‘Scan your face’ laws for the web are having unexpected consequences

New age-verification laws in the United Kingdom, and expanding to the United States, are inadvertently driving significant traffic to non-compliant websites, particularly pornography platforms. This unexpected outcome highlights the challenges and potential unintended consequences of digital content regulation, as users bypass verification requirements by migrating to less regulated segments of the internet.

Analysis

The recent implementation of mandatory age-verification laws in the United Kingdom has produced a significant, unintended consequence: a substantial redirection of user traffic towards non-compliant platforms, specifically pornography websites. This highlights a critical challenge in digital regulation, where increased friction on legitimate sites inadvertently benefits unregulated or illicit actors who bypass the new legal requirements. The trend, noted as expanding to the United States, suggests a pattern of regulatory arbitrage that could impact the competitive landscape. For compliant digital media and entertainment companies, these laws risk eroding user engagement and market share. Conversely, while it signals a need for effective identity verification solutions, it also underscores the limitations and potential ineffectiveness of current regulatory models in controlling user behavior on a global, decentralized internet.

Key Decisions for Investors

• Investors should monitor companies in the digital identity verification sector, as demand for less intrusive and more effective compliance solutions is likely to grow, though the circumvention problem highlights execution risk.
• Evaluate exposure to digital media and entertainment platforms that must adhere to these new regulations, as they may experience near-term headwinds from user traffic shifting to non-compliant competitors.
• When assessing regulatory risk, consider the potential for new laws to create unintended beneficiaries in the form of non-compliant or gray-market operators who capture market share from regulated entities.