As European legal director of digital media and entertainment services provider Deluxe, for the past decade James Watson has been at the vanguard of an industry that has seen a rapid technological overhaul. After graduating from The University of Oxford, he worked in private practice before heading in-house to Ascent Media, which was acquired by Deluxe in 2010.
In this Limelight, Watson discusses the daily diet of data security, IP, piracy and outsourcing issues facing corporate counsel in the media sector in the wake of evolving platforms and methods of sharing content in the digital age.
Catherine McGregor: You’ve been working in-house in the media sector for nearly 10 years. How have the legal issues changed and developed in that time?
James Watson: I think the changes in technology have affected the media sector quite majorly and other sectors will be behind the curve on that. Ours is a business that historically was very tape-based, was very analog, and that's not the way content is consumed now. It's not the way that we receive it or service it. So we've had to get ahead of the curve and we've had to develop solutions both internally and licensing them in.
Clients are looking for us to provide a service to them that is future-proofed for a number of years. If they're going to commit to us for three, five-plus years, they need to be confident that what we have to offer them is a leading solution now and will be for a good period of time, rather than just something that's good for the next six months or good for the next year.
When you get your crystal ball out and think, “Where is the world going to be in two years, five years' time?” Sometimes you can outsource that risk, you can go to a third party and say, “Actually, we want you to provide this service to us.” Playout of TV is a good example of where a lot of companies were providing it themselves, then when new technology came along some have decided to outsource. There's a little bit of cyclicality there in that, then some go back in-house again because there's never a perfect solution. Someone's always looking externally and trying to find the next way of saving some money, and that “grass is always greener” approach.
CM: What have been the biggest legal risks and issues you have to think about now, with such extensive changes in technology?
JW: Well, if you take content – we've got film libraries going back decades and it's a physical piece of film, it's a can, what's the risk to that content? Well, the risk is that it gets stolen, the building burns down. It's a very physical challenge but if you build your Fort Knox, you're safe.
But if you fast-forward to now when you're looking at getting content out to cinemas, increasingly it's digital content going down a pipe. You're not just looking at a building, you're looking at a whole process and you need to understand that process. You need to understand all the people in that supply chain – it's the classic thing: you're only as good as your weakest link. You need to front that service, you need to prime it and you have to be responsible for all those links in the chain.
Do you know where your data's being held? Do you know where your content is going en route A to B? Are you going on a public network? Are you going through a private system?
CM: Well, and today data is in the cloud and everywhere, really, now isn’t it?
JW: I think it's an interesting thing in terms of the attitude towards data. When we first started talking about “cloud-based” services a few years ago, there was a sense of “no one will ever agree to that, no one will ever let their content be held in the cloud” and we've now moved to a situation where that is getting to be very much the norm.
But you have a situation where some cloud providers probably aren't, in the personal context, offering a huge amount of security. People are using cloud-based back-ups for all their photos and all their personal data because they think that's better than having a hard-drive in their house but what would the cloud provider actually give you if they lost all your photos? It could be minimal. So there's maybe a disconnect between what people assume and what they're actually getting and clearly you can't afford to have that in a business context. In practice the service offering is at a higher level than some people expect but it's a higher bar than some other people are prepared to offer and deliver.
Ultimately that's where you build and you maintain your reputation because there will be some people who will be able to come in and undercut. And where you have people who are just purchasing on the basis of price, in a procurement-based world, then they may get their fingers burnt. It's maintaining that level of reputation that Deluxe has had for 99 years to say actually you can give us your content, you can trust us with your content, we appreciate your IP your crown jewels, so we look after it. There's that tension between people wanting cutting-edge technical solutions and people assuming often that with that comes a much lower cost. But at the same time you have to fundamentally look after the content and you have to do the right things with it.
CM: At the moment are most of your technological solutions, in terms of transfer of content, outsourced as opposed to in-house?
JW: It's a mix. We've got quite a lot of developers that are working on different solutions, we have quite a lot of asset management solutions within different parts of the business and different companies that we've acquired that have different solutions. It's a case of bringing them all together and going for a “best of breed” approach. Some things it's certainly quicker to license in, and speed is important. Where the expertise already exists elsewhere we will license in.
But there are some areas where it's too niche, too specialist, and the solutions out there are too generic so it's a mix. But it's becoming a more important part of our business so it's an interesting debate as to whether we will see more developed internally going forwards or not. Either way the quality of the technological solutions will be key going forwards.
CM: There are issues in terms of security; if it's being outsourced how can you guarantee the security?
JW: Well, it's a combination. It's doing your due diligence and then negotiating the right sort of contract – it has to be a combination of the two because you could have the best contract but then if the supplier is incompetent then that's of limited value. The business guys, they know the market and they go out and find the right providers, and then we have to have a very frank conversation with the providers that we can only use them if they agree to certain standards. That's not up for debate, and you have to be upfront about that. And if they aren't prepared to work to those standards then we can't work with them.
CM: How is the convergence of different aspects – technology, data security, IP – changing your day-to-day job and how do you look for outside counsel to support you?
JW: I guess if you don't understand the technology then it's difficult to advise on it, whether you're in-house or you're in private practice.
I agree with you that a lot of these issues are converging and at the same time you see that ever-increasing specialization. But then if you fall outside of that niche then you don't really want three different lawyers combining. You want the one lawyer that understands everything.
The challenge is – and I'm not saying that the challenges of our industry can't be understood by other people – but it seems to me it must be less easy to dabble in a different sector from a contractual perspective than it was 10 years ago. It's the classic thing of wanting lawyers who genuinely understand your business and can understand the issues that relate to it rather than looking at it from a more generic legal perspective.
CM: In terms of convergence of technology with IP issues, what are the biggest challenges you're facing there?
JW: I think the data issue in terms of where data is being held. As a global company, moving data around the world, from a technical perspective it's something that's very easy to do and it's something from a global business perspective you want to do but it's something that you need to think about quite carefully from a legal perspective. We don't hold masses of personal data but you need to think about it as an issue and you need to think about whether where your data is going is secure. I think that's a real area of concern.
You're looking at a hosted model and a managed-service model where you can say to the client, “Look, you can give us your content and we will manipulate it, we will do things with it for you or we can license you a solution where you can do it yourself.” In that situation you have to be very careful that you define the service and address areas of responsibility, for example, the client monitoring their users and using the system properly.
CM: There's a lot of talk about the scale of organized crime and cyber terrorism. I'm presuming that film companies aren't necessarily the victims of state-sponsored cyber attacks – but is it increasingly more sophisticated and increasingly hard to stop such attacks? When you think of film piracy, you think of someone with a video camera in the cinema but I guess that's very old-school now!
JW: Yes, obviously cameras get smaller, quality gets higher so that’s a constant battle. And I suppose people's standards are higher so whereas people before would have tolerated that sort of shaky hand, they have higher expectations now. That's why you see people looking at the whole cinema experience, looking at 3D, looking at the quality of the actual cinema itself to try and offer something over and above, offering a heightened service that effectively you can't pirate in any way to try and future-proof themselves.
We have all manner of security audits from clients and security that we have to put in place and it's very demanding and people who have been in the industry for a long time look back to a time when we didn't have that. But the idea that you could just plug a small handheld device into a computer and take a whole load of data away – that's very much a modern thing, a modern challenge.
What do you have on your handheld device? What work information can you access there? What happens if you lose that? It's that blurring of work and personal and where do IT departments draw that line?
CM: Looking in the crystal ball, what do you think are going to be the biggest challenges over the next few years in your industry in particular?
JW: Good question. I wish I knew that! I think increasing globalization – looking at markets that we're only into to a limited degree now that are going to become the big generators of content as much as anything else. I mean it's a cliché but you look at the Chinese market, that enormous growth market, I think that will be a degree of maybe 'first-move advantage' doesn't apply in that situation, maybe second - or third - is the way to do it.
I think people have ever-increasing desires to consume content so from that perspective content will always be there, will always be consumed. The method in which people are prepared to pay for it and the means by which they consume it – that's the challenge.
If you're a tablet producer versus a phone producer versus a desktop producer versus a gaming machine producer – those are the tricky areas, the 'winner takes all' areas to be in, because how will people consume that? The question is, many of our services that we provide are distribution agnostic – we prepare the content for whatever format it's consumed on, some of our businesses are very much technology-dependent. So we've always been fairly diverse as a business and I think that diversification will be helpful.
CM: Apart from IP, what do you think are the other big growing legal challenges? I'm interested in things that you might be facing that other companies outside of the film/media sector might have to start thinking about after you've experienced it.
JW: I think knowledge management, that sort of softer IP – the IP that's in a person's head – in a world where you're not so much creating a solution that takes ten years to develop and that is very clearly ring-fenced. But you're creating softer solutions that evolve according to client need and technological advances, actually managing that process and saying, to what extent is that company IP? To what extent is that know-how that someone's brought in? To what extent, if we hire somebody from a similar space, to what extent are we free to actually use their knowledge? To what extent if someone leaves, moves somewhere else, can we prevent them taking knowledge with them? I think that's a more complex area.
CM: That has so many ramifications – employment law etc. I think everyone is still unclear about what this entails.
JW: You see it with these cases about LinkedIn profiles, contact books and all the rest of it, which you sort of think - that's not that difficult to replicate - but where you have someone that has knowledge of a particular system that you've developed, providing services to a number of clients. If they leave and go somewhere else, what can they do and what can't they do?
To what extent should companies be looking at their IP portfolios more carefully? Some companies register as many patents as they can others don't because they see it as too expensive and too time-consuming. By the time they've done it, the technology has moved on.
You're increasingly seeing patent disputes where the amounts of money at stake are enormous. You can see that sort of thing filtering down to maybe the not-quite-so-large companies. If you're looking to acquire somebody, how do you value the IP?
CM: So how do you deal with that?
JW: I think having a strategy and having appropriate documentation so that you can say, “This is our IP and this is how we prove that it's ours,” rather than it being unclear, it being vague. It's pretty obvious – what would you rather see if you were looking at acquiring a company? But then, as always, it's not enough just to say, “Our employment contracts have this, and our contractor contracts have this, and here's our patent portfolio and bang, that all looks wonderful.” Do you enforce them?
CM: Just thinking about the issue of patents, there's been a lot in the press about patent trolls, do you put yourself at risk by going down the legal route and filing a patent?
JW: It's certainly something that we're thinking about a lot more, but it's costly, it's time-consuming – you would like to see some sort of system that was a bit quicker in terms of actually forming a view on it.
CM: The law is not keeping pace with the technology?
JW: That’s often the case. I think the data that companies hold is an interesting area. There's more of a divergence between the company that's well-structured and the company that's not in terms of how they can present themselves and what their valuation will be.
CM: It's having, as much as possible, the dots joined up.
JW: Yes, because there will be plenty of people that say, “Well, we're not a technology company and we don't really have that much IP. Let's think about IP in the broader sense rather than just as something that's technology or something that's patented, look at the value of your business as a people business.” I think those are all issues that we face, in particular, but they do affect most other businesses.
CM: IP can take so many forms and sometimes the personal stuff is the least quantifiable legally.
JW: It's a little bit like that false dichotomy where someone says to you, “Can you just look at the legal aspects of that deal?” Well, actually it’s all-pervading within your business. Another example is health and safety, which isn't something that should be pushed to one side, it needs to have sufficient buy-in and your policies need to cover your whole business. So, it's that sense that IP, data and so on, there are very few businesses that can actually say “No, I'm not affected by that.”