POLICY ISSUES FOR THE INTERNET OF ENTERTAINMENT

It is natural for each generation to believe that its issues and problems are brand new and thrust upon it. In reality, many of them are part of long-standing fundamental conflicts (for some of the literature, see Galperin and Bar, 2002; Wu, 2004; Liebowitz, 2006; Meisel, 2007; Noam, 2008; ACMA, 2011; Nuechterlein and Weiser, 2013; Whitt, 2013).

• power (monopoly, competition, vertical integration, ownership);

• access (interconnection, compatibility, standardization, non-discrimination, affordability, universality, diversity);

• growth (innovation, infrastructure, development, industrial policy, trade); and

• protection (children, privacy, security, copyrights, reputation, national culture).

Applied to the Internet of Entertainment, this includes some of the following questions:

• How to assure the financial viability of infrastructure?

• Market power in the entertainment Internet?

• Does vertical integration impede competition?

• How to protect children, old people, and traditional morality?

• How to protect privacy and security?

• What is the impact on trade? What is the impact of globalization?

• How to assure the interoperability of clouds?

One should not expect many firms to be general cloud providers. The basic economics of this system exhibits strong economies of scale and scope. Fixed costs are high while marginal costs are low, and distribution costs are distance-insensitive. It also requires rapid technological innovation, and high investments and risks associated with it. And there are major network effects on the demand side. All this favors the emergence of a global oligopoly market structure. The important question then is how to keep such a cloud-based system competitive? The history of networks suggests that the strongest remedy to deal with market power by dominant players is through interoperability and interconnection. This would create a system not of parallel and separate clouds but of a ‘cloud of clouds’.

The major question of a cloud-based media system is therefore the extent of interoper­ability among the various clouds. A mandated harmonization can easily stifle innovation, but if clouds are not interoperable, several things are likely to happen: market power over users who could not easily switch (‘lock-in’); difficulty of the users of one cloud to freely interact with the users of other clouds; and market power by cloud operators over the providers of hardware, software, and content.

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