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The New Facebook and why Netflix split in two

How important is Facebook's push into digital media? It's huge. Reed Hastings, the CEO of Netflix, believes the social network could remake the way we discover movies, music and news. He also believes his company is being left behind.

Hulu launched its Hulu on Facebook app last night. Hulu has let users share their viewing habits on Facebook for a while. But with the new app, all that sharing becomes nearly automatic. You sign in once, give one consent and start sharing. You can even adjust what you want to share and with whom. But from then on, everything you watch on Hulu will be archived on Facebook in your new Timeline. If you chose it, it will show up in the ticker that runs down the right side of the new redesigned Facebook page, and keeps you up to date on everything your friends are doing, and vice versa. Posts about what you're watching on Hulu, for instance, will show up on the tickers of all your friends.

And Facebook takes it a step further. If a bunch of my friends watch the same show on Hulu, Facebook may let me know that in a special post, kind of like a peer recommendation. Facebook and Hulu will then be watching, and studying, whose tastes are influencing mine.

Yesterday Reed Hastings spoke at Facebook's developers conference, known as f8, to say how excited he was about doing the same thing with Netflix. When Facebook first approached Hastings, he was cautious. But CEO Mark Zuckerberg convinced him a partnership would help Netflix double its rate of growth online. Zuck also helped convince Hastings to join Facebook's board.

Today, Netflix is rolling out sharing on Facebook in every country Netflix serves except the United States. The hope is that by seeing what your friends watch -- you will want to watch too. And if you are not a Netflix subscriber, you will join.

But in the United States, Netflix can't do any of this because of an old law called the Video Privacy Protection Act, or VPAA. If you are old enough to remember the Robert Bork hearings -- and you're a recovering political junkie like myself -- you may recall that during Bork's Supreme Court confirmation hearings the D.C. City Paper obtained Judge Bork's movie rental records from a local video store. What they found was completely boring -- but Congress freaked out. What if reporters could get video logs on whomever they wanted? Congress quickly passed the VPAA.

Here's how Ryan Calo, a privacy expert at Stanford law school describes it:

"The Act is one of the strongest on the books. It covers rental, sale or delivery of prerecorded video-cassette tapes or similar audiovisual materials.' It prohibits releasing personally identifiable information, which means 'information which identifies a person as having requested or obtained specific video materials or services,' without the written consent of the customer."

Clearly, Netflix, which until this week was in the business of mailing DVDs to millions of customers around the country, is covered by this. And obviously their spin-off, Qwikster, will be covered as well.

Calo thinks the law is so strict that even Hulu, which has never touched a DVD or videotape in its life, is likely violating it by launching its new Facebook service.

"The relevant provision refers to the 'informed, written consent of the consumer given at the time the disclosure is sought.' Now you could argue that selecting from a dropdown menu constitutes informed consent, especially if there is no default and the consumer has to pick one option or cannot proceed to sign on." Calo says you could even argue that the Internet changes the meaning of 'written' and that selecting from a dropdown menu counts. But how exactly do you get to 'at the time the disclosure is sought'? "Hulu seems to be asking for blanket consent to share whenever a consumers watches anything. Maybe you could argue that Hulu is not sharing anything -- it's the consumer who is doing the sharing. That strikes me as risky."

Hulu declined to comment. But clearly the lawyers at Hulu and Facebook came to a different conclusion than Calo.

And legal privacy experts I've spoken with say the VPAA may not be as cut and dried as Calo believes. These attorneys argue it's not clear this 25-year-old law applies to the online world. No court has ever ruled on the subject. They say Facebook and Hulu developed a consent process before any of this sharing began -- and they did it with the Video Privacy Protection Act in mind.

Bottom line: Hulu is moving ahead with Facebook. And Netflix, still saddled with a DVD business, is stuck on the sidelines watching.

Watching his competition hop into social has driven Reed Hastings a little bat crazy.

So personally, I'm convinced that's a big reason why the company decided to push ahead with its poorly planned, and rushed decision to spin off its DVD business this week and launch Qwikster.

When I asked folks at Netflix about it, they would not comment directly. But they had plenty to say about the VPPA.

"This is an ambiguous law that was written 23 years ago before most modern technologies used today existed," said Joris Evers, a Netflix spokesperson. "It was written in that environment and it is unclear what the boundaries of the law are in today's environment. Because of that e are not enabling Facebook integration for our U.S. members."

"We would love to bring our feature to our U.S. members," he added.

Hastings is determined not to miss the social media revolution. He's in love with computer algorithms that offer movie choices. I am sure he and other engineers at Netflix are eager to get a peek at what your friends are watching and how they influence your choices. All that data has to be incredibly appealing for Hastings and his Stanford-educated brain.

I am willing to bet as soon as the Qwikster and Netflix separation is complete, Netflix is going to jump onto Facebook, start encouraging its customers to share everything they watch, and try to build better algorithms that will make its streaming service as addictive as television was back when it was the only game in town.

If Netflix goes social in the United States it may be taking a legal risk, but the risk to its business might be even greater, if it decides to wait for Congress to change the VPPA.

For more on the changes Facebook is making, check out my story on Marketplace today.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.

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