Friday, October 06, 2006

The law, the business and…the law

Every semester's first week of class I use examples of some old or new e-business to explain to my students (who are business students and don’t want to be lawyers) why law is so relevant to business and is becoming even more relevant, and the YouTube valuation saga shows again what I refer to. The valuation of the company, calculated at U$S1,000,000,000 by its CEO, has had both the business and bloglosphere communities talking about it and trying to decipher whether he is right or wrong. So, starting with the law, the problem that might put YouTube valuation close to zero dollar is represented for being the conduit of copyright infringement at massive scale. However, it could be argued that since YouTube itself does not post material and does not participate in the postings, it should not attract liability for contributory and/or vicarious copyright infringement (as did the original Napster according to RIAA v Napster), and because it seems to take a quite aggressive stand on removing infringing material once a complaint is received, it would also not satisfy the requirements for inducement to copyright infringement established in MGM v Grokster. Furthermore, it can clearly say that it has non infringement uses (Sony Betamax case) and in any case still could use the defence of mere conduit or venue (as eBay does to get away with making money over huge trademark infringement in its site). Still, it seems very plausible that if any content producer buys YouTube the others will go to the throat accusing it of any possible form of copyright infringement, which would imply that the buyer would be buying a gigantic lawsuit (even though it might be winnable).
Now lets imagine that the copyright bits are sorted out (what probably could happen if Disney buys YouTube, because the US Congress will rapidly change the law to avoid a problem to such an important contributor to human culture as Disney ;-), and the business model problems will arise. Nobody has figured out how to transform the millions of YouTube users into customers that leave (directly or indirectly) some money in the company’s coffers and there is also a problem of costs. Regardless how cheap storing and bandwidth are becoming, hundreds of millions of users storing hundreds of millions of videos plus the technological measures that would allow the owners of the company to make some money, will represent a quite interesting amount of money that will make the company a cash thirsty one, what would make the price of the advertisement or the usage quite hefty. But again, let’s assume that one of the gurus-to-be designs an unheard of and really novel business method that allow to overcome those problems, then the law would kick in again.
As I was writing some days ago (and you need to read the comments left by a hearing impaired person), in addition of the inherent unfairness represented by the creation of sites and tools that at the same time enhance substantially the experience of some users and forbid others from using them at all, this trend of video-rich content without the proper accessible counterpart might be breaking the law, and, if somebody if going to make a billion dollars in the process, probably the authorities would ask for compliance, which will have a big impact on the costs and user friendliness, and will bring us back to the viability of the business model…

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