IPTV/VoD: The fall of content's kingdom
But how will the story end?
Industry comment The textbook says content is king, and that saying is something every telco and ISP worldwide is contemplating after realising that if they throw enough technical people at the IPTV infrastructure problem they can put a TV network together.
But putting the wires in doesn't make people flock to your service like broadband or telephony does. TV is not just a whole new ballgame, but a massive leap of competence and faith. To attract customers, you need good content, and getting it is no afterthought – there are far too many IPTV projects alive in the world today where content is seconded or laughed off. It's a very deadly mistake.
It's often easy to forget the humble beginnings of content owners, but a good place to start is with ASCAP (American Society of Composers, Authors, and Publishers) and the BMI (Broadcast Music Incorporated), both created just under a century ago to protect the rights of musicians, similar to the UK's PRS and MCPS. Before the 1920s, people didn't pay for entertainment like we do today – radio stations broadcast performers live without paying them. Radio (or the "wireless") changed everything.
During wartime, ASCAP members (predominantly musicians) boycotted the radio as the industry had become motivated to have their assets protected and paid for. Slowly they came to rely on the new medium until it formed the very backbone of their industry, once they were able to be compensated for their work being played on it. History repeated itself with vinyl, cassette tapes and internet P2P piracy today.
But this time content's kingdom is crumbling, right before our very eyes, slowly and gently.
There is a war on its way between telecoms companies and content owners, coming about because of a fundamental lack of understanding between each others' business models and operational concerns. The battle lines have already been drawn in the US and we will almost certainly see them coming to Europe and beyond very soon. Network operators want to charge content owners and developers for the secured delivery of their assets across their infrastructure, in the same way as mobile carriers do. That would be fine, except the network they are talking about is the internet, and it's not meant to work that way.
The aggressive stance of "two-tiered" internet access is a result of a lot of miscommunication between the two industries, and is a looming and dangerous issue that needs to be fairly resolved if IPTV is to move forward into the mainstream.
Telcos have been battering down the doors of content companies everywhere to ask for material to go on their shiny new IPTV services, but they've had it firmly slammed back in their face by rights holders who are rightly sceptical of the technology, the audience, and the lack of enthusiasm for their licensing terms.
But that is relatively easy to sort out, as everyone wants to make money. The problem has arisen with the advent of legal P2P distribution technology such as Kontiki. Broadcasters like Sky, Disney and the BBC have all worked out that they can save on costs if their distribution is decentralised – that is to say, not all streamed from one central HQ. P2P distribution offsets network traffic to the edge of the access network so that customers can download from each other, rather than the broadcaster. They still need a central P2P seed grid, but ongoing distribution costs are considerably lower.
That's great for broadcasters, but bad for ISPs. The traffic load is the same but shifted from one part of the network to another, meaning they are incurring the heavy backhaul costs that the broadcaster would have to put in if they were to do it themselves. Understandably, if you refuse to cooperate with licensing content and then use them to transport your products and services, you'll not only raise eyebrows, but probably the temperature in the boardroom with it. The impact from IPTV is going to be enormous, and ISPs have enough on their hands from the step change of just upgrading their infrastructure to deal with it.
So as a result, ISPs want delivery on their networks to be a premium service that big content owners pay for. This means the networks are paid for bilaterally, firstly by the consumer and now by the content distributor. Real-time video is orders of magnitude more expensive in comparison with other types of media, and the internet as a whole is currently evolving to be so much more than it was originally designed to be. That evolution brings costs and difficulties which the current framework can't meet. But a tiered delivery structure breaks the open model of so-called "net neutrality" and as Tim Berners-Lee recently pointed out, would mean we enter a "dark period".
There is a growing frustration with content owners and the content world in general from telecoms and technology companies. Both operate their businesses on the basis of creating, owning and licensing intellectual property. Start-ups in particular are suffering from problems such as restrictive EU legislation and not being to even talk with rightsholders, let alone do deals with them. In turn, content owners are increasingly fed up with the constant of business development executives asking the same questions and stubbornly refusing to try to understand and meet their concerns. The will is there, but the way is not. The simple consequence of this conflict is that smaller companies are being empowered, and a young ecosystem of IPTV-friendly suppliers is taking root. Necessity is once again the mother of invention.
Of course, this could be posturing by telcos to negotiate a better deal on content. It's hard to see exactly how they would have a positive outcome by following their threats through, not that it's stopped any business doing the same before now. Some of the most powerful companies in the world fill their trousers from forcing the hand of others.
Dealing with content owners is difficult – that's a universal truth. Despite the best efforts of some of the incredibly clever people they have working for them, the decision makers inevitably don't have the same level of understanding and find it hard to accept change. They've grown used to being powerful and are part of an exclusive club that's very hard to join. They are convinced of their divine right to rule, have too many business offers to deal with and know their product is popular. They know that entertainment services need good content to survive, so wield a very big stick when it comes to upstarts who want to disrupt their comfy way of life.
Historically, they've always won because of these truths. But this fight is one they are going to lose.
For one reason, digital piracy.
ISPs alone hold the key to limiting and/or ending digital piracy. Their networks are the conduit for the illegal trade of intellectual property and they know it. It's an unwritten rule that what they sell is effectively free movies and music, with a little browsing and email thrown in. There is nothing that can beat free (as BT will find out when they launch their "a better free than free" Vision service). For as long as piracy continues, it will be the number one reason that on-demand services are not taken up. There is absolutely no reason to pay for a movie or music track when you can access it for free on a P2P network. VoD is pointless when you have DVD-quality movies ripped from screeners available via BitTorrent.
The movie studios are desperate to avoid the cataclysmic failure of the record labels. And make no mistake, it was cataclysmic. If you are foolish and arrogant enough to persecute and make example of your own customers (typically pre-pubescent children, university students and the elderly), you will suffer the consequences, as they already have. The market is leading these companies in a new direction but they are resisting and clinging on to power by a thread. Those consequences mean more (not less) piracy, new software build to circumvent controls and to a certain degree, the snubbing of your products by a frustrated and resentful audience. For every lawsuit or software system, a community will naturally adapt in kind, be it with encryption or a boycott. You cannot fight an enemy who you depend on for your very survival.
Piracy is the hidden and unmentioned competitor to all digital services. Even within pay TV markets (of which the UK is not one), people watch linear broadcast television before paying for video on-demand. iTunes may have been a runaway success in the press, but the leading alternative are the likes of Limewire, Kazaa and eMule. If you contrast their usage against legal services, there is more than a mountain to climb. It's the entire Himalayas. As long as you can get hold of a raw digital copy of the media you want for free, people will just keep using P2P. Sorry, but that the way it is. Just look at the statistics. The power of your brand won't stop anything.
The industry's solution to the problem of digital files keeping their integrity (i.e. perfect replication and no degradation over time) has been to push digital rights management (DRM). In the US, we've seen the horrendous Orwellian regulation known as the DMCA (digital millennium copyright act) and more and more laws coming out to change the very nature of copyright. What we now buy is a licence (or the rights) to access copies of a copywritten work. We are, for all intents and purposes, hiring the work and letting investment bankers decide when and where we are able to enjoy art. That's great for the entertainment business, but it's bad for consumers, their customers.
A digital file can be transported across multiple platforms and devices worldwide, but it may only be decrypted in certain circumstances. It can be carried or transported anywhere, but only the owner to the rights may access it, wherever they have bought the rights to. Many argue that this has always been the case, even with physical media such as CDs. Not so, even if it is the legal definition on the sleeve. The irrelevance of geography really messes up the traditional rights "window" model superbly. But the studios and labels don't seem to have found a palatable alternative that allows them the level of control they want.
But DRM is worse than any alternative. Consumers absolutely loathe it and have no understanding of it altogether. Trying to explain to a novice computer owner why they can't play their music back on different devices or record it to different media is a nightmare that simply makes most people just give up. It's fine for early-adopting technophiles who understand how DRM works, but for the other 95 per cent of the media-buying public, it's not acceptable. Worse still is that it just doesn't work at all. A simple search on the net will explain in 20 different ways how to go about cracking or circumventing most protection systems if you are so inclined (even those which are analogue-based). The industry can't keep up with an enemy that out numbers it millions to one. Stories of locked machines, hacker rootkits being installed on PCs and so on are just the thin end of the wedge that's yet to come.
Neither businesses nor consumers buy things because of their features and benefits. A universal venture capitalist truth is that they buy things because those things take away pain of some kind. DRM creates pain, hence why it will not work long-term no matter how cleverly it is marketed. The same is true of download-to-own services, which have got off to a very shaky start. Having to pay the same price of a DVD, minus packaging, plus discs, and then undergo the hassle of burning them only for them to be scratched to pieces when lying around the house is just too much. The public implicitly understands the concept of value (even if they don't refer to it in the same way that business does), and see very clearly that compared to buying a DVD, video on-demand and D2O has little to them.
So how do you end piracy or marginalise it? The answer lies in a combination of punitive action and providing more imaginative services. A war against piracy is like the so-called "war on terror" – it's a misnomer, and corrupted English language replacing a genuine enemy with a vague abstract noun, giving a perpetual, free scapegoat for every corporate failure. Who you are going to war against are your own customers and ordinary people. We are told copyright violation is a crime, but never see the police taking it particularly seriously, unless it involves cases of organised gangs. The content industry doesn't make any distinction between those at home and those that traffic drugs, launder money and have guns.
Guilt or the threat of legal action won't ever work – people laugh out loud in cinemas when the copyright warning appears and, just like illnesses, always think it happens to someone else and won't happen to them. These campaigns are trying to talk old language to a new generation who have already grown up with free media and movements against the power and greed of corporations.
However, P2P networks have weaknesses too which are permanent. First, they are very slow. Secondly, the files are generally bad quality and/or badly named. Thirdly, the search results that point to them and the networks themselves are absolutely riddled with viruses and spyware. Fourth, they are generally difficult to use productively without some kind of technical expertise and have varying reliability. Fifth, they kill your internet connection so no-one else can use it. But they are free.
So it's time to follow the first rule of mass media – give the people what they want. And when you give it to them, make sure it's better than anything else out there they might choose instead. That involves change. At the very least, consumers want something DRM-free, very fast, high-quality, easy to use and reliable that doesn't kill their internet connection. But most importantly, they know digital economics mean a lower distribution cost. So don't fall into the trap of profiteering and give it to them as cheap as you possibly can. Only after you have met these prerequisites, then comes imagination to make it more compelling than P2P.
Disney realised the number one illegally downloaded TV show was Lost, and hence released it for free. But the problem is that the idea is practical insofar that you have the will and means to deliver it on a mass scale. That delivery relies heavily on pricing, as once again, it's difficult to beat free. You cannot put yesterday's models on tomorrow's technology – it requires significant change and for the industry to wake up to exactly why people use P2P networks. They want to have a very large cake, and spend a long time eating it. No-one is able to build these legal alternatives as the licensing from rightsholders is just prohibitive.
Making great services that consumers will choose above piracy are the carrot, but a stick is still missing. That's where P2P caching mechanisms come in. P2P traffic is absolutely enormous, second only to real-time video. Estimates vary, but in some cases it's claimed to compose over 80 per cent of all network traffic. In the UK, that's anything up to 80Gbps of data flowing through the pipes alone, with ISPs paying for every MB. Even though it's a sales incentive, at the same time it's killing them and a whole raft of start-ups have seen the pain, and stepped in with an antidote. P2P caching systems work by localising traffic exchange at the edge of the access network, instead of allowing it to flow to the core, meaning a definite reduction in bandwidth.
Caching threatens backbone operators' revenues, so they are the first proponents, and ISPs are desperate to use it to reduce their costs. But caching is a Trojan horse employed by content owners as it allows the identification of traded files, in their complete form. Identify the file and you can stop its transmission. Systems that just identify illegal files would never be bought or accepted by ISPs on their own, but when it also saves them pain, content operators have a perfect vehicle in which to invade their market to manipulate it for their own ends. Look at the investment in these companies and you will begin to see a trend. Stealth is the new strategy.
The cat and mouse game between P2P networks and content owners is fought in an ISP's back garden, hence why they are hesitant to get involved, for like the Romans, as long as their enemies are at war with each other, they are not at war with them. And that battle is enough to make you dizzy.
The typical story tends to go something like this. Start-up bases itself in a foreign country with liberal copyright laws and builds an audience, claiming it doesn't actually promote or facilitate illegal copyright invasion. Content industry responds by suing and getting the company shut down by local authorities. Company releases product as open source. Content industry shuts down central servers. Open source community makes architecture decentralised and logs requests from clients owned by the content industry. Content owners sue individual consumers. ISP blocks ports to restrict traffic. Community upgrades to use random ports or ports reserved for other services. ISP filters by traffic type. Community upgrades again to use encryption, blocking shaping system from recognising traffic. ISP bans IP ranges. Community uses new IP ranges and proxy mechanisms.
It goes on, and on, and on, and on, round and round, ad infinitum. And throughout all, piracy just keeps growing and growing. Every warning or advert gives it more momentum. But this isn't radio. It's ordinary people. Ordinary consumers who are trying to tell us something that everyone is refusing to listen to.
A lot of the content industry's problems come from insularity, and it's a lot easier to see that when you're on the outside, as many ISPs are. Theirs is an exclusive club, massively reinforced and defended from outside influence. These are high-profile businesses with incredible popular products that see them fielding off requests from everywhere, all day long. Their cynicism has become institutional. They simply have too much business and can't get involved in it all. They have got into a habit of closing the door to new people, ideas and new business. The only way in is to know someone who can make an introduction. It's particularly bad in the US and the UK, the latter run exclusively on "who you know" as its modus operandi.
Even movie stars now complain that the big studios are simply investment banks, and it's undeniable that the benevolent age of Broadway "angels" who funded great art in a philanthropic way have been succeeded by those who are solely looking for a better return on their earned cash than the banks can give. Productions these days run into hundreds of millions of pounds and the benchmarks for success have got higher as the decades have gone on. Compensation culture from the states has arrived slowly in Europe, and consequently every great idea is forced to be sterilised and neutered by legal departments before it's released. Great entertainment is out, profitability and returns are in.
It's evident everywhere you look. Record companies now tend to invest in fast turnaround, cash-spinning singles instead of long-term development. Performers are so marketing-driven that they are virtually manufactured on a production line, treated as a commercial brand and commoditised. Public service broadcasters consider themselves to be in competition with commercial networks, and they are the only people with power the production companies respond to. The whole reality TV genre is based on it being cheap, and participation systems are there to prop up lost advertising income that has fallen away due to the take-up of multi-channel digital television. Video games companies are going bust ten to the dozen. Put simply, nobody takes risks anymore.
Consumers aren't stupid. They know that the quality of content has been spiralling downward for years, and the price rising. You can't blame piracy for everything. The truth is, what's out there right now is crap. It's an uncomfortable truth we all need to acknowledge, whether we agree with it or not - the perception is all that matters. Industry execs will dispute it until they are blue in the face, but only with other people in their industry, which speaks volumes. Content owners are wildly out of touch with their customers, and should expect to drift further as long as they continue to persecute them or rip them off with ever-rising prices.
Intellectual property rights are also in a state of flux as they tend to be broken down to the smallest divisions to ensure maximum profitability, such as the technical platform they run on, the country they are viewed in, and the time period they can be consumed in. All that breaks down with IP networks as they are geography-independent, run over multiple convergent devices and transport media that never degrades. You could safely say the entire content-owner world is turned upside down. It's the absolute opposite to what they are used to.
In the UK, one of the biggest battles is currently being fought between broadcasters and the production companies who depend on them for their survival. A recent breakthrough was made between PACT (the trade association that represents Soho's finest) and the BBC, which may heavily influence future negotiations. The argument is one of who controls the rights to on-demand content designed perfectly to live in new seven and 30-day so-called "catch-up" services offered on new IPTV platforms.
Traditionally, broadcasters commission production houses to produce programming that they then acquire the rights to originally broadcast and repeat a number of times. The rights then return to the production company to re-licence elsewhere across the world. It's understandable they are fighting for the rights to the brave new world of 30 day catch-up and replay services, but as with all these matters, the broadcasters hold the power and will win (Editor's note: the broadcasters did indeed win as reported recently).
Europe doesn't also have the same drive to high definition (HD) that the US does, simply as the transition of picture quality from NTSC is far more profound than with our standard, PAL. There's no doubt it looks impressive, but what's less impressive is the support from any of them to help anyone use it or understand why to buy it. Sky and Telewest have gone HD-mad in the first-to-market game, as has the BBC, which has left some fun provisioning problems. Even the radio world is now looking to provide high-definition audio.
It's a big boys' train set though, as the costs of broadcasting in HD are massive – at least twice the bandwidth (6-10MBit/s at approx £100k per Mbit) even with more modern MPEG-4 compression techniques. HD represents something bigger for Murdoch's boys though, which is a chance to upgrade existing customers to newer set-top boxes that are Ethernet and IPTV-ready.
But these wonderful gimmicks and fluff about next-generation convergence are fine at industry conferences, but as pointed out earlier, it means little to consumers who stroll into electronics shops in the high street. The problem is that the people who design these services build them for themselves or from precedents that may not hold true now or in the future. They earn huge salaries that allow them to afford endless chains of great-looking electronic devices and are big early adopters of new technology.
The anecdotal word from the bar is that people are just sick to the back teeth of paying through the nose for premium TV, ever pricier DVDs and other media subscriptions. Personal debt is rising to intolerable levels – there is only so long they can go on buying goods in stores on credit cards and dealing with subscriptions. You can consolidate services and bills as much as you like, but each one is now getting to "bill shock" level on their own.
Joe Public is already swimming in content and total underwhelmed by it. Digital satellite and the internet provide hundreds of channels, thousands of movies and music available through P2P, and when they are not sitting down on the couch to work their way through it, it's being blared at them through posters on walls or radio playing in the office. A million-channel EPG, billions of hours of back catalogue TV episodes and classic movies, millions of music tracks and tens of thousands of video games and service applications is a daunting prospect.
That chaos is what the threatened incumbents will seize on, so the rule of the day is that the amount of content that is available needs to be directly proportionate to the ease at which it can be navigated through and consumed. In English, if you're going to make a lot of content available, make it intelligent, personalised and easy enough for grandma to use without her glasses and hearing aid.
Generally speaking, video on-demand business models tend to be rooted in the US cable and hospitality template, that is to say it is used to sell premium content on a pay per-view basis to a pay TV audience. For the top 20 per cent of titles it works well and is a viable service, even if the four to six views per month are somewhat hot air in other markets, being more like six to ten per year in reality. The key metric that establishes its viability is that no more than seven to 10 per cent of the subscriber base are viewing content simultaneously, allowing the deployed infrastructure to serve ten times what it would be if viewing were on a linear 1:1 scale, i.e. everyone on, all the time.
But the UK isn't a pay TV market, as much as the research analysts protest. Most people still have analogue terrestrial and/or are switching to Freeview (particularly in the 50-60 age bracket). Pay-per-view video on-demand just doesn’t work well. The question most content owners are left asking is how to monetise their archive back-catalogue material to take advantage of the often-toted "long tail" effect where the favourable economics of digital distribution enable rightsholders to sell content that would otherwise be gathering dust in cupboards somewhere. The problem is that people won't pay for it in the same way they pay for premium PPV content.
But even if they did, then the problem of distribution would still exist and cause pain. As it stands today, there are generally six accepted outlets for media assets in every country of the world – satellite, cable, terrestrial, internet/broadband, mobile and now IPTV.
In each of those three markets and their windows, you can sell them via pay-per-view, support them with advertising or licence them to third parties. The trouble is each platform is geographically limited. You'll never, ever be able to reach 99.9 per cent of the population. Even BSkyB with its dominance of eight million subscribers only reaches one third of all the households in the UK – you can't increase the range of a satellite. All suffer with scalability issues and can only put content in front of specific audience. IPTV fixes the problem as it gives you access to anyone with a telephone line and/or a broadband connection of some kind.
Homechoice's solution is to aggregate genres of content that are then sold on a subscription basis. Their music video playlisting service is one of the most popular parts of what they offer, along with cult shows such as the A-Team and Airwolf. Music videos are a classic example of an old business model in trouble with the new, as it's very, very difficult (if not impossible) to charge for them at all. The same is true for old episodes of soaps, dramas, classic movies and documentaries. Industry types often tout nano-payment (i.e. a few pence or cents) as an alternative to subscription, but yet again it's enormous hassle for very little.
At the same time, advertising agencies and media buyers are slowly waking up to IPTV and on-demand viewing as more and more headlines break about the new medium and what it can offer. Interactive TV terrified them as premium calls on Sky enabled them to collate viewer responses to adverts and monitor campaign effectiveness – which is a problem if your work is not quite as powerful as it could be. IPTV is massively more compelling and uses the most advanced technology available. For the first time media is provided on a transactional basis that allows personalisation to an unprecedented level of detail to a targeted, motivated audience. Brands can have their own channels, reduce their costs in comparison to other platforms and spend more money on editorial programming.
There are numerous problems the advertising world has with IPTV, not least in understanding the very basis of what IPTV actually is, does, and what opportunities it offers. On-demand viewing empowers consumers with choice, which is bad for advertisers because their trade tends to relies on almost forcing people to notice them. You don't choose whether posters are on tube carriages or whether your James Bond movie on ITV is interrupted with adverts, but you do choose whether to skip adverts using your PVR or whether to pick a program from the on-demand menu and watch it at your leisure. Put simply, half of ad-world is terrified and thinks their world is coming to an end, and the other half are so excited they could scream.
Neither of the two camps have much to fear. Advertising will always exist in linear broadcast television, even if it is multicast MPEG-4 in the case of IPTV. Non-premium content served on-demand will always have to be supported by advertising, as it can't be sold via pay-per-view. But it's going to make a real mess. The utopia that industry has always dreamed of has just appeared on the horizon, in the form of totally tailored and intelligent direct rich media marketing. Now everyone can see a different advert during the live TX of the Bond movie which is aimed directly at them and is delivered by a system that intelligently learns their behaviour patterns while integrating seamlessly with their phone, PC and mobile or any other web-based system they use. The possibilities are endless. It's a playground with every toy you could every want.
Random scatterbrain carpet-bombing of every target demographic group is no longer needed, which means more money for doing interesting and creative things with brands and their resources. The old world buys by 1,000, which is also not a great model to put on the on-demand "long tail" future where views occur one by one incrementally, forming an aggregate audience built over a longer period of time. The catch 22 situation is when it comes to statistics, which are the bread and butter of marketing. Rate cards are based on how widely circulated your media is, and very little evidence is available for on-demand. Without statistics, advertising rates are your best guess. And your best guess tends to affect your statistics. The trouble comes from working out exactly who gathers the viewing reports – is the rightsholder of the on-demand content, the broadcaster its played out from, the owner of the IPTV platform or an independent body like BARB or ABC?
The shrewd among us will almost certainly be seeing the solution for themselves as we go along. The clue is Google AdWords. The viewer needs to be able to watch for free, as nobody will pay for 30 minute episodes of sitcoms or news clips, and the advertiser can pay a broadcaster as before during a live broadcast. The owners of back-catalogue content can't find a way to make money from their archive material, and advertisers need to find a way to survive in the new world that walking through the door whether they like it or not. The solution is very, very simple.
Give it all away free. Pay for it by marrying video-rich, interactive, personalised contextual advertising with back-catalogue on-demand content as Google does with AdWords on the web.
Content in adverts can be matched intelligently to the content in the live broadcast or on-demand title. The viewer suffers an advert of some kind (ticker on screen, loading movie, interstitial), but gets to watch for free. The advertiser pays the content owner directly (per 1000 if necessary) every time the media is watched. They can also upgrade at a later date for an ad-free service if necessary. At a high level it seems to be not just feasible, but a neat answer to a very pressing problem.
There also remains the very tricky issue of regulation of digital content. As dull and dry as it seems, it has the capability to kill businesses, which is why it needs to be taken seriously. Inevitably in all new emerging mediums, regulation is lacking so abuse occurs. When anyone can publish, the normal commercial barriers are removed, enabling anyone to abuse. Other than the difficulties of pinning down exactly where services originate, terminate and are policed, we need to work out who does the policing, how much of it there is and how it will be enforced. Children need to be protected from indecency and the new medium cannot be a means of promoting or facilitating crime. When a television picture is transmitted over the internet or IP network, is it streaming internet video or broadcast television?
And this is what we in the IPTV industry need to start doing very soon if we are to continue on the momentum that has carried this technology as far as it has gone so far. We need to start educating the people who work around this new platform and work hard to solve their problems and ease their pain. There are too many problems being talked about and not enough answers. Really effective answers to those problems rely on intense thought and detailed consideration of each country, region and local environment the technology will be deployed in. If we continue to apply the US cable model to every part of the world, we won't just be foolish, but be staring into an abyss that we could have avoided just by stopping for two seconds to think about our direction.
ISPs have legitimate concerns about scalability and capital expenditure that need to be addressed by content owners. Vested interests mean those concerns won't be addressed for a long time, as they will involve cost on the part of the rightsholders. The only action that can be taken in that circumstance is to play tough and penalise offenders by blocking traffic from their websites and data-centres. ISPs need to act in unity and have a common central voice that fights their cause as the pockets of Hollywood are far greater than their own. The next step for them is raising premiums on traffic from those content providers and if necessary, litigation to get them to listen.
This future we all belong to is something we all need to contribute to, meaning whatever one side gives must be reciprocated by the other in kind. One interesting idea is to give ISPs incentives: a free movie title download for their customers for every illegal P2P download they block. Co-operation will be the only way for both parties to achieve their objectives, as open war will benefit no-one and send back in the direction towards the stone age. ISPs also need a moratorium on content licensing costs to enable them to seed the market for IPTV and video on-demand and drive adoption of these new platforms in whatever guise they are packaged. That means giving them a financial holiday (virtually free for one to two years) on the condition of a longer term contract for the content in the end. Currently it is a case of who blinks first: everyone wants someone else to take the risk, despite everyone facing more than one.
If you're a smaller content owner or rightsholder with ambition, there is a market emerging for you that will give you worldwide spread. Go out of your way to be IPTV friendly and work with ISPs for the first years the medium takes to get started, as you will get to charge better prices as time goes on. Produce in multiple formats, offer cheap licensing with few conditions and do everything you can to get yourself noticed and exposed. Solve the problems they face and do what you can to help them retain their customers – broker relationships with other colleagues and partners in the content industry, offer help with content management and understanding how it all works. Your customers will help you with the technical side of things, but they need to know more about how TV and entertainment works. There's never been a better time to attack and invade Sky in their own back garden.
Licensing as it stands is a nightmare, a spaghetti junction that is becoming harder and harder to administrate and control across a globalised industry that just keeps moving faster as the months go by. As seen in the mobile industry, the aggregation model is springing up in IPTV as a viable alternative to private proprietary arrangements that don't scale too well, even in the open digital network domain. Small players are collecting and representing large groups of content owners and retail brands like YouTube and iTunes are offering shop windows for wide ranges of rightsholders to sell their wares. Pre-packaging, pre-bundling and pre-pricing is currently the most effective and practical way to deliver volumes of content onto digital platforms.
What is needed is a new model that addresses the inherent insecurity and unreliability of the internet but keeps its distribution economics, while compensating those who transport the digital data (backbone operators, delivery agents, ISPs etc). Licensing between mediator and rightsholder needs to be as automatic as possible, but flexible enough to respect the window system, allow private arrangements and give the option of exclusivity over multiple countries and platforms. The ability to scale is also deeply important, as the "long tail" of back catalogue sales means that some titles will only attract negligible consumption, but others may exceed billions of views. Dynamic pricing in different markets using different currencies, multi-lingual versioning and variable revenue-generation mechanisms (PPV, Ad-supported free view and subscription) must all be included as standard.
The information we have, and are using to build new technologies and brands is out of date and inaccurate – we cannot possibly know how people will consume media in the future, so it is prudent to acknowledge that to a large extent the industry will need to stick its neck out and be ready to accommodate change as and when it occurs. Time and place-shifting is evolving entertainment to be a transaction that happens on demand, rather than a passive experience controlled by broadcasters' schedules and the will of those who fund productions. Peak viewing times and typical behaviour are now splintered and unfamiliar, but luckily not too far away from common sense.
Piracy has shown us what the market wants and how people consume. The quick way to commercial suicide in any business is to ignore your customers and actively resist or frustrate them. Indeed, that resistance negates any of the alternatives you want to offer them. An illegal download or VoD transaction is not a lost DVD sale in the eyes of a consumer, or even in the eyes of most who work with the technology; it is a more convenient and cheaper alternative to be enjoyed at a different time and place. They know downloads cost less than a physical disk, so patronise and profiteer at your peril. They see the financial returns reported from the opening weekends of theatrical releases, which typically are tens, if not hundreds of millions of dollars. Copying a digital file from one PC to another is their understanding of digital distribution – it's cheap, quick and essentially free.
The question is when, not if, rights holders will be able to surmount their paranoid fear of cannibalising existing revenue channels to create new ones. The market has made its voice known – it's now a case of who responds quickest, as delay will punish the latecomers and the last will perish outright. The next step in both legal and illegal P2P content distribution is to bypass the PC entirely, and then skip the DVD player too. The next mainstream destination is the IP set-top box or media player, both which can connect to the internet directly themselves or stream video and audio from PCs by proxy. BitTorrent, eMule and Limewire are one step away from their set-top box editions.
This isn't a problem that can be controlled. The only way to stop it is to go head on, and that means holding your breath, rolling up your sleeves and accepting that these new alternative services that need to be developed require some modest sacrifice and co-operation with people outside the normal box. Aristotle famously defined the three act structure of a story (in Poetics) that Hollywood uses as its bible today. In pure LA terms, the first act, or problem/setup, is one of limited distribution in a globalised age of digital media. The complication, or middle act, is piracy and the failure of the music industry. The last act, resolution, is yet to be finalised.
The content industry has a choice now it's up the proverbial tree, having rocks thrown at it (another reference to the three act structure of screenwriting), and its hero's plan has been dashed. The question is how the story ends – whether it will be a glorious feel-good last chapter where everyone wins or a terrible tragedy where the final goodbye is through death by a thousand cuts. Dramatic it will be, but that's what makes the people buy it.
Digital TX Limited is a London-based provider of technology and consultancy solutions for interactive digital television and broadband media. Alexander Cameron can be reached at firstname.lastname@example.org.
As well as co-ordinating the birth of the IPTV Consortium (IPTVC), Alex is now offering a great value one-day workshop course on IPTV and Video On-Demand (VoD) specifically for web and media professionals. It can help you get up to speed on the latest technologies, content deals, operators and applications across the world, and offer immense value in identifying both new opportunities and threats for your business and personal career. If you would like more information, call Alex on 07986 373177 or email email@example.com. Readers who quote The Register as their source will receive a 10 per cent discount on the course fees.