Last month in New Orleans, the US Circuit Court of Appeals upheld the dismissal of a case brought by a Texas girl’s family against myspace for failing to protect their daughter from a sexual predator whom she met on the popular social networking site. The ruling was based upon the Communications Decency Act of 1996 which bars lawsuits against web-based hosted service providers whom are merely transient oversight over what transpires over their Site. Essentially, to have safe harbor defenses under the “CDA”, the site owner must just be hosting the space and controlling what content and other interaction that takes place on the site. 

The court noted that the girl has an action against the offender of the crime (in this case a 19 year old man who seduced the 14 year old to meet him in a parking lot where she was sexually assaulted), and that the interactive computer service is not responsible for the independent criminal conduct of its users. The court found that the girl misrepresented her age in her user profile, which requires its users to be at least 14, presumably to comply with COPPA.

Does this mean that social networks have no duty whatsoever to protect young people from other dangerous users? The case is not conclusive. There has to be some active participation on the part of the social networking site to  blow the safe harbor defense of the CDA. This is determined on a case by case basis. 

As a matter of business practice, myspace’s chief security officers actively police predator activity on the site. They cooperate with authorities in setting up sting operations to trap these perpetrators. Having represented many social networking sites as counsel, it is good business to promote the safety of the membership and while not instituting too much control, to enable users to participate in a reasonably safe environment. 

As a result, screening offensive content and warning users against freely sharing their information or meeting with others is an intelligent way to mitigate exposure to a social network’s users from dangerous situations. After all the asset of the social network is the users and their contribution to the development of the community on the site.

But what does this fragmentation of audience share mean to traditional entertainment and the studios? With more choices, audiences are tougher to capture and more difficult to maintain as fads and interests of Gen Y are elusive to the slow moving corporate environments of old media. 

So how does one explain the massive increase of gaming in this country over the past decade which is surpassing the movie industry? Its a simple answer, one that I have been talking to people about with my film school friends since 1994, motion picture narratives are missing one key component, the immersive experience. People want to actively engage in their entertainment. Look at American Idol, a primitive, but effective interactive television program, giving its audience a voice or power to change the outcome of the game.

While my interpretation in 1994 involved ideas of narratives along the lines of “choose your own adventure” book series, it was based upon the premise of some of the coolest arcade games on the market (back then in-home gaming was pretty much limited to Atari and maybe PC games on my Apple IIe). In any event, when an audience has a stake in the characters or the outcome, they are much more willing to spend their time, attention and money in it. There is the old saying, the chicken is involved, but the pig is committed in making ham and eggs. The same goes true in entertainment. I can only speculate as to what the future will hold, but I am confident that video gaming is not simply a passing fad, but rather, will have a significant increase in the entertainment market share during the US recession.

I don’t think Yang could have foreseen any of this, nor could he be able to predict the coordinated moves by Microsoft and Icahn, but certainly Yahoo is sitting much prettier now with two potential dates to the prom. f cats had nine lives, Jeff Yang is certainly the beneficiary of some feline luck. Now it is up to Yahoo to play this out carefully because Microsoft has more to lose here than Google. 

There are only four potential scenarios here that can play out, absent something coming in from way out in left field: 

1. Google wins the marriage with Yahoo and the JV is successful, taking Yahoo off the chopping block for Microsoft to acquire, trumping Microsoft’s aggressive move into the Internet.

2. Google wins the marriage with Yahoo, but the JV fails miserably…Google ruins the prize and maybe Microsoft will pick up Yahoo for a song, or if Yahoo is too far gone, no one will touch it.

3. Microsoft wins the courting with Yahoo, and the JV relationship is successful, leaving Yahoo vulnerable to a Microsoft acquisition. It is arguable that Yahoo will be acquired at a discount based upon Microsoft’s control over ad revenues. This would at least help Microsoft make some move towards Google’s position, although many at Microsoft would probably confirm that integration would be a likely failure.

4. Microsoft wins the courting with Yahoo, and the relationship fails miserably, again leaving Yahoo’s price in the bargain basement and giving Microsoft the discretion to take it or leave it.

Absent Icahn throwing a hail mary to take some other direction, one of these four likely scenarios will occur. 

Under the circumstances, this seemed like the right strategy, but what about Yahoo’s new strategic partner Google? How does this new love interest play into the triangle? My assessment is that Google played a brilliant strategic coup that makes Yahoo damaged goods, and steals away a major opportunity for Microsoft to come back on a bargain hunt. By outsourcing all of its ad placement to Google, I assess Yang effectively made Yahoo unpurchasable by Microsoft and gave Microsoft’s biggest threat complete control over its revenue base. Microsoft could never make such a significant acquisition when Google is controlling Yahoo’s primary revenues.

Obviously, Yahoo was a rook in the very high stakes media chess game between Google and Microsoft. Google faced significant risk to make an acquisition play at Yahoo for a number of reasons including anti-trust hurdles as well as high risk of M&A integration. What makes this particularly powerful for Google is that they blocked Microsoft’s key acquisition in its Internet strategy, at a very low cost to its business. They don’t have to enter a competitive bidding war, they don’t have to pay a premium for Yahoo, nor do they have to take a hit to their own stock price for paying too much. All they have to do is be a service partner for Yahoo, and Google wins not only in terms of increased revenues,  but could also keep the number one traffic portal from falling into the hands of its biggest competitor.

So what does this mean for Yahoo? While Yang got what he wanted by avoiding being gobbled up by the Microsoft giant, he has many angry shareholders to deal with. Mr. Yang will be forced to make the Google deal work, because if he can’t recover from the drop in stock price or tries to pull out of the Google deal later, Microsoft can come in and sweep up Yahoo for a bargain, leaving Yang, the Yahoo Board and possibly Microsoft to face the onslaught of class action lawsuits by shareholders. I don’t think that Google will let this happen, however, at least as long as Yahoo holds some value as an Internet property for Microsoft. I speculate, however, this is not the last we have heard of this love triangle.

From a business and economic standpoint, this move is a logical tactic by Sony to mitigate X-Box’s competitive advantage and produce higher demand for its P3 product. But I don to think it is the sale of movies or content that Sony is after. Rather, I think they are just trying to stay in the game of audience control and data mining. The battle for the living room has historically been owned by the cable operators, telco, satellite operators. Now, the hardware manufacturers are trying to get into the fray, with Microsoft’s X-Box, AppleTV and the P3 as a mechanism to aggregate data and viewership patterns across its network.

Knowing and targeting the audience is key to driving marginal value for advertisers. So the question that remains from a legal standpoint is where does the Internet regulation stop and where does traditional television regulation begin? Clearly, if the screen in your living room has the same functionality as the screen in your office or at your desk, do the rules of the Internet prevail? If so, how does that affect privacy concerns for children and individuals? With DVR’s does that mean we will see more integrated advertising and in-program e-commerce capability? As more features drive technology and consumer buying the latest and greatest, what is the cost relative to their actual utility?

I ponder these questions when thinking about how the living room wars will play out. Regardless of device, however, I think that mechanistically, the organization that owns what is scarce (e.g. the last mile to the living room (e.g. telcos and cable cos) by virtue of government sanctioned local monopolies) will be able to monetize on all fronts because they own access to the customer, they own the bandwidth and control pricing and finally they own the data flow. Absent a big disruption technology like Google with its Wimax initiatives to counter tiered pricing for media rich content and circumvent the wired network, the incumbents will continue to control the game no matter how good the hardware or the available content.