Monthly Archives: May 2014

End of Net Neutrality- Winners and Losers

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In case you are not following what is this big commotion about “End of Net Neutrality”, here is a short summary. I also have picked my winners and losers in the ecosystem because of abolition of this rule.

For people unfamiliar with the basic concept of Net Neutrality, it refers to the policy that ensures internet service providers (ISPs) such as Verizon, Comcast, AT&T etc. to offer equal quality of service to all business seeking to leverage internet as its distribution medium. To illustrate, Comcast isn’t expected to cut a deal with Netflix for faster speed of delivering content compared to YouTube content. One must note that Net Neutrality has nothing to do with consumer pricing by the ISPs. As probably you have already seen, that the ISPs already charge higher prices to the consumer for better quality internet service.

I am not going to go into detail about the legality of the situation or even why and why not of Net Neutrality. This blog will analyze how the stakeholders in the ecosystem will be impacted by the abolition of Net Neutrality.

Let’s start of this analysis with the Internet Service Providers (ISPs). With the abolition of Net Neutrality, the ISPs will be allowed to offer different levels of service to the business that wants to ride on its backbone. As a consequence, they will introduce new and differentiated products in the market and their revenue will go up. This ability to control price and service will increase their bargaining power and they probably will make more money even for the current service that they offer in the market. This is a game changer for them.

Now let’s look at how video distributors such as Netflix will be impacted. Netflix has been openly critical about abolition of Net Neutrality. On one hand, more bargaining power for the ISPs may naturally mean less bargaining power for the video distributors. That may be the reason why Netflix does not support it. On the other hand, this ruling will severely constrict possibility of any new video distributor coming in the market. That will definitely benefit Netflix. The only problem is that, all ISPs such as AT&T, Verizon and Comcast are video distributions as well. As a result the benefit that Netflix will get because of less competition in the OTT space (Read broadband), will be nullified by the greater play by the ISPs as content distributors.

Among other video distributors, the one who has subscription or end user based revenue will gain more compared to the ad based service providers. Imagine the case of you tube. With billions of users and low value high volume videos, it might find it difficult to cut an economic deal with the ISPs. In contrast iTune which primarily deals with end user revenue could have easier opportunity to deal with ISPs for higher bandwidth. All in all content model riding on eyeballs will be negatively impacted.

For content creators/owners such as Studios and TV networks (Warner, Fox, Disney, NBCU, Sony), this is a mixed news. Lack of new entrants in the content distribution space will make the existing video distributors stronger. Also, more bargaining power to the ISPs even in the OTT space mean the revenue share of content owners could shrink. However, as explained in the earlier paragraph, the abolition of Net Neutrality may negatively impact the YouTube like business model of ad based revenue on non-premium media. That could mean that premium video will get a lift in the market. Another silver lining for the studios in this issue is that with Net Neutrality gone, content piracy could be badly hit. One can’t expect pirated content sites to cut a deal with Comcast for fast lane distribution.

For consumers, this is only a bad news. Abolition of Net Neutrality will drastically reduce the innovation and competition in the video distribution market. As a consequence we will see price rise for both content and access. However with content piracy gone, your computer might get less infected by computer virus (Just kidding)

To summarize, if you are an investor, go long on Comcast, AT&T and Verizon. Hold Disney and Turner. Sell your Netflix Shares and be ready for some austerity measures at home.

 

“Right to be Forgotten”- The Implication of Mario Costeja Gonzalez vs Google case verdict

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Luxemburg court of Justice for European Union has delivered a very controversial verdict on internet privacy last week (13th of May 2014). The specific verdict refers to a section of the privacy law that defines a concept of “Right to be forgotten” which allows individuals the right to remove personal information available on the internet if there is no legitimate ground to retain it. The verdict has been heavily criticized by the advocates of freedom of information and welcomed by the staunch privacy supporters.

The case in point here is related to one Mario Costeja Gonzalez, a resident of Spain who had to auction his house 16 years ago to pay for his social security debts. This information continues to appear on search results, which as per Mario have damaged his reputation. He has been fighting a case against Google for long to remove this specific information from the search results. With this verdict, the court has agreed with his reasoning and asked Google to remove this content from its search results.

The verdict has a far reaching implication on how personal information might get censored in future, particularly for individual living within European Union. Interestingly enough, the proposed legislation, which formed the basis of this verdict, is barely in its draft stage. Led be Vivian Reading, European commissioner of Justice, the commission released its 1st draft in January 2012 and is expected to undergo further negotiations among participating countries. The verdict as a result has set a nice precedence on a relatively fledging piece of legislation.

Let us now look at what exactly the draft proposal says about “Right to be forgotten”. On page 26 point 53 of the draft it states the following

“Any person should have the right to have personal data concerning them rectified and a ‘right to be forgotten’ where the retention of such data is not in compliance with this Regulation. In particular, data subjects should have the right that their personal data are erased and no longer processed, where the data are no longer necessary in relation to the purposes for which the data are collected or otherwise processed”………. “However, the further retention of the data should be allowed where it is necessary for historical, statistical and scientific research purposes, for reasons of public interest in the area of public health, for exercising the right of freedom of expression, when required by law or where there is a reason to restrict the processing of the data instead of erasing them.”

Overall, we can summarize the concept as the following. “If individual’s right to erase his personal information is higher than that of public’s interest right to find it, data could be asked to be deleted”.

Personally I like the concept of individual data privacy. No one likes a personal mistake committed decades ago to hang around the neck and spoil his/her entire life. This is even more important for cases where unauthorized personal data such as pornographic material is distributed through the internet which ruins many lives.

However, all cases may not be that straightforward, the question therefore is who and how it is decided whether in a particular case individual’s right is bigger than the public interest?

To understand how the legislation propose to tackle the above question let’s first understand a few important concepts of the legislation.

As far as who is the responsible party that will be held accountable for removal of data from the internet, the legislation introduces a concept of an entity called “data controller”. In this “right to be forgotten” law the buck literally stops at the data controller who seems to have all the responsibility to establish and execute the law. The law defines data controller as the following:

“controller’ means the natural or legal person, public authority, agency or any other body which alone or jointly with others determines the purposes, conditions and means of the processing of personal data”.

 We all know that Google data search is highly contextual; it controls the output through a very well defined process. Hence by definition it is a data controller. Interestingly enough, the privacy law does not touch upon the publishers at all as source of information and that is why some of the concepts seem confusing. For example point 53 on page 26 talks about deleting data or restricted access. Google or any other search engine may not have any jurisdiction for deleting any content except may be cashed data. All it can do is take down the links to the data.

The draft also has a concept of data processor that process data on behalf of the controller. In this case also the responsibility is with the controller. So if someone uses personal data derived through Google search and use that data, the responsibility will still be with Google.

However the most revolutionary part of this legislation comes on page 27 point 56 on burden of proof.

 “In cases where personal data might lawfully be processed to protect the vital interests of the data subject, or on grounds of public interest, official authority or the legitimate interests of a controller, any data subject should nevertheless be entitled to object to the processing of any data relating to them. The burden of proof should be on the controller to demonstrate that their legitimate interests may override the interests or the fundamental rights and freedoms of the data subject.”

On top of this burden of proof argument is the case of financial penalty. Article 79 that states supervisory authority, talks about a fine up to 500 000 EUR for individuals, or in case of an enterprise up to 1 % of its annual worldwide turnover. This fine is imposed to anyone who, intentionally or negligently does not comply with the “right to be forgotten” act.

To illustrate, if I want any of my personal content to go out of internet, I will ask Google to remove it. Google will have to decide whether my personal right is higher than public interest. If they don’t remove my data link, I can file a case against them and if they lose they will have to pay 1% of their annual turnover as fine.

Now Google specifically has very good takedown process of pirated content from the internet. Hence they may not have any problem in taking down the content if someone wants to do so. The problem is determining them on a case by case basis.

First Google will have to confirm the identity of the requestor. Secondly it has to establish that by taking down the information it is not violating anyone else’s constitional right. And thirdly, by removing the content it is not compromising any health or security issues. I suspect if Google is to perform all this actions it has to set up an equivalent of FBI and Scotland Yard in additional to employing couple of thousand lawyers in its premise. (In addition to the lawyers they already have)

In summary, while the legislation has a lot of merit, by imposing the burden of proof to the controller and creating a vague legislative structure in which the search provider has to work on, the EU has successfully passed the responsibility to Google. May be EU is hoping that by putting the ball on Goggle’s court, it could force the search giant to come up some proposed formula that could serve EU privacy cause in the long run.

In months to come we are likely to witness all kind of people ranging from financial imposters, crooks, convicted pedophiles to political criminals, who would seek refuge under this law. It would be interesting to see how Google will respond to those requests.

On a brighter side for Google, this might potentially open new business model for them. As more and more personal information is removed from Google search, people who need to run security clearance or journalistic research will probably need to approach the search engine for special closed loop search. These services would typically be business to business where Google already has an established revenue model

The irony of this entire episode is that since now Mario Costeja Gonzalez has become a public figure and could become the poster boy for the EU privacy law, chances are, his personal information will never go down from the internet. It is safe to say that his right to removal of his property auction data will be far outwitted by billion of people seeking privacy of their personal data, who will use Mario as a reference to their case.