www.klng.com

New Trends in Multi-platform Content Distribution Transactions

LSI Complex IP Transactions

Conference

Marc S. Martin, Partner, K&LNG

202-778-9859; mmartin@klng.com

www.klng.com

The views and opinions expressed herein are solely those of the author and not of K&LNG. Nothing described herein constitutes legal advice.

LSI Complex IP Transactions

Conference

Copyright K&LNG 2006. All Rights Reserved.

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Overview

Key Drivers of Multi-platform Content Distribution

Central IssuesCustomer Ownership Risk AllocationRevenue Models Content Matters

The Road Ahead

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Key Drivers for Multi-Platform Content Distribution

Content developersto control when, where and how content is delivered and to extend/maintain brand equity.

Mobile carriersto counter the commoditization of wireless voice telephony, enhance differentiation and increase ARPU from new revenue source.

CableMSOs and ILECs, to leverage existing customer bases into new revenue streams.

Usersto have any content anywhere, anytime due to higher speeds and resolutions from advances in broadband networks and devices.

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Ownership Issues

Who owns the customer?

Who owns the customer -generated data?

Who has control over retail content pricing?

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Customer Ownership

Customers operate over a distributor s network facilities (cable, telco or wireless provider).

Customers also often register with content developer or aggregator ( licensor ) and may interact with content on the licensor s servers.

Both content licensor and network operators want to advertise and cross-sell to the same customers

Ownership = financial asset

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Customer Ownership

Customer ownership relates to open versus closed network issue

Via open network, content licensor can circumvent network and sell content directly to targeted consumer (e.g., Mobizzo)

Via closed network, content developer must have access to network to reach targeted consumer

Dependency on network for customer access gives network leverage in ownership issue

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Customer Data

Customer data ownership can remain a contentious issue even where customer ownership issue is settled

For example, if network end users interact with advertising embedded in licensed content, who owns the resulting data the network, the content licensor or the advertiser?

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Control Over Retail Content Pricing

Content licensors want to maintain brand equity/prestige of content (i.e., no harm caused by heavy discounting)

Carriers maintain they know their customers best

Application of antitrust law to multi-platform content distribution

Pricing structure may depend on revenue share model

Billing on Behalf of (BOBO) carriers maintain control and stickiness with customer

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Risk Issues

Allocation of Risk

Indemnification

Limitation of Liability

Privacy Issues

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Allocation of Risk

Contractual allocation of risk of third party claims licensed content is infringing or defamatory.

What are market trends in allocating risk and providing remedies?

What are market trends towards third party content versus content created at direction of network any distinction?

Content aggregators authority to license and sublicense? Scope of indemnity? Insurance coverage?

Responsibility for rights clearances: synch rights, master rights, performance rights, likeness rights, etc.

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Indemnification; Limitation of Liability

Market trends: who bears risk of content liability and user conduct?

Service levels for network quality and coverage (e.g., licensor indemnified for network outages?)

Trends in LOL exclusions: non-infringement?

Indemnitor with shallow pockets: insurance coverage

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Privacy Concerns

Privacy concerns: use and control of personally identifiable information

Location-based services

Wireless industry self-regulation for LBS (FCC declined to take action)

Concern: predatory crimes, particularly to minors, arising from use of wireless services with location-based technology and/or social networking sites (e.g., MySpace, Facebook, etc.)

Who is responsible and what can be done to mitigate liability?

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Revenue Issues

Revenue Models

Advertising-related Issues

Termination-related issues

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Revenue Models

Examples: subscription, revenue share, ad-supported, and transaction-fee models

Market trend ad-based model expected to grow, subject to user tolerance (e.g., growth in online ad spend)

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Advertising

Who has the right to advertise to and monetize the end user the network or the content licensor (or both)?Embedded advertising issues: exclusivity conflicts and competition issues (e.g., Cingular device with embedded T-Mobile ad in video game)Customer relations and privacy can content licensors direct advertising harm the network customer experience?Remedies for breach if content provider inserts banner ads in content, would carrier shut down popular content licensor in breach?

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Termination Issues

Right to suspend service/terminate over breach of content-related reps (e.g., offensive, defamatory, infringing)Right to revoke/terminate content license over breach of carrier/distributor license terms (e.g., exceeds limitations)Database purge customer data and other proprietary dataUnwinding split/shared ownershipUntangling jointly developed IPTransition cooperation

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Content Issues

Content Access: Walled garden vs. Open Network

Content Control: User modification

Content Protection: Security/DRM

Net Neutrality

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Walled Garden vs. Open Network

Carrier-exclusive on-deck content deals (e.g., Helio-MySpace, Sprint-NFL)

Handset manufacturer exclusivity (Motorola-iTunes)

Application developer exclusivity/on-deck placement (Yahoo, Microsoft and AOL IM/community applications)

Whither Google (Dodgeball, Earth/Maps)?

Will mobile search be a catalyst for open mobile networks as in the online context?

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Content Control: Modification and Contributions by Users

Change in user relationship content: portability, control and time-shifting. iPods and DVRs

Open Source and Crowdsourcing movements: MySpace, Facebook, YouTube, Podcasting, and Blogs

Tension with IP enforcement obligations: piracy, infringement, trade secret misappropriation

Network/carrier liability for user infringement of third party IP? MGM v. Grokster, 545 U.S. __, 125 S.Ct. 2764 (2005).

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Content Protection: Network Security, DRM

Differences in risk posed by different platforms: Internet/open network versus on-deck/walled garden mobile networks

Mobile operator can monitor and control the distribution of content to and from its mobile subscribers

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Content Protection: Network Security, DRM

Fear of online piracy and unsettled Internet-related residual royalty rates have delayed music and film distribution over the Internet

Apple and Amazon s movie download initiatives (limited selection, price variances, no DVD copying, inferior picture quality, channel conflict with retail DVD sales (e.g., Wal-Mart s reported battle with Apple)

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Net Neutrality

FCC s Broadband Policy Statement of 8/05:

Consumer freedom to access to lawful Internet content.

Consumer freedom to run applications and use services, subject to the needs of law enforcement.

Consumer freedom to connect lawful devices that do not harm the network.

Consumer entitlement to competition among content developers, network providers, and application and service providers.

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Net Neutrality

Legislative Developments

Barton HR 5252 (grants FCC authority to enforce Policy Statement but no more)

Stevens S. 2686 (authorizes an FCC study)

Sensenbrenner HR 5417 (antitrust law extension to net neutrality)

Website warning labels mandatory self-regulation?

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The Road Ahead

What are market trends in allocating risk and providing remedies?

What are market trends towards third party content versus content created at direction of network any distinction?

Who is responsible for Internet privacy and what can be done to mitigate liability?

Will mobile search be a catalyst for open mobile networks as in the online context?