only for use on Facebook.   I don’t really see this arrangement mitigating the concern.  Prohibiting development on other social networks is a useless demand since Facebook has won the day as far as general interest social networks go, and gaming is not a fit with other popular social networks such as Twitter, LinkedIn, and foursquare.

More significantly, Zynga has always had a disconnect between its mobile apps and its games on Facebook.  I once tried playing Mafia Wars to get a better idea of what the craze was behind Zynga’s games ahead of an interview with the company.  My profiles on Facebook and the iPhone app could not be synced.  Whether this incompatibility is still an issue with Zynga’s games, I do not know.  However, the recent success of Words With Friends at the very least shows that Zynga is capable of finding success outside of Facebook even with an exclusivity agreement in place.

The fact that the ads portion of Facebook’s revenue from Zynga is decreasing is reassuring, but it still raises issues about Facebook’s ad monetization strategy.  Google found a direct way to relate ads to subjects that directly interests users.  When searching for a person’s profile on Facebook, it is less obvious which ads should pop up than if someone conducts searches about an upcoming vacation on Google.  (This explains why so many people complain about dating advertisements on Facebook.)  The display ads on Facebook are commoditized, and the company’s current advertising strategy is just as shaky as a non-premium online ad network.

These concerns about Facebook’s advertising revenue is not to say the company won’t eventually get it right.  The rich data Facebook collects is highly valuable.  The challenge of utilizing it in a way that doesn’t sound off alarms about privacy remains.  Personally, I thought Beacon was a promising first step, but it was introduced in such a disastrous way that Facebook has been unable to broach the topic again in a privacy-friendly way.

Still, Facebook has to figure out the ad scheme fast.  Other social networks, though not at all threatening in terms of scale, are carving out niches that are more advertiser-friendly.  Pinterest, for example, can make money on ads in a very direct way not too different from Google, and foursquare can capitalize on location-based audiences and local deals.

Utlimately, Facebook is well . . . Facebook.  I don’t think many can imagine life without it, and it is hard to bet against a company with that type of stickiness.  As long as the Facebook-Zynga symbiotic equilibrium does not shift, the fact that 12% of Facebook’s revenues come from Zynga isn’t too troubling.

I’d also note that while I may have painted a rosy picture about Zynga over the medium term, it too has long term concerns, namely the danger of becoming less data-driven/disciplined and more like a media company.  Additionally, while the exclusive arrangement with Facebook might be a pro for the social network, it displays Zynga’s subjugation to Facebook’s terms and power.

In the meantime, I leave it to you to decide which company is the Clownfish and which the Sea Anemone.  For help and more information, see the epic video below.

Steve Jobs

I first heard the name when watching Pirates of Silicon Valley while in high school.  It was appropriately during a computer programming class.  It was the first time I associated a person with the Macintosh computer I had first used to play Space Invaders as a little kid.  I associated the face of Noah Wyle with Steve Jobs for a very long time.  I didn’t bother rectifying that association in my mind because it seemed as if Apple was a thing of the past.  Why bother?

Fast forward a few years, and I owned an iPod Mini.  Fast forward a few more, and I owned an iPhone 3G.  Fast forward to today, and I am browsing MacBook Airs. . .  It is safe to say I no longer think of a former ER actor when I think of Steve Jobs.

I usually view words like “revolutionized,” “genius,” and “visionary” with disdain for being honorable superlatives that have become mere platitudes.  But with Steve Jobs, they were not only applicable—they may have been understatements.  In the time of ubiquitous behemoth corporations, for one individual to have such a lasting impact on several separate industries and millions (billions?) of people is truly remarkable.  It takes an unbelievable person to exert his will in such a manner.

We all want to say something special at times like this to honor people as special as Steve Jobs.  However, words have the peculiar quality of failing us at these crucial moments.  So, I will just share my feelings.  I am deeply saddened.  Whether through game changing consumer devices or Pixar, Steve Jobs has inspired me to dream big.  Some of the things he made possible were inconceivable, but his propensity to never settle for less than  his vision, compels me to be just as relentless—to “stay hungry, stay foolish.”

Thank you, Steve.  We miss you already.

Apple: Innovator or Hype Machine?

The verdict is still out on whether Apple’s iPad is just an oversized iPod Touch or truly something revolutionary.  At the 0260 Entrepreneur Conference at NYU last week several speakers, including Firstmark Capital’s Larry Lenihan and Union Square Ventures’ Albert Wenger, voiced their enthusiasm for the new device.  I, on the other hand, have been skeptical.  I noticed the recent popularity of netbooks and thought there might be a market for something even less clunky in the same vein.  Of course, the iPhone’s rapid adoption suggested that a touch device could be a great answer.  That is why I applauded Michael Arrington’s original mission with his failed CrunchPad, but after years of unsuccessful tablet gadgets, I started questioning their value.

The iPad, however, has me rethinking things once again.  With now over a million sold, the iPad does present some interesting potential.  I had for a long time been curious about who would win the home media center computing battle—a combination of WinTel, Netflix, Sling Media, Apple, etc.—and the more I think about it, a tablet seems to be a great answer to that dilemma.  Every family room could use a communal computer that looks neat on the coffee table and can plug into the HD TV without too many wires or frills, which the iPad or other tablets can eventually facilitate.  I also realize that on certain trips of shorter duration or of leisure I don’t want to carry my laptop, but I still want more than just what a Kindle-like E-reader can provide.

With all this obvious potential, then, why is it only now that the endless possibilities of tablets are being explored?  Tablets have been around for a while, but only now do we see a conscious effort by electronics providers to push the concept.  There are a slew of competitive offerings on the way.  Perhaps, the new excitement in this category just reinforces Apple’s pivotal role in technological innovation, which was reestablished with the introduction of the iPod.

Apple’s influence in defining electronics categories has spurred innovation.  The iPhone accelerated adoption of smart phones, forcing competitors to work on new handsets and mobile OS’s.  Yet, Apple also operates in a walled garden, meaning its products are self contained, not always playing nice with other software and hardware (lack of Adobe’s Flash being my biggest pet peeve on the iPhone).  The question then is:  does Apple’s dominant role sometimes hamper progress?

MP3’s were already being played on phones as Apple kept releasing newer versions of its ever popular iPod, but the phone and music player all-in-one concept didn’t seem to garner the attention it deserved.  The iPod’s marketing campaigns were just too effective for users to consider alternative MP3 players.  Then, the incredibly sleek design and UI of the iPhone left other smartphone makers playing catch up.  Through its App Store, the iPhone offered some openness as users were treated to games and software produced by third party developers.  Now, however, because the iPhone remains the sleekest handset on the market, users aren’t experiencing a lot of the advantageous aspects of other mobile OS’s such as Android (e.g., multitasking/background processing, open source, notifications).  I worry that Apple will control the potential of mobile devices on their own terms.  For one thing, I look forward to owning a phone some day that projects videos, but there might only be a push to provide this feature if Apple decides to do so.

With this latest iPad rollout, I wonder if the Apple brand has assumed too much power.  Can Apple just put its stamp on any consumer electronic device and succeed?  Is the next step an Apple HD TV that threatens Samsung and Sony?

I am clearly being overly dramatic.  Apple products probably deserve most of their popularity.  If the iPad does indeed reshape the way we think about computing once again, kudos to Apple.  For the time being, I’m not ready to completely buy into the hype just because this tablet has an apple tattoo on its back.