Stuck in the Middle

Baldwin Louie — Mon, 06 Mar 2000 14:00:00 -0800

Middlemen live.

Not all that long ago, the conventional wisdom was that the Net was going to create an epidemic of "disintermediation," with producers and consumers of goods doing business directly, routing around the middlemen who traditionally linked the two sides. But middlemen in many industries have begun fighting back - and they're getting some help in Washington.

Consider, for instance, the real estate business. A host of new Internet sites, such as NewMLS.com, are offering prospective homeowners ways to find, buy and sell homes without using an agent. But the agents are angry, and they're trying to enlist Congress to their cause.

The 700,000-member National Association of Realtors has made its top priority the passage of a bill that would protect databases - such as the Realtors' valuable Multiple Listing Service, the national compilation of real estate listings. Asserting that sites like NewMLS.com are pirating the Realtors' proprietary information, the group has won the support of some key players, including House Majority Leader Dick Armey (R-Texas).

The Realtors favor a bill that carries criminal penalties for anyone violating the rights of the original gatherer of information. Newspaper associations, legal and business publishers and stock exchanges also back the bill. Almost every Internet company - with the exception of online auction house eBay (EBAY) - has lined up on the other side.

The database debate is one of a growing number of policy fights that pit the interests of old-line businesses against Internet companies. Realtors, travel agents, car dealers, beer and wine wholesalers - all key middlemen in the old economy - are worried about the competition coming from the Net. Broadcasters, movie studios and sports leagues are likewise trying to protect themselves from technological change.

And all are turning to Congress, state houses and the courts for help to maintain the status quo.

Two weeks ago, for instance, the American Society of Travel Agents filed a complaint with the Justice Department seeking to block an online joint venture among 27 U.S. and foreign airlines.

Likewise, in the past 12 months, car dealers in nine states have fought successfully to toughen state franchise laws, which make it virtually impossible for manufacturers to sell cars directly - such as over the Internet - rather than through locally franchised dealers. Wine and spirit wholesalers last year convinced the House to let states that prohibit the direct sale of alcohol to consumers take out-of-state wineries to federal court if they ship wine across state lines to fulfill orders received on their Web sites. A Senate hearing on the issue is likely this spring.

Meanwhile, a coalition of television networks, movie studios, media and sports organizations recently teamed up to fight the rebroadcasting of network and sports TV over the Internet. That comes after a federal judge stopped a Canadian Web site, iCraveTV, from replaying such broadcasts.

Rob Atkinson, executive director of the Progressive Policy Institute, a Washington think tank, has a phrase for this phenomenon: He calls it "revenge of the disintermediated."

"A lot of the players, big and small, in the physical world have been asleep," Atkinson says. "Now the Internet gets to be a bigger part of daily life of Americans and they're waking up and realizing this is threatening their privileged position. It's not unprecedented for industry groups to go to government and try to protect their turf, particularly when new technological changes enter the marketplace and shake things up. But they're all doing this under the guise of fairness and protection of consumers."

History is replete with examples of companies, industries and professional associations asking the federal government for legislative protections that would defend their positions from rapid technological change. In 1919, Atkinson observes, the Horse Activity Association of America tried to lobby government to point out flaws in mechanized farming. They ultimately failed to win laws preventing the use of automobiles in farming and requiring the use of horses instead.

"Rather than embracing the future and realizing they can be more successful in all sorts of ways, some organizations embrace the past and attempt to stave off the inevitable disintermediation and reorganization that the Internet is bringing," observes Lance Hoffman, director of the Cyberspace Policy Institute at George Washington University (dossier). "If you get ahead of the parade and lead it, it's a much more risky but better strategy."

Many of the offline players bristle at suggestions that these are issues that divide new-economy and old-economy players. The ASTA argues that the airlines' joint venture is part of an airline industry plan to "get rid of agents." Agents act as the public's representative and help keep prices low, says Paul Ruden, senior VP of legal and industry affairs for the society.

"We haven't been displaced by the Internet," says Ruden. "This isn't about the public turning away from us. It's about the public having the ability to find us. That's what the airlines are trying to prevent."

To Realtors, who have supported database protection for years - but never more fervently than now - the issue comes down to preventing online companies from having a license to steal. They say it is up to the homeowner to decide where the listing information should appear, and that no one should have the right to click around the Web and copy listings from the Realtors' own Web site, Realtor.com, to a rival site. "The Realtors were using computers before the Yahoo (YHOO) folks were out of high school," says Ed Miller, a lobbyist for the Realtors. "The question for us is do you keep building a site like Realtor.com or put it back on password-protected so that only other Realtors can see the information?"

The reason eBay has cast its lot with Realtors and publishers and against such Internet stalwarts as America Online (dossier), MCI WorldCom and Yahoo is that the database issue pits the interests of those who compile the data storehouses on the Internet against those benefiting from new forms of commerce that sometimes pull up some listings from these databases. A bill sponsored by Rep. Howard Coble (R-N.C.) in the House Judiciary Committee, would criminalize reuse of information from databases. A rival bill sponsored by Rep. Thomas Bliley (R-Va.) in the House Commerce Committee, would prohibit exact duplication of databases but allow enhancement and reuse of the information.

While the two congressional committees try to hash out a compromise, the Justice Department has been investigating whether eBay should be permitted to shield its auctions from competitors that allow comparison shopping.

Some opponents of the database protection legislation believe it will grant companies property rights to public data, such as stock quotes. "This is the buggy-whip manufacturers trying to ensure that we'll buy a buggy whip with every car," says Frank Kelly, head of government affairs for discount broker Charles Schwab, which is in a battle with the stock exchanges over charges for real-time stock quotes. "This is the old world vs. the new."

Analysts foresee another protracted battle looming on the horizon over streaming video. Already, there have been clashes in all three branches of government. A federal court blocked iCraveTV from distributing U.S. programming over the Net. Congress is trying to determine whether Internet service providers should be granted similar compulsory licenses to carry videos, like those enjoyed by the cable and direct broadcast satellite industries. Communications regulators recently denied a request by Internet Ventures to offer video programming over the Internet.

"The near-hysteria that content owners like Time Warner (TWTC) and the NFL have had over iCraveTV's pointing a crude Internetcam at a TV set underscores how frightened big copyright owners are that Internet distribution undercuts the value of their content by facilitating illegal copying and piracy," wrote Legg Mason (LM) Precursor Group director Scott Cleland in a recent report. "The vehemence of copyright owners' reaction is telling. This skirmish may be just the tip of an iceberg; the big copyright owners are terrified that they may be the Titanic that could sink if the Internet blows a hole in their control over how their product is distributed and paid for."

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Stuck in the Middle