The digital shift: 10 themes shaping the legal agenda

The digital shift: 10 themes shaping the legal agenda

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Author: Laurence Kaye

The first industrial revolution, which began in the 1750s, lasted for between 80 to 100 years. The pace of technological change today encourages us to believe that the second industrial revolution (IR2) will be completed at much greater speed.

So if we take the mid-1980s as a starting point, with the emergence of optical disk technologies into consumer markets, you would expect us to be well on the way to completion, 30 years into IR2.

But we're not. IR2 is multi-factorial, consisting of developments and changes in technology, law, business models and consumers' attitudes to copyright, privacy and their use of social media. All of these changes are moving at different speeds, with technology way ahead of the others. If there isn't a law which states that that 'the pace of change is dictated by the slowest moving part', there should be.

So if we assume that 2013 marks an approximate midway point, then it is not unreasonable to guess that we have another 20 years or so to go before the tectonic shifts of IR2 have substantially occurred. On that basis, we are still in a period of flux.

In fact, change seems to occur in bursts of acceleration. For instance, we saw the rapid emergence of a market for ebooks in 2011-12 preceded by a longer period of around nine years during which the technology for ebooks began to emerge, but before the market took off.

These cycles of impending change and pent up demand, followed by rapid bursts of accelerated change, can lead to complacency - 'these changes won't happen or will only happen much later' - or to over-optimistic projections - 'this is all going to happen overnight'.

Both are wrong. The smart money identifies the indicators of change during the 'impending change' part of the cycle and makes an informed guess - no-one can predict precisely - about when the trends that are apparent during this part of the cycle are going to burst into market development.

The 'digital shift' affects all aspects of economic activity.

We are seeing how web and mobile-connected digital devices, together with social platforms, are transforming the ways we consume and participate in entertainment and information products and services. But the digital shift is also changing the broader world of business, and consumer products and services too. New peer-to-peer lending services like Zopa are appearing in the financial services industries. New fashion businesses are being established that sell direct to consumers. The advertising industry is in the process of re-inventing itself to find new models for mobile advertising that works effectively on tablets and smart phones. Social sites like Facebook and Twitter are emerging as platforms for new services. In the retail industry, the boundaries between physical and online shopping are beginning to blur. Smart phones can be used by customers to get updates on the latest in-store offers and to enhance shoppers' in-store experience. The list goes on.

There are ten overriding, interlinked themes characterising this shift and shaping digital media's legal agenda.

1. Digital disruption in the value chain

Digital disruption is a fact of digital media life. The disrupters are everywhere.

They are new players, often 'born digital' businesses, which enter an industry and create an entirely new business which didn't exist before; for example a new consumer products business which use 'the crowd' as its R&D division to identify new inventions and product or a new entrant like anobii (www.anobii.com), a social platform for book recommendations.

There are also new players who enter an industry and perform an existing activity in the value chain better and/or differently to existing incumbents, and in the process displace them. Kobalt (www.kobaltmusic.com) is an example; a new online platform offering a service to streamline royalty payments to artists.

But 'digital disrupters' are also existing players who reinvent themselves and in the process even cannibalise part of their business in order to create a new business and income stream; for example Getty's istockphoto service (www.istockphoto.com).

Legal issues include defining the legal structures which underpin business models and the contracts and business relationships which implement them; applying existing laws to new models, eg when is a sale of a digital work a licence or vice versa? (See my blog post on this topic http://bit.ly/ZvrChB); and watch out for developments in the US case of Capitol Records v ReDigi, which examines whether a digital file is a licence or a digital good.

2. IP-centric, platform agnostic

Increasingly, content owners are 'getting' the fact that they need to take a '360-degree' approach to their intellectual property (IP) in a multi-platform world, multi-format world. For instance, a number of leading publishers have recently created new roles with responsibility to transition publishers into being multi-platform organisations. Often, the people appointed come from outside the industry - games, television etc. - with cross-platform experience.

At the heart of this '360 degree' approach is a 'format/platform neutral' approach to IP and new products and services. In turn, this demands skill in being innovative with IP creation and exploitation, building new business models etc. It also puts IP rights, especially copyright and trade marks (brands) at the heart of the business.

Legal issues include the role of copyright and the copyright reform agenda (Hargreaves etc), including proposed changes to copyright law (see my blog post on this http://bit.ly/11RGTYm). The bigger picture is how copyright continues to maintain the balance between rights holders, users and intermediaries. This is a dynamic area. For example, at the end of 2012, Germany's parliament introduced a new 'neighbouring right,' which gives print publishers the right to licence their web content. This is a hugely significant development.

IP covers a whole range of rights including those in brands, designs and patents. These can be used both offensively and defensively. No creative company can be without an IP strategy.

3. The rise and rise of social media

It's already a truism to say that social platforms such as Facebook, LinkedIn, Twitter and Pinterest are playing an increasingly significant role in business. For some, these platforms may simply be relevant from a marketing and PR perspective, for example a company having a Facebook page to build engagement with its customers.

For others, especially those in the media and information sectors, these social platforms are becoming increasingly integrated into their business. For instance, digital services provider Soundcloud (www.soundcloud.com) are embedded within Facebook so that Facebook users can launch sounds on SoundCloud from within Facebook. This integration process is two way - Facebook is also embedded into these services.

So what are the legal issues here? Linked to social media, but not confined to it, is the whole issue of tracking consumers' behaviour online and using this data in an aggregated way for marketing and advertising purposes. This brings us to the heart of the debate about privacy and data protection.

Also, the presence of celebrities, public figures and others on social media such as Twitter makes reputation management an increasingly important area, which from a legal perspective brings defamation into the picture along with the laws and regulations governing data protection, consumer protection and marketing and advertising.

4. The digital consumer calls the shots

Ultimately, everything starts and ends with the consumer, who wants to enjoy a wide range of creative products on the new devices, moving seamlessly from literature to films, games, music and more. More than that, the reader wants to engage in different ways, as an active participant and contributor to an online community as well as a consumer of the creative work.

So it is the consumer/citizen who is really driving change. From publishing to music and games to films, we are seeing innovative cross-media partnerships to create new content for consumers and make them available across a whole range of platforms.

On the legal front, the rise of 'over the top' services to consumers means that many companies which used to be B2B - for example film and TV producers and publishers - are now B2C, engaging directly with consumers. Suddenly, consumer law in all its forms, from marketing, sales and contract law to data protection, is their problem. Put another way, it is actually an opportunity to build brand and reputation for those that get it right.

5. Mind the (digital) platform

From digital gorillas like Facebook, Amazon, Google and Twitter to social media start-up platforms, the nature and variety of online platforms bringing content, services and communities together continues to proliferate. They are the real digital disrupters in the value chains in almost every industry, and represent an increasingly significant part of the digital landscape.

The legal issues are as varied as the platforms themselves. At the top of the legal list are competition law (arising from the market dominance of the gorillas in this sector), liability of platforms for hosting illegal content and the role the law may require them to play in enforcement of rights, for example under the Digital Economy Act in the UK.

6. Collaboration is the name of the game

"Collaboration is crucial for the industry's survival. If, to try and protect their rights, companies and rights holders remain in silos and don't collaborate, revenue will be limited." - Neil Blair, Pottermore.

'Collaboration' is defined as 'the action of working with someone to produce something'. Interestingly, the same definition cites the 'traitorous cooperation with an enemy' as an instance of collaboration. So it is certainly not synonymous with a harmonious relationship. Collaborations can be tough, conflicting and competitive, as long as they work and deliver sufficient benefits to the collaborators.

Collaborations come in all shapes and sizes in the 'post-digital shift' world. Some are operational, where the publisher outsources a business function to a third party, such as an ecommerce platform or the provision of payment or product fulfilment services. Others are strategic, where the relationship enhances the publisher's brand or enables it to increase market share or to enter new markets, so truly adding value to the business. Think of partnerships like Spotify's deal back in 2009 with Swedish Telco Telia and Deezer's deal with France Telecom to reach bigger audiences for digital music streaming services.

On the legal front, the structuring of collaborations is equally diverse, ranging from straightforward contractual relationships, licences, corporate joint ventures, agency through to full-blown mergers.

7. Consolidation and fragmentation

All these changes are driving consolidation within different industries as companies seek scale where needed (for example the proposed merger of Penguin and Random House). But, at the same time, markets are fragmenting as industry players seek to build their brands by creating niches.

For instance, Rebecca Smart, CEO of publishers Osprey, recently wrote a piece in the The Bookseller about the need to organise around 'verticals', ie creating imprints for specific genres/subjects/markets: "With a branded collection of books in a vertical you can reach customers via retailers that sell other products in the same areas of interest. And if you have a brand you can sell direct to consumers." (Bookseller, 2/11/12).

Whilst her comments relate to the publishing industry, they are also relevant to other markets affected by the 'digital shift'.

8. It's a mobile economy

The continuing growth in mobile devices - tablets and smartphones in particular - means that mobile commerce and mobile advertising will be an increasingly important part of the digital economy's landscape and in which it will be vital to create the right advertising products and business models for mobile.

9. Everyone is in the technology business

I remember a meeting some time in 2000 (remember Y2K and how the world's IT infrastructure was going to collapse on the midnight chime of Big Ben?) between the representatives of the ISP industry and the creative industries discussing the Copyright Directive. The topic under discussion was the copyright exception that the ISP's wanted to ensure that copies of copyright works cached on their servers could not be treated as acts of reproduction needing the copyright owner's permission.

The meeting was a great example of how the worlds of intellectual property and technology lacked a shared vocabulary and vision. That is changing; slowly. But the drive to collaboration and sharing through machine to machine communications and API's is relentlessly driving the two together.

The media, entertainment and information industries are now all in the technology business, including learning to borrow programme and content development techniques like 'agile' from the software industry.

10. It's a borderless world

This is our number one challenge - national laws, but a global medium. We see this every day. How do we create an effective regulatory framework for the press in the UK when blogs publish the same content overseas? How does a digital platform based in country A set its standards for data protection compliance when it targets consumers on an international basis with EU and non-EU laws often setting different requirements for compliance for user consent?

The answer, of course, is a slow but inexorable move towards harmonised standards of 'hard law' (for example through a forthcoming revision to EU's data protection legal framework); and 'soft law' in the forms of voluntary codes of practice and an increasingly international outlook of the courts.