Connected Consumer Q1: Controversy, courtrooms and the cloud

1 Summary

The first quarter of 2012 featured several high-profile legal and regulatory battles over privacy, antitrust and copyright that could eventually reshape digital markets, including the pay-TV business and online advertising. It was also marked by shifts in the online video landscape, including a seductive new display from Apple and Hollywood’s first efforts in the cloud.

The Barry Diller–backed broadcast-TV streaming service Aereo launched in March and was quickly targeted with copyright litigation by the TV networks and broadcasters, setting up a potentially crucial courtroom showdown. If Aereo wins and its backdoor method of live streaming TV content without a license from the content owners is found to be noninfringing, many of the mobile-video streaming models the networks hope to keep within their control could slip from their grasp.

Demand for mobile video, meanwhile, is likely to get a significant boost, due to the introduction of high-pixel-density displays on mobile devices, such as Apple’s Retina display on the new iPad. More than simply an incremental improvement in screen resolution, the Retina display has made using the new tablet an intensely visual experience and has led to a surge in video streaming by new iPad owners, putting strains on wireless networks.

Video consumption on the iPad is likely to continue to rise now that the Hollywood studios have licensed Apple to add digital copies of DVD and Blu-ray movies to the iCloud for playback on Apple TV and iOS mobile devices. In doing so, however, the studios may have given away crucial leverage for building retail support for the industry’s UltraViolet cloud initiative. With Apple able to offer movies in the cloud without joining UltraViolet, other retailers now have less incentive to support the format.

The first quarter also saw a significant increase in scrutiny by regulators and lawmakers of the use of customer data by Facebook, Google, Apple and other Internet companies, both in the U.S. and in Europe. The European Union is preparing to roll out tough new restrictions on the use of personal data that could force significant changes in how companies like Facebook and Google operate. In the U.S., antitrust regulators are also probing Google regarding its handling of search results. However those probes turn out, Internet companies are likely to face far more regulatory oversight in the years ahead, especially as authorities apply antitrust law to digital markets like search and online advertising.

User data is also likely to play a key role in the future of Pinterest, the fast-growing social-curation site currently in search of a business model. If Pinterest doesn’t get derailed by copyright concerns (or new data-privacy rules), the kind of acquisitive behavioral data it is collecting on its users could prove too valuable for marketers and merchants to resist. That could make it too valuable for Facebook, Google, Twitter and other established social networks not to have, which means they will either need to find a way to compete for that data themselves or buy someone who has it. Like Pinterest.