Augmented Reality—the result of superimposing computer-generated text and images on a user's view of the physical world—is a transformative concept that could dramatically change how we interact with and experience both technology and content. In prior articles, we have examined the convergence of media and technology companies. In this article, we examine the convergence of technology and content, and what it means for both categories of business.
Augmented Reality, or “AR”, provides a composite view of a physical space or object by adding a layer of information—or content—on top of it such that it appears the information is part of the physical world. For example, instead of having a menu bar on a computer screen, imagine seeing one emblazoned over the horizon as one looks out at the Rocky Mountains. Rather than let the user copy and paste, this menu might allow the user to see a map to a ski resort; check snow, weather and traffic conditions; get ratings for the resort; and find accommodations or breakfast spots for the trip up. Perhaps, it would give the user an option to contact her friends who are planning to visit the same ski resort.
Now imagine the user moves her gaze to the specific mountain peak where this resort is. One moment, she sees a group of skiers blazing a trail through fresh powder, she then hears an announcer describing the runs, the amenities and the wonders of the resort in rich detail, all while showing sweeping helicopter shots and other images of people enjoying the resort. A few moments more and the announcer offers to connect the user to a representative to purchase the lift tickets directly. If the user has not made up her mind to ski that resort, an episode of a short-form show begins to play featuring a group of youthful skiers and their daily antics. The user, is of course, invited to subscribe to watch more episodes as they come out, and get a discount on a three-day lift ticket.
Augmented reality blurs the distinction between technology and content, between technology and advertising, between technology and physical experiences. Like many things occurring at the intersection of technology and entertainment, opportunities and dangers abound.
Augmented reality, next to artificial intelligence and machine learning, is one of the biggest buzzwords in the tech press right now. It has gained an upsurge in coverage due to significant advances in the hardware and software that can provide the experience, and there have been wildly well-covered consumer applications of the technology, such as Google Glass and Pokémon GO; Pepsi even created an AR enabled bus stop display in London.
If AR lives up to its promise, the opportunities for content creators will be staggering. What remains unclear, however, is the business model for this new content. It is entirely possible that content will be created along the same lines as the current practice—production houses are hired to produce content on behalf of the content users (e.g., tech companies). But this could depend on the ultimate application for the produced-content. If the content is a standalone film or episode of a series, then traditional business models will likely be adopted.
On the other hand, when the content is one piece of an overall experience, different economic models may be required. As between the content creators and the distributor (and here we are using distributor in a very loose sense that could include app developers, technology providers, platforms or traditional distributors), those models could be based on profit-sharing, subscription royalties, license fees or even access fees paid for the services.
The challenge for general counsel and dealmakers when confronting an AR-content deal will be carefully analyzing the economics of the underlying use of the content or technology. Assuming a technology company is engaging a media company to produce the content, determining the flow of money between the consumer and the technology application will inform the decision as to the revenue model. For example, in an advertising application for a retail fashion designer, there are probably two leading options: a flat fee for producing the content; or if the designer is a major brand, perhaps an ongoing royalty for every item sold. How the brand and the producer determine what constitutes a sale for which royalties apply is another deal point that will require careful thought.
Putting aside the normal clearance and legal issues that abound in content production, additional challenges for the company’s law department arise from these kinds of transactions. There are heightened issues involving privacy—an issue that was raised vociferously when Google Glass was launched—safety (as experienced during the Pokémon Go craze), gaming in the case of sweepstakes and contests, and perhaps law enforcement. Because of the strong connection between AR and advertising and marketing, there could be greater concerns for compliance with the Foreign Corrupt Practices Act regarding content and services that involve foreign governments and assets. It is not hard to imagine a scenario where producers are asked by government officials to pay money for access—maybe exclusive access—to government personnel, resources or geographic locations. The general counsel will have to carefully map out the deal risks and craft a robust set of compliance obligations and representations and warranties to mitigate these risks.
It is not clear today whether AR will usher in the next tech boom or fizzle out. As media and tech companies are exploring the possibilities, careful efforts by in house counsel and deal lawyers can help shape transactions that are economically viable with minimal risks. General counsel can shape such deals by encouraging the business units to thoroughly map out the flow of cash, and assembling an interdisciplinary team of in-house and outside attorneys to evaluate the sources of risk present in the potential deal. Once identified, drafting appropriate obligations and risk-shifting provisions becomes vastly easier.