From Externalities to Enterprise: Harnessing Digital’s Fragmented Future

Posted by Carol Spieckerman on January 17, 2013

In a recent article for The Guardian, journalist and science fiction author Cory Doctorow expounded on dynamics that he refers to as “positive externalities,” which arise “when you do something you want to do that also makes life better for someone else.” As an example, he describes driving your car slowly to avoid a wreck and thereby making the road safer for other drivers. His description and initial example may sound benign and altruistic but the concept has far reaching and potentially contentious implications for the licensing industry’s digital age dealings in content marketing and intellectual property.

Doctorow calls the Internet the natural home of positive externalities, since every new user who joins increases the likelihood that someone will create a website designed to reach them. Google is a prime example of a company that has built an entire business model on harvesting the by-products of Internet activity, while Facebook has created a platform that encourages people to socialize and then mines and markets the resulting data to retailers and brand marketers so they can leverage it to sell more stuff. According to Doctorow, both companies are essentially taking ownership of externalities by “locking them up in proprietary walled gardens,” but he’s far from opposed to the model. In fact, he calls resentment over the harnessing of positive externalities “our era’s defining mania.”

Doctorow cites various digital rights management (DRM) restrictions, such as those keeping people from selling used games, lending e-books, or even taking DVDs from one country to another as prime examples of externality phobia gone mad. In the retail and publishing world, Amazon’s actions have escalated concerns over e-book DRM restrictions, as Kindle owners realize that they are locked into the Kindle store and that the content that they are in essence licensing from Amazon can’t be transferred to other devices without a Kindle. Some argue that dropping DRM altogether would future-proof the publishing industry, since the future of e-readers is unknowable and doing so would ensure that publishers have the agility to leverage new formats and technologies. A DRM-free world would also provide more choice to consumers and allow smaller e-book retailers to stay in the game.

Meanwhile, businesses that monetize the run-off from personal technology usage and other businesses’ activities are sprouting up and causing quite a bit of controversy. At a news conference at last week’s Consumer Electronics Show (CES), Aereo, the web TV service backed by Barry Diller, announced a $38 million investment round, and explained that it plans to expand its service outside of New York to 22 additional cities. Aereo’s technology pulls broadcast TV signals into the cloud, charging subscribers $8 per month (or $1 per day) to access live TV on multiple devices. It has plans to offer low cost cable channel packages in addition to its core broadcast feeds – a tempting alternative to $200 cable packages that offer hundreds of channels, many of which often go unwatched by subscribers.

Is this a clear-cut case of Aereo stealing broadcaster’s content? Not according to the company. In a recent interview with Advertising Age, the company’s CEO, Chet Kanojia, dismissed the idea of paying royalties for retransmission to broadcasters, thereby giving them a dual revenue stream. According to Kanojia, broadcasters are required to program in the public interest by using the broadcast spectrum that they have, and there are no laws against owning an antenna. Since people can purchase antennas and pull in broadcast signals with impunity, he reasons that Aereo’s individually-assigned subscriber antennas aren’t an exception or a violation. In contrast, cable TV companies use a single antenna or direct feed from a broadcaster to pick up a station for thousands of subscribers.

Doctorow has summed up the positive externality fear mindset as “If something I do has value, I deserve a cut.” The cuts may get thinner as media continues to fragment, and as more stakeholders grab at the shards..

Bottom line:

  • Intellectual property, and content in particular, are becoming more fluid and fragmented. Opportunistic companies are not afraid to break through traditional boundaries in order to take full advantage.
  • As retailers and other brand marketers expand into the digital content arena, they will look for ways to tether consumers to their proprietary devices, channels, and brands, expanding the debate on intellectual property management.
  • Traditional business models and revenue streams are all being transformed at light speed, as the definition and duration of content ownership evolves.

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