Smart TV Article – March 2012
Over the next few years internet connected TVs, or “Smart TVs”, are set to dominate the mainstream home entertainment marketplace – they are already outselling games consoles and predictions suggest that, in 2015, 380 million people will view video content via connected TVs(1). Coupled with huge rises in sales of in-home connected devices generally(2), the commercial and legal landscape for every business in the sector is set to change fundamentally.
Until recently, the delivery of mainstream media and entertainment content to the home has largely been to ‘dumb’ terminals – televisions in the living-room essentially capable of receiving linear content only. Of course, the advent of set-top box technology, VOD and catch-up services has begun to disrupt the traditional ‘linear only’ model, but – in comparison to what is coming – only to a very limited extent.
Smart TVs don’t just give users the freedom to view whatever they like on the web, when they want. They also give the key players in the content supply chain access to the richest source of information that they have ever had on viewer behaviour and preferences. This presents a completely new set of opportunities, not only for TV manufacturers, who have previously lacked the opportunity to ‘own’ any part of the consumer relationship (at least, after the initial purchase of the screen), but also for every company that can configure its business to become part of the value chain. This includes, for example, Smart TV content provider partners (like iPlayer, Lovefilm and Netflix); manufacturers of set-top boxes, media consoles and other hardware that enable 'dumb TVs' to deliver a Smart TV experience (like YouView, TiVo, Apple TV, or Sony, the manufacturer of the PS3); ISPs and major online players, who are all positioning themselves to take a piece of the Smart TV viewing real estate (think Google); and software developers who are building Smart TV applications (for example, gesture recognition software, so you can switch your TV on, literally, with the flick of a hand), app stores, and complementary multi-screen services for access via tablet computers and other mobile devices, designed to be used simultaneously with Smart TV services (for example, interactive programming and social media services like Zeebox that link to and enrich the user viewing experience). Put very simply, the industry is undergoing a seismic shift that has already enabled the creation of entirely new breeds of media and entertainment companies.
It is therefore no surprise that these companies are vying for direct access to end users and their content purchases and usage data. While the possibilities for partnering arrangements are very real and not insignificant, businesses will have to adopt a careful and strategic approach if they are to ensure they are among the winners in the battle for a share of the new revenue streams created by the connected TV market. This will not be easy in a market that is moving so rapidly.
New opportunities, particularly opportunities at a global scale, also bring new legal challenges and responsibilities, and new compliance obligations. Since this is uncharted territory for many of those involved, plotting a course that allows legal obligations and risks to be managed effectively will demand careful thought and planning, and successful execution.
"Data is the new oil"(3)
The development of Smart TV will facilitate a blossoming of services based on or funded through the collection and use of consumer personal data (about, for example, consumer preferences, viewing habits and transactional decisions). This will bring with it potentially complex domestic and cross-border compliance challenges associated with data protection and privacy law and regulation.
When users access and use platforms made available over Smart TVs, they are likely to provide personal data, both in the obvious sense of submitting information about themselves (such as name, address, date of birth, and sex) if they register for specific services, as well as in the sense of the data trails which they create about their usage of the platform (including viewing habits and preferences), in other words, behavioural data. Much of this usage data will be collected by cookies and through other behavioural monitoring technology, which has been subject to much debate, regulatory scrutiny and legislative activity in recent years, particularly in the last twelve months. Compliance in the current climate requires a delicate balancing exercise between ensuring necessary and appropriate, informed consents are obtained, while not compromising the user-experience and normal flow of the platform's functionality.
In more general terms, those collecting such data are likely to be "data controllers" for legal purposes, and therefore subject (at least in Europe) to the extensive European data protection regime. The relevant compliance obligations relate to all aspects of personal data processing, including, for example, the processing and storage of data, transfers (particularly cross-jurisdictional) of data, including to outsourced service providers (“data processors”), rights which users (as “data subjects”) have in relation to data about them, the accuracy and security of data, as well as how long data can be kept and what it can be used for. As with all of the issues discussed in this article, while data protection compliance is not an insurmountable obstacle for Smart TV businesses, it will require a careful, considered and strategic approach, particularly since loss or misuse of personal data can now cost businesses dearly, both in the media and the courts.
Next, in many jurisdictions, the provision of media services is itself specifically regulated. This is increasingly the case even if the content is delivered over the internet. In the UK, for example, “on demand” services have been regulated since December 2009 under the regime established by the Audiovisual Media Services Directive, an EU-wide measure. Throughout Europe, regulated service providers (which will include any Smart TV businesses that have editorial responsibility for TV-like content on their platforms) will need to observe a range of requirements that govern, for example, advertising and sponsorship arrangements (including the circumstances in which product placement is permitted), and numerous content-specific rules (relating, for instance, to the protection of minors and to content which might incite hatred based on race, sex, religion or nationality).
Selling to consumers
In addition, the provision of goods and services to consumers is also heavily regulated in many jurisdictions. In Europe, not only is there generic consumer protection law that applies in the context of all types of consumer transaction, but there are also specific e-commerce and ‘distance-selling’ based regulations. Taken as a whole, this area of regulation pervades every aspect of the supplier-consumer
relationship. It impacts supplier limitations and exclusions of liability, indemnities taken from consumers, and any other terms that cause a significant imbalance in the supplier-consumer relationship; it also prohibits unfair commercial practices (which include pre-sales activities, as well as contractual terms) and, in certain circumstances, imposes mandatory consumer cancellation rights (see further below).
European legislation (such as the E-Commerce and the Distance Selling Directives) places obligations on providers of services and goods ordered online to make certain information available and, under most circumstances, to give consumers the right, for a limited period after placing an order, to cancel it and obtain a refund. Providers of Smart TVs are likely, by making online platforms available to users and enabling the purchase of audiovisual content over those platforms, to fall within the remit of such legislation.
The provision of services, such as access to TV catch-up content, would, in principle, be subject to the cancellation regime. However, there are one or more exceptions that may apply, providing the service is structured appropriately and consumers are adequately informed (although there are currently proposals in the pipeline for reform of this regime which, when implemented, are likely to alter the operation of these exceptions, as well service providers' compliance positions more generally).
Equal access for all
Lastly on the subject of regulatory compliance, as well as consumer protection regulation, there are also other regulatory regimes that may need to be complied with when delivering services to end-users, in particular in connection with the accessibility of online platforms for users with disabilities. These create myriad considerations such as: whether the platform provides workable text equivalents of images and sounds; whether the font sizes on the platform can be significantly varied while maintaining the platform's usability; whether the platform can be navigated without a mouse or other pointing device; and whether the platform's colour content includes sufficient contrast to be useable in gray scale, to name but a few.
As many companies have already found, failure to comply with the complex regimes that underpin the regulatory obligations in these various areas can easily result in regulatory intervention and sanctions, legal liability, and (often most importantly) reputational damage.
Commercial arrangements and service agreements
Moving on from regulation, many of the new Smart TV manufacturers will rarely, if ever, have negotiated partnering or other commercial arrangements around the delivery of content and services to consumers, or the collection and exploitation of their data. This will require a swathe of inputs and services from numerous players, ranging from the design, development and hosting of user portals and interfaces, to the implementation of content delivery and distribution systems, app stores, advertising services, database and CRM management services, DRM and geo-location capabilities, as well as, of course, ecommerce and electronic payment services. And, if companies want to offer their own content services, they will also need to enter into deals with rights-owners for the licensing of content onto the platform and potentially from it, to enable syndication and multi-platform distribution. Understanding how all these inter-related services should be integrated and deployed, the terms on which they can be procured, and what kind of service level commitments will typically be offered, will be critical to any successful implementation.
Liability for user generated content
Where users of Smart TVs are able to access and submit user generated content, this will give rise to potential legal liability; not only for users, but also for the companies that host and provide access to such content. While by no means limited to the following types of liability, problems frequently arise in connections with content that: is defamatory; is criminal; or infringes a third party’s intellectual property rights (a typical claim by rights owners in relation to, for example, content on music and video sharing platforms).
There are potential defences (under the E-Commerce Directive) to most claims of this kind for intermediaries providing “information society services”, where the providers are simply caching or acting as a host or a mere conduit of such content. However, while these defences typically protect, for example, providers of online platforms enabling users to upload and share their own content, they are not without their limitations, not least because: they do not necessarily protect against all types of liability; they fall away once the intermediary becomes “involved with” the content (eg by being put on notice); and they do not necessarily protect all intermediaries (for example search engine providers are not necessarily covered). Providers of Smart TVs and Smart TV services should carefully consider the extent to which they might be liable for content transmitted over their platforms, and how to build and operate their businesses to minimise and manage this risk.
This article discusses only some of the principal issues that will be relevant to businesses in the Smart TV value chain, and even then only at the highest level. It does not address at all issues relating to the provision of Smart TV services to children (for example, in relation to the delivery of age-appropriate content and the collection of data), moderation of user-generated content, regulation of advertising, or ownership and licensing of intellectual property rights, to name but a few.
In short, companies in the Smart TV eco-system will have to address a wide array of commercial, legal and regulatory challenges while trying to build profitable, sustainable businesses in an intensely competitive and dynamic market. It is not a challenge for the faint-hearted, but the opportunities are significant.
(2) Informa expects the installed base of in-home connected devices to reach 1.8 billion in 2016, "Connected devices in 2016: evolution no revolution", Informa telecoms & media, New Media Markets, 27 July 2011