Sunday, 18 March 2012

Potential for growth of the online video market

Arguments for the Viability of a Market in Internet Video

                Given the problems outlined above, for online video to emerge as a viable business there must be powerful drivers for growth in the sector. It has been noted above that there is empirical evidence that services such as BBC iPlayer and Netflix are experiencing very impressive growth and the establishment of a wide variety of competing services indicate that businesses are seeking to exploit an improving market. Developments within the last few years do provide evidence that there are reasons why there should be a healthy increase in both provision and usage of a wide range of video content online. Some drivers are purely pragmatic – principally the need for major film studios to locate new revenue stream to replace declining DVD sales – but some are intrinsic to the nature of the medium itself.


                A number of online video sites specialise in documentary film. In the UK sites such as joiningthedocs, Insight News TV and Brightwide provide access to short and feature-length documentaries through a mixture of free, individual payment and subscription models. The sites share a common aim – providing access to filmmakers who may find difficulty in getting their work seen through traditional channels:
The films are made by a passionate, international group of socially committed people who have a mission to try and make sense of the world. They illuminate our times and help to support a fully-functioning society. But they are hard to see. Although some are shown by public service and public-minded TV broadcasters, they tend to be on specialist channels, in the corners of schedules and rarely repeated.
Many films play at international festivals, and on occasion are theatrically released. But how often have you read a great review of a film and then not had the chance to watch it? We know that audiences expect to find what they want, when they want, at a time and price that suits them. That’s where comes in.[1]

Sites such as these seek to exploit the geographical and social reach of the internet to bring niche content to audiences who may be too small, dispersed and difficult to market to for traditional theatrical, broadcast and packaged home media businesses. They provide the same function as film festivals in that they bring together viewers with a particular interest, but do so without the time and place limitations. However, this does mean that they miss out on the marketing push that generally accompanies a physical festival and – perhaps as a result – many of these partner with established film festivals to provide access to individual films and series screening at a festival, while gaining some much needed exposure. In this way joiningthedocs has screened films from the Sheffield Documentary Film Festival, whilst Mubi screens films in conjuntion with major film festivals such as Cannes.
                While such ventures are ultimately commercial, the stated aims of broadening the range of voices available to film viewers is recognised in a number of partnerships and grants which allow these businesses to operate in challenging commercial environments. Joiningthedocs, Mubi, Curzon and Brightwide are supported by the EU's MEDIA Programme – a funding body which operates across the full spectrum of the media industry in Europe to encourage and support the production and distribution of audio/visual arts. The Programme's "Video on Demand and Digital Cinema Distribution" stream
... [is] one of the ways in which the MEDIA 2007 programme ensures that the latest technologies and trends are incorporated into the business practices of beneficiaries of the programme. Digital technologies have made European audiovisual works more easily accessible outside their country of origin thanks to new ways of transporting audiovisual content. The competitiveness of the audiovisual content industry in Europe will strongly depend on the use of these new technologies at the distribution stage. [2]

The Programme has provided grants of up to 50% and £1 million to UK projects operating in the digital screening and distribution sphere, for European works deemed to have a social or artistic merit. This illustrates that governments are beginning to support online video businesses as a cost effective means of promoting local and independently-produced video works, which may otherwise struggle for distribution in an industry dominated by Hollywood narrative feature-length works.
                Despite this, it should be noted that mainstream online video businesses also carry a substantial amount of documentary content. Both Lovefilm and Blinkbox are mainstream, commercial online video businesses in the UK market, who provide access to dozens of documentary works from around the world. This reflects the recent resurgance of popularity in documentary film, primarily through the work of Morgan Spurlock, Nick Broomfield and Michael Moore, each of whose work is found in their catalogues. However, they also exhibit a series of low-budget, locally produced documentaries. Though it could be argued that some of these works are an example of cheap library content which is used to bulk up the numbers of titles offered, online video businesses are at least providing access to documentary filmmakers who may struggle to have works discovered on television or packaged media.

Niche Content

                Compared to the traditional retail market for packaged media, the internet presents multiple opportunities to target marketing to specific groups. This kind of direct marketing is not new – Odeon Entertainment is one several UK companies who rely on distribution of traditional mail order catalogues to appeal directly to the mature customer who may not use the internet or who would not normally shop in traditional DVD outlets such as HMV. In this way, Odeon can target the kind of customer to whom its catalogue – largely classic British film from the post-war years – directly appeals.
                Though the recent decline in the retail market for packaged media (and decline in retail in general) is a regrettable reduction in sales opportunity for film companies, internet marketing does provide opportunity to push titles who may have previously struggled on shop shelves. To walk into a store such as HMV on Oxford Street, the consumer may be overwhelmed by the range of titles on offer. Even in more modest high street outlets, the traditional alphabetical ordering of titles and shelf-stacking may mean that niche titles from small companies get lost in preference to free-standing displays and other premium marketing tools exploited by Hollywood studios. Small UK companies have had some success in this market by exploiting branding and packaging to stand out on the crowded shelves. Salvation is a small distributor who sells a small catalogue of obscure 60s and 70s European horror films. Nigel Wingrove, the company’s CEO and a former art director, used a single, stark black-and-white sleeve design for his titles – alongside striking photographic cover images – and instructed retailers to place them together on shelves. He also numbered the titles and included full catalogues in each VHS box to encourage purchasers to collect other titles[3]. This strategy worked brilliantly, allowing a small start-up distributor to become one of the independent stars of the late 90s sell through industry.
                The ability to develop a brand identity and to present it as close to the retail point as possible is one of the positive features of internet marketing. Salvation has carried its unique design through VHS and DVD box art into its website and associated online ventures. It has also provided imagery which has been used in special promotions by online DVD retailers such as Consumers are alerted to titles which may interest them through the use of recommendation algorithms used by online retailers. Using metadata extracted from titles which consumers have previously purchased – principally information such as genre, stars, directors, etc – retailers recommend titles within the webpage when consumers log on, or via email.        Film distributors also utilise the internet to market titles by engaging with message boards which are relevant to the type of content they supply. is a message board set up by a small group of UK-based distributors of niche art house and exploitation film features. By directly engaging with customers and – in some cases, even directly involving them in production – these companies encourage brand loyalty and build-in a support base which allows them to securely release titles major companies would view as a financial risk. Shameless Screen Entertainment – one of the companies operating under the Cult Labs banner – has released several “Fan edition” titles, which contain text and audio commentaries from fans that have expert knowledge of a film and its production history[4].

The Online Market for “Library Content”

                Titles from Salvation, Shameless and Arrow Video are released on physical formats such as DVD, but over the last few years almost all titles have been licensed for streaming or download on online video sites. In the UK, the most lucrative sources of online licensing revenue for film distributors have been Lovefilm and iTunes. Titles have also been licensed for other territories, with the US market proving most mature to date. A number of different licensing models have been used[5]:

  1. Single payment. A single fee is paid by the licensor for the rights to stream or serve downloads to viewers
  2. Single payment plus royalties. A single, upfront payment is made for online rights. In addition, should the content prove lucrative beyond an agreed figure (for example, number of views); a further payment – often a percentage of expected revenue – will be made.
  3. Royalty only. The licensor does not make any upfront payment for the online rights. Instead, payments are made dependent on performance.
  4. Royalty with minimum reserve fee. This is similar to 3, with the protection that the licensor will agree to make a minimum payment, regardless of the performance of the content.

Each licensing payment model can be applied to these further categories:

  1. Per-title license. The licensor deals with the distributor on a title-by-title basis, agreeing differing terms dependent on expected revenue, or differences in how a title will be made available (i.e. streaming or download, part of free promotion, etc.)
  2. Packaged. A number of titles from an individual distributor are sold as a group. This is the most common arrangement for niche, library and non-mainstream content.
  3. Exclusive. The content (single title or package) is licensed on an exclusive basis to the licensor. The distributor is prevented from licensing the content to another online video provider for the duration of the agreement.
  4. Non-exclusive. The inverse of 3 – the licensee retains the right to make deals with other online video providers.
  5. Time-limited. The content is licensed for a specific period – with rights expiring at the end. This is often used in conjunction with exclusive rights deals – giving a licensor the sole rights to provide the content for a defined period.
  6. Perpetual. Rights are granted to make video content available in perpetuity. This is rare and will usually only be granted under special circumstances – i.e. with low-value content, or for charitable use, etc.

So, we see a number of titles from the above companies available in different formats – streaming and download – on different online video sites, in cases where rights have been negotiated on a non-exclusive basis. Less well-established services attempt to negotiate royalty-only licensing deals with distributors, while – in most cases, at the current time – rights holders have been keen to gain some form of guaranteed payment up front. Distributors tend to view such royalty only deals as giving away product to what are, in effect, internet start-up companies. This does tend to lead to a situation where small internet video companies – such as Channel Films – concentrate, at least in the short term, on a small library of niche content. The alternative is to try and obtain funding to pay for a mainstream catalogue, something which is proving extremely difficult in the current economic climate. Competing with mainstream players for Hollywood film content requires “very deep pockets”[6].
                In some cases, an initial licensing offer from an online video business has been viewed as an unforeseen windfall for small distributors. Some distributors have been unaware of the opportunities presented by online video business and have not considered actively pursuing licensing deals. This may be so for a number of reasons – from a lack of understanding of current market trends or a concern over the potential costs of preparing content for online distribution. While many companies have already prepared digital masters of titles for DVD distribution, online distribution requires a number of different digital file formats be made available – a process which can be costly. A number of companies – including ContentFilm and The Associates – act as Film Aggregators in the online video sphere. This means that they operate as enablers between small, independent distributors and producers and major online businesses such as Lovefilm. Aggregators will generally offer a small company a one-off license fee for a package of titles for an agreed number of years. They will often take care of remasters the titles and formatting them for digital distribution. They will then package these titles in a way which is attractive for online video retailers.           Companies such as ContentFilm have developed considerable experience in the market for online feature-length video and will be able to maximise the value inherent in independently-produced titles.

Distribution of Independent and Low-Budget Film

                Online video has matured to the point where it represents not just a platform for redistributing and exhibiting features made for theatrical and DVD release, but is a viable primary release target for film content. In addition to working in the film aggregation sphere, ContentFilm develops original film and television productions for exhibition on the internet. The company's Fireworks International division produces a number of titles in dual-format for exhibition either as a series of short-form episodes (or webisodes, as they are sometimes referred to) or as feature-length. It has produced content which has been shown on websites run by major US television networks and by The Horror Channel cable channel in the UK. Titles are often subsequently issued on DVD, but they are targeted and tailored for the online market. Companies like this are developing a new market for low-budget, digital film content which will allow a new breed of filmmakers a viable commercial opportunity to make work which will be sold and seen. While film school graduates have been torn between the extremes of non-commercial short films for exhibition at festivals and non-narrative work in advertising, short-form content production for the internet marketplace presents a real opportunity to develop new filmmaking voices from the current generation.
                In addition to the opportunities presented by such companies as ContentFilm, the internet and digital filmmaking in general have allowed costs in all areas of film production to be lowered. This enables independent film makers and producers to take advantage of low barriers to entry to get low-budget features made and seen. A large number of websites offer support services to independent film makers, allowing them to recruit production staff, obtain equipment and identify locations by taking advantage of like-minded individuals across the country. The wider fan network across forums and film sites allows film makers to build word of mouth and maintain interest in forthcoming productions – whether they are being made available for free streaming, release on self-produced DVD or appearing at a film festival. The immediacy of feedback from promotional tools such as Youtube trailers also allows filmmakers to gauge potential audience reaction before an expensive and irreversible final release takes place. The internet has also broadened opportunity for filmmakers to seek finance, with a number of crowd-sourcing funding services emerging.

Social Media

                One of the primary internet resources for marketing is Facebook and films of all budgets are increasingly exploiting the opportunities provided by social networking services to generate exposure for forthcoming productions. Most productions will set up a Facebook page (in addition to a generic web page) before filming takes place, often before a film has even secured its budget. This page can then be used a central point to publish information about the film, to interested users who have “liked” the page – and in turn contributed to promoting the film, as all “likes” are displayed on user's own Facebook pages. The pages can be used to issue calls for funding, equipment, locations and extras. They can be used to publish promotional videos and images. Interested users can post messages of support or critiques of the film. The pages can be linked with other pages to form networks of support and mutual promotion for other films and filmmakers.
                Social media tools are also becoming increasingly embedded in online video viewing platforms. These allow viewers to easily tag which videos they are watching, allowing them to comment on films as they watch them and participate in a global conversation – in real-time – with others viewing the same content. Such activities, while fun and potentially rewarding for the user, have real value for online video businesses as it allows them to build a profile of their viewers – their likes and dislikes, the way that the watch content (for example, whether viewing is regularly interrupted, whether content is watched in groups) , etc. Social media services such as Facebook and Twitter, who are collating such data, are becoming valuable resources for business. They allow information about a user to be utilised to more carefully target advertising and other service offerings[7]. Though there are real concerns around issues of data protection and invasion of privacy, the opportunities to more accurately market goods and services to consumers should be a positive thing for viewers of online video, who may be forced to view a number of adverts pre- and during some ad-supported film content. For companies such as Netflix, Lovefilm and Blinkbox, convincing advertisers of the efficiency of their advertising model can only increase revenue, and allow them to secure better content and improve service levels for viewers. In an ideal world, such activity can only benefit all stakeholders in online video.

Connected Devices

                As was outlined above, one of the main impediments to the widespread adoption of online video is the perceived and real usability issues. However, as households have gained access to increased broadband speeds, a new breed of devices have come to market which seek to bring internet services – and online video in particular – closer to the family screen. These devices – connected TV, bluray players, media players and hybrid set-top boxes – seek to shift the public perception of online video from something which is free, low-quality and short-form, to that which is of value, pleasing to the eye and feature-length. Though a number of these devices provide access to Youtube, the kinds of experiences they aspire to offer are closer to pay-per-view cable, DVD or a theatrical screening. Connected Television – sets which can be plugged into a home internet router to access online services – are seen by many as the killer application for online video. However, some have pointed out that “there's precious little research that proves that connected TV buyers are actually using those sets to access significant amounts of content online.”[8] Despite this, all major television manufacturers are releasing connected sets[9]. In short, the audio-visual electronics industry is invested in making online video something worth paying for.
                The clearest example of this phenomenon is the development of a number of televisions and bluray players in the US with remote controls containing a “Netflix” button. It seems incredible that a single company could gain such levels of free exposure and access from hardware manufacturers without entering into an expensive commercial agreement, but this initiative has been led by the electronics companies. In adding the Netflix button they are acknowledging, not just the considerable success that the company has had in building a large subscriber base and the attractiveness of its offering, but the importance of online video to TV viewing in the future. In much the same way that manufacturers built hybrids TV/VHS remotes in the past, these companies are modifying devices to reflect an emerging reality, that their customers will be spending a considerable portion of their time with such devices online. The majority of all new televisions has an Ethernet connection and contains electronics capable of displaying a simple series of menus allowing remote control access to online services. These services extend from simple applications displaying weather and local news to social media applications such as Twitter, but a large proportion are front-ends for the growing number of online video services.
                It’s worth examining whether such video offerings simply allow the viewer to cancel their cable subscription (so-called “cable-cutting”, a nightmare for the pay TV industry), or whether the nature of the medium offers something more for viewers, distributors and filmmakers. Connected devices do have the potential to offer a greater range of content than traditional cable and satellite offerings. To begin with, as the devices are built by consumer electronics companies, they operate as portals to an online marketplace, rather than the box-office for a media company's film and television offering. Though a company such as Sky obviously has to share revenue with rights holders, it controls every aspect of the delivery of film content to viewers and collects all revenue directly at source (through subscription and on demand payments). Companies such as Samsung, who offer a multitude of video services through its Smart TV series of connected televisions, do not actually have any involvement in the provisioning or billing for film content. When a customer pays for a film from the Acetrax service, he or she has their credit card debiting by Acetrax, who then stream the film to the Smart TV through the open internet. The device simply enables the transaction; it does not mediate it in any way. In many respects, despite the sofa-friendly interface, the model of video provisioning used by connected media devices for the lounge, is the same as that for services used on personal computers. Video services operating in this way are said to be “Over-the-top” or OTT – they reach over or bypass the networks and services which traditional broadcasters have developed to supply media content. 

Catch-up Services

                One of the major factors which has normalised the viewing of online video in the UK has been so-called “catch-up” video services from traditional broadcasters. Each of the UK’s terrestrial broadcasters – the BBC, ITV, Channel 4 and Channel 5 – maintains web- and application- based services allowing viewers to watch content recently broadcast, including feature films. The first broadcaster to launch such a service was the BBC, who has used their public service mandate to justify substantial investment in the service. Initially only available on personal computers, the service proved an immediate hit with viewers – allowing them to download a range of programmes broadcast on the corporation’s channels within the previous seven days. The BBC has heavily promoted the service on its channels, with most adverts for upcoming programmes and series also stating that they are “also available on BBC iPlayer”. The service has been continuously enhanced since release and now offers an incredibly rich range of programmes and has a very useable interface. The service has also been available on a plethora of connected devices – everything from tablet computers, mobile phones, bluray players, set-top boxes to connected TVs are now to be found with the iPlayer app either pre-installed or readily available from the device’s relevant application marketplace. The BBC has agreed to only implement the standard iPlayer across each device, to ensure that their public-service brief is not impacted by any perception of providing an enhanced service to any commercial device.
                Initially operating as a download-only service for PC, iPlayer is now primarily a streaming service. This works, in conjunction with a user-interface which mimics a standard TV Electronic Programme Guide (EPG), to bring the viewing of online video into line with the user experience of broadcast television. The fact that the content is being streamed from remote servers, over the open internet, is abstracted from the user by the interface. [MENTION IPLAYER DESKTOP PVR]. Services from the other broadcasters have mimicked iPlayer (ITV’s service is even called ITV Player and Sky’s catch-up service was initially called Sky Player), arranging the user interface along the same EPG-like lines. Manufacturers of connected TVs and hybrid set-top boxes (cable, satellite or digital terrestrial receivers with internet connections) have incorporated catch-up services into the standard EPG, allowing users to move back through the schedule and view identify which programmes they may have missed which are available on catch-up services. Advanced search functionality has also been developed – with Virgin Media's TiVo system “viewers can search across TV listings, seven-day catch-up, on-demand, favourite actors, future shows and online content all with one simple search.”[10] Such functionality obviates the need for PVR/DVR technology as viewers no longer need to record programmes – such content is stored by broadcasters for playback over connected devices in the home. Though the range of film content carried on such services was initially limited – films, as with other content which is produced by external companies, must be separately licensed for online delivery – services such as the iPlayer now carry up to 10 films from its recent schedule for playback at any time. Broadcasters are, in this way, maintaining their own on-demand film library.

Cloud Services

                Another technological development which is driving the adoption of online video is cloud storage. The cloud refers to an abstracted collection of remote servers which store and serve physical files to client devices, across the internet. A number of services have been recently established which allow users to store a multitude of different file types on remote storage, from which it can be accessed from a different machine, potentially in a different location. This kind of technology is very useful in business where it can enable groups of geographically-dispersed employees to work concurrently on single pieces of work.
In the media space this kind of technology is being leveraged to enable the delivery of paid-for content to multiple client devices in the home and on the move.
                Film studios and other media organisations have been waking up to the fact that consumers are averse to DRM - in particular, they hate the way that it restricts the portability of legally-purchased content. Persuading consumers that they should shun piracy has been made very difficult by the sorts of restrictions which mean that a film, ordered and paid for on one device, is restricted to playback on that device alone, or can only be moved a fixed amount of times under extremely prescriptive circumstances. In a shared or family home, where use of a TV and STB or bluray player in the lounge might be restricted to certain times of the day, content purchased on these machines should be playable on any device in any room in the home. This has not been the case with traditional on demand entertainment platforms, where a film is requested and played-back on a single host device (a set-top box), usually connected to a single display.
                Expanding this concept, it would be an even more enticing proposition if the content was viewable outside the home - so that, for example, a children's film purchased on a net TV could be taken to a relative’s home. Where content is purchased for rental, there will still be time restrictions on viewing. Where the cloud storage and delivery proposition is more compelling is in cases of outright purchase. Content owners have struggled to convince consumers on outright purchase of digital content - especially film. Rental of such content currently outweighs purchase by a margin of 4-to-1. The issues holding back purchase have included these very issues - the restrictions of DRM, the intangibility of the product itself, poor perception of price value compared to physical media, concerns over storage. It is these issues which cloud storage and delivery is designed to resolve. Services which are emerging which utilise cloud storage and delivery of video media include "TV Everywhere", "Ultra Violet" and "Studio All Access" - branded solutions offered by Comcast, the Digital Entertainment Content Ecosystem and Disney, respectively. Each of these offer the kind of remote hosting and access described above.
                Comcast's solution allows cable TV subscribers the ability to access programs from their package online through a web portal, with plans to spread access to other devices, allowing access throughout the home and beyond. Ultraviolet offers a solution for purchased content from a number of sources - from VoD services to packaged DVDs purchased at retail. Such content comes with a code which allows the content to be accessed remotely from a number of registered devices. Content purchased outright is stored remotely in a kind of "digital locker" or "shelf" where the user can build his own library of content, freeing up shelf space at home. This is also the kind of service being developed by a number of traditional VoD and PPV download services. Acetrax, who run movie portals on a number of connected TVs and bluray players in the UK and Europe, allow users to register their home devices and access the same content on any of them. DivX also use this model - allowing downloaded content to be played via an access code entered into any DivX registered device. The concern has to be that the number of services being offered have limited or no interoperability - that your DivX-enabled DVD player may not be Ultra Violet capable and vice versa. It seems that content owners are still reluctant to embrace a true, open model - although Ultra Violet has a large number of members and the potential to succeed as a model for the controlled, managed method of access for hosted video content in the multi-screen home.
                In any case, such developments are in their early stages and are proceeding with an evolving sense of what television – or home viewing in general – actually is:
… this reshaping involves not only our relationship with the TV set as a standalone device, but also the ways in which it can interact with other devices and various content sources to engage us in new and innovative ways, and the reality that a TV experience need no longer actually involve the TV set, or may include the TV set in combination with other devices.[11]

The primacy of the television in home viewing is being challenged, but still maintains for many households a central role. For families especially, the main set in the family room remains important in the function it plays in enabling the family to experience entertainment together in one place. Despite the spread of devices and services which enable us to experience content wherever we are, content providers remain as focused on ensuring that there are ways they can gain access to the primary family screen.

[3]    Information from interview with Nigel Wingrove.
[4]    The full Shamless collection on Cult Labs website -
[5]    Details of licensing deals for online content taken from interviews with Alex Agran, Tom Swanston, Nigel Wingrove and Jonathan Ford.
[6]    "Will streaming Tv online lead to the death of the big media players", Jemima Kiss, The Guardian, 18 April 2011.
[7]    "Private Facebook data becomes big business", Tony Bradley, PC World, 30 Jul 2010.
[8]    "The Television will not be revolutionised", Eric Schumacher-Rasmussen in Streaming Media Magazine European Edition, Autumn 2011, p. 8
[9]    "More customers than not are connecting their television to their internet connection." Interview with Edd Uzzell.
[10]  "Power to the People", Graham Pomphrey, in Digital TV Europe, September/October 2011, p.17
[11]  "IPTV – the future", Yun Chao Hu in Connect-World Europe, 2001, p. 13

Sunday, 12 February 2012

The Factors which Challenge the Emergence of a Viable Market in Internet Video

                 Despite the growth of viable businesses in the online video sphere, there remain significant threats to a long-term future for the provision of legal feature-length content. Chief among these threats is that of piracy, which existed before the establishment of legal alternatives and remains a consistent threat to legal business models. However, there are a number of other factors which threaten to undermine the establishment and development of online video. Some of these threats are intrinsic to the business of media distribution and are not directly related to the online sphere; although the nature of internet delivery may contribute to the shape these threats ultimately take. Such issues are primarily those of rights – whether the rights of film makers to be compensated for their efforts or the right of distributors to be rewarded for developing and bringing works to market. Other threats come from the nature of the internet itself – concerns over the stability and security of open networks and the expense and logistics of support which internet video companies must provide to end-users. There are also a number of factors which are intrinsic to local markets – matters of legislation which remind us that media distribution is dependent on a complex framework of national laws and regulations, regardless of the global nature of the internet itself. Thus, this section will include an examination of the impact that UK law has had on the development of the internet video market.


                There can be little doubt that piracy is one of the greatest threats to the legal distribution of media content in general and this holds true for online businesses, perhaps to an even greater extent. The ease with which digital content can be replicated, without loss of quality, and the multitude of ways in which it can be transferred over the internet - practically without expense – is a major problem for the industry. For example, Netflix's planned expansion into the Spanish market is seen as a key test in a territory where piracy is rife:
... Spain could pose more of a challenge given the high levels of piracy and unemployment... Apple Inc.'s iTunes Store doesn't sell movies and TV shows in Spain. The Spanish roll-out is seen as a test of whether people used to watching movies at home for free will pay about 6 Euros a month for content of a higher quality and easier to find than on piracy websites.[1]

It's interesting at this point, however, to point out the way in which piracy – or, at least, the initial application of new technology – has a disruptive effect on existing modes of media distribution. This has been true of most home entertainment technologies. From the earliest home film projection formats, through audio formats like the cassette tape, to VHS and DVD, home formats have disrupted the distribution and revenue models of studios. Though each of these formats has proven to be enormous commercial opportunities for rights holders in the end, their introduction has been met, time and again, with suspicion and legal threats.
The case of VHS is illuminating in regards to the legislative approach studios have been undertaking in respect of online video. The Sony Corporation and its partners in the development of the Betamax home video format was the subject of a law suit issued by Universal and other Hollywood studios in 1981. The studios protested that the Betamax and other VCR machines allowed users to make unauthorised copies of copyrighted works from television broadcasts and, further, that Sony were marketing the device for this purpose. Though the lawsuit was eventually lost in 1984, by which time Universal had already released several of its titles on Betamax and VHS, this illustrates the nervousness with which studios perceived a technology which allowed individuals to control how and when they viewed video content[2]. Though VHS recorders and now PVRs have become ubiquitous, the idea of time-shifting was once seen as deeply threatening to an industry which wished to preserve the established theatrical and television release windows.
                In the same way, studios now look on with trepidation to a truly on-demand viewing experience in the online sphere, where users not only want to view any content whenever they want to, but wherever they want to view it – be it on multiple devices in the home or on the move. Many viewers have turned to peer-to-peer and other file distribution services to obtain copies of films which have been released in other territories, showing disregard not only to rights holders but – crucially – to the studio's cherished distribution patterns and release windows. The global nature of news media ensures that publicity for a major release spreads into other territories sometimes well-ahead of a traditional staggered release and creates a demand which is filled by forms of piracy which are often simple (ease of use) and reliable (no loss of quality).  Though the film industry continues to characterise film piracy as stemming from clandestine filming of theatrical screenings[3], a large proportion of files exchanged online are taken from DVD rips – often from screener copies sent for review by journalists. As such, they are almost perfect copies of the originals: most modest computers can use free software to remove DVD encryption and re-encode the resultant files to a format which is smaller and easier to transfer over the internet, whilst retaining the resolution and bit rate of the original[4]. It is no longer the case, as with analogue formats such as VHS that copies of video content must be of inferior quality to the original.
                In addition, the files which are ripped from DVD or other sources can be easily transferred to other devices, such that a viewer can choose to watch a film at home or on a portable player while travelling. Parents, for example, can easily transfer a child's DVD for playback on a portable games console to entertain them on long car journeys. The industry's attempts in the sphere of portability have, to date, proven to be embarrassingly inflexible and unappealing. At present, several studios have marketed DVD and bluray releases of feature films with “digital copies” on the same disc. Consumers can transfer these files to portable players. In reality, such files have proven to have DRM systems which place heavy limits on how consumers can digital copies. There have been restrictions on the amount of times the file can be transferred from disc, the types of devices allowed for transfer and the timescale within which transferred files must be watched. The same types of restrictive systems are in place for download services such as iTunes, for both film rentals and for outright purchase. Combined with outdated pricing models, consumers have had a right to ask why there should be any restrictions on what they do with digital files when they have paid the same price as for more portable and flexible formats such as DVD.

Availability of Content Rights

                Of course, studios argue that such restrictions are necessary to protect rights of ownership and to ensure that filmmakers can be properly compensated for their work. It is argued that DRM is necessary to prevent the mass, unregulated exchange of film titles on digital formats, especially given the ease with which such activity can take place. Such arguments would seem to be self-evidently true, given the widespread piracy that is taking place and the success of some online video portals that operate using DRM. The example of Apple's iStore, which sells film and TV content for rental or outright purchase, is perhaps a telling one. Despite all content being protected with DRM which heavily restricts what the consumer can do with individual files, iTunes has around two-third of the total US market for VoD titles[5]. Other portals which provide access to film titles, such as Sony's Qriocity service and Acetrax's movie-on-demand portal for Samsung Smart Televisions are also proving commercially successful, whilst selling files with DRM restrictions.
                In the case of subscription services like Netflix, where video is streamed to viewers rather than transferring a complete physical file, nervousness over content rights has manifested itself in a reluctance to allow premium titles to be licensed. Major studios – such as those owned by the Sony Corporation – have tended to reserve recent Blockbuster hits for portals they own and manage rather than license them to Netflix. Rights holders have been concerned that the subscription model – where thousands of titles are available for the same price as two paid downloads – devalues titles and can impact other revenue streams, such as DVD and cable pay-per-view. As a result, much of the content available on Netflix has been viewed as “library” content – titles which tend to be older, less well-known and well-reviewed.
                In addition, as mentioned above, studios have attempted to implement the regional release patterns of theatrical and previous home viewing formats, when issuing content to online video portals. This leads to a situation where websites and services which operate internationally have to present different front-ends to users in each territory. Online video services also have been struggling against illegal downloads, where such territorial boundaries are only restricted by language and all titles are easily available on the date of initial release. Film studios remain content to preserve these restrictions while there is substantial revenue from physical formats such as DVD and bluray.

Ease-of-Use Issues

                Compared to previous home viewing formats, online video has a usability problem. With VHS and DVD all that is required is to insert the tape or disc, in most cases you won’t even have to press “Play” or change the channel on the television. In comparison, online video has necessarily been developed on the PC platform, which has several disadvantages as a platform for viewing feature-length entertainment:

  1. The PC is not a communal machine. PC stands for “personal” computer and despite the fall in cost of large monitors, computers tend to be used by individuals rather than groups. Home entertainment – especially feature film – tends to be viewed by couples and families.
  2. PCs also tend not to be located in the lounge or family room, where the majority of home video is watched. The rise of small laptops such as netbooks and tablet computers has meant that browsing from the sofa has become common, but such devices are even less communal than the standard PC.
  3. People – or at least certain demographic groups – are intimidated by PCs. Older people, or perhaps people in general who are less experienced with PC usage, find computers difficult to use[6]. Compared to inserting a DVD, the steps necessary to, for example, set up an iTunes account, pay for, download and watch a film are complicated and difficult to explain to someone who is not even familiar with how a mouse operates – or who has limited experience with the internet.

                Devices are emerging which have been developed to simplify the experience of accessing online video, utilising television-style remote controls and connections for televisions and home cinema amplifiers, but standards for such devices are still in the process of being defined and consumers are nervous of adopting formats which may lack support in future.

Internet Network Stability

                Another factor which negatively impacts the viability of online video businesses is the stability of the delivery network. Video is delivered across the open network in the form of individual packets, which may in reality be sent across various routes and are subject to delays caused by other unrelated traffic. Technologies are in place to buffer and sort data packets when received by the displaying device[7], such that the viewer experiences a smooth, interrupt-free video and audio image, but the potential for disruption is present even on the highest speed network connections.
                In addition, as online video is an on-demand business it is susceptible to service interruptions which have can have a major negative effect on perception of the service. In traditional packaged media, failures in the supply chain can delay product being delivered, but once the consumers has received a disc she can watch it whenever she wishes to. Online video relies on 100% service availability to cater for demand which may occur at any time, day or night. Despite developments in network hardware and software, it is extremely rare for even mission critical web services in industries such as finance to achieve perfect availability. Due to the open nature of the internet, online business must be vigilant against malicious attack from viruses and other external intrusions from hackers and criminals. The complexity of systems required to correctly authenticate and serve potentially thousands of concurrent customer requests introduces risk which can be difficult to manage and can have extremely negative results when not handled correctly.
                The most high-profile example of network intrusion in the online video sphere occurred in April of 2011 when Sony's online gaming and media store the Playstation Network was the victim of a hacking operation which compromised the personal data of 77 million customers[8]. Due to the extremely serious legal position, Sony was forced to shut down the entire network and enter a lengthy period of analysis, redesign and rebuild of the network's security architecture. In the end, the system was not fully operational until early June, an outage of some 8 weeks:
Just think of what this means from a business perspective: nearly three months of zero revenues from the services, plus the cost of putting right the attacks with new security measures including automated software monitoring and configuration management to defend against new attacks ... the cost of a new customer appreciation programme designed to thank customers for their “patience and loyalty”... if this can happen to Sony, who can't it happen to?[9]

Sony compensated video gamers who had been unable to play online over this period with a promotion allowing downloads of a number of games for free.
                By contrast, subscribers to video services operating on the Playstation Network were not compensated by Sony – the corporation arguing that such services are run by external parties over which Sony has no control. The platforms which provide video services through Playstation Network include Netflix, Vudu, Hulu, NBA, Mubi and Lovefilm. Each of the services is available on other platforms (chiefly, on a PC through a web site), so companies correctly argued that outages on the Playstation Network did not equate to complete loss of service. However, subscribers who used the services on the Playstation 3 game console were clearly doing so to benefit from a better user experience than the PC could provide – namely, integration with a home entertainment system based in the family room. To lose access to such a service, particularly a paid subscription service, for two months was extremely damaging to the Sony's Playstation brand, the concept of subscription video services and the companies who provide them.
                For companies providing access to video over the internet, the number of potential links in the delivery chain between them and their customer presents a challenge, not just in providing stable video streams, but in supporting customers when things go wrong. Consider the following scenario:
Having paid to stream a feature from an online video provider, the viewer's film is paused after 20 mins and refuses to resume. The viewer is watching the film on a connected TV over his home broadband connection. The problem could be in one or more of the following areas:

  1. There is a problem with the viewer's TV. This could also be caused by a number of reasons from a failure in the processor which decodes the video, in the software which manages the network connection or in the network interface itself.
  2. There may be a loose connection between the TV and the router, or between the router and the broadband modem.
  3. If using wi-fi there may be a problem with the wireless network, such as interference from another signal.
  4. There may be a hardware or software fault in the viewer's broadband router or modem.
  5. There may be a service interruption in the viewer's boardband.
  6. There user may not have a sufficiently fast broadband connection to stream the video content.
  7. There may be a problem with the video provider's servers or network.

                Self-evidently, such complexity makes any problem difficult to diagnose. What makes this situation even worse is that, unlike provision of ondemand video content over a cable network, no single provider is responsible for point-to-point transfer of the data. The viewer may have paid for a film from Blinkbox, streamed over his PlusNet broadband connection, using a Netgear wireless router to a Playstation3 games console, which ultimately displays the content on a Samsung TV (which he may have purchased from John Lewis). Given such circumstances, even an individual with a level of technical understanding of the links involved may struggle to know how to identify which component is faulty and, ultimately, who to call for support.

Network Infrastructure

                Poor availability of high-speed broadband in the UK is likely to hamper the development of online video. The minimum recommended download speed for a streaming service is usually 1-2Mbps[10]. However, viewers who are restricted to speeds at this level are likely to encounter pauses as network levels fluctuate and the player software tries to buffer incoming packets. There are a number of server and client-side technologies which attempt to work around problems with low-speed connections, but the reality is that uninterrupted display of video content requires a minimum level of regular traffic across the network. In addition, as content is increasingly displayed on large television screens in the lounge or family room, viewers are seeking an experience which is equivalent with HD formats on bluray disc, broadcast, cable and satellite platforms. The minumum recommended download speed for streaming HD video is between 8-10Mbps, which is currently only available to 14% of UK households[11]. For households with slow broadband speeds a better option would be to use one the services which provides files for download, rather than streaming – such as iPlayer desktop or iTunes. However, with download solutions the opportunity to capitalise on impulse viewing decisions is lost. Despite the popularity of services such as BBC's iPlayer, the vision of an online video ecosystem to compete with broadcast television and ondemand services via cable is not currently feasible in the UK.


                Also important to the feasibility of online video and other media services has been the question of “net neutrality” and the legislation which national governments have enacted to protect or compromise this notion. Essentially, “net neutrality” is the idea that ISPs and other organisations that enable internet traffic should treat all traffic in the same way, regardless of origin, destination or content. This is an important concept in relation to online video due to the large amount of traffic generated by online video businesses. In the US, it has recently been measured that Netflix takes up some 22% of internet traffic, despite only have 25 million subscribers[12] and – therefore a relatively small percentage of the total US internet-enabled households. ISPs are concerned that viewers of online video are consuming a disproportionate amount of traffic as other users, while paying the same for their internet service package. Similarly, as companies like Netflix use the open internet to transfer video content, they are using greater bandwidth than other services with less traffic-intensive websites and services.
                To combat this seeming inequality of usage and – they argue – to preserve internet bandwidth for the wider use base, some ISPs have introduced caps for individual users on certain packages. So, for example, subscribers to plusnet's 20Mb monthly service are capped to 60 GB of traffic (downloads + uploads) per month[13]. If users go over their monthly allowance, they are charged at a premium rate for the extra traffic they incur. So far, these kinds of caps on home internet use have been relatively uncontroversial. This is likely to be so because for a number of reasons:

  1. Consumption of online video is a relatively new phenomenon, with many users either not downloading or streaming at all, or in a fairly limited way.
  2. Popular online video sites, such as Youtube, carry a majority of short-form, low-bit rate content, which consumes low amounts of data.
  3. Video has – and continues to be – viewed primarily on personal computers, laptops and mobile devices with small screens, which doesn't incentivise viewers to seek out higher resolution, more bandwidth-hungry video content.

All three of these contributory factors are changing as online video business matures. To take each in turn:

  1. Online video consumption has been increasing at a very steep rate in recent years, across a number of devices. The maturity of platforms such as Netflix and BBC iPlayer – and the range of attractive content they offer – is driving viewing figures ever higher.
  2. Now that people are using catch up services, the expectation of similar – i.e. Broadcast – quality is becoming the minimum acceptable standard for online viewing experience. Similarly, viewers of feature film online have an expectation of DVD quality bitrates and resolution. Some services have begun to carry HD quality video.
  3. The spread of online video services to a number of devices which connect to televisions, from games consoles to bluray players – and the emergence of so-called “smart” TV has led to an increase in online video viewed on large screens in the family room. Low-bit rate video looks terrible on these kinds of monitors and, therefore, screen sizes are a direct driver for increased video quality.

                As each of these – and other factors – drives the move to high-bit rate video ISPs have moved to protect their networks from saturation. In addition to maximum monthly data caps, they have also introduced “throttling” measures, with some heavy data users finding data transfer reduced at peak-usage times (usually in the early evening). This has proven more controversial than maximum data caps, with subscribers complaining that they do not regularly receive advertised download speeds at times convenient for them. Subscribers and groups which represent consumers have also consistently argued that some ISPs are using these issues to mask profiteering – as ISPs continue to push subscribers to more expensive, less-curtailed data packages.
                In much the same as viewers have been charged for increased data usage, ISPs and CDNs (Content Delivery Networks) have been seeking to charge online video companies whose traffic uses large amounts of bandwidth on their networks[14]. Though this may be seen as a simple case of economics – companies should pay for using a greater percentage of internet traffic, in much the same way as road haulage companies pay extra taxes for the impact they make on motorways – in reality the issue is more complicated. Firstly, it is argued, that ISPs are already recouping greater revenue from subscribers. When traffic increases, subscribers graduate to more expensive data packages, so ISPs benefit financially from services which drive traffic on the network. Secondly, many providers of internet services have vested interest in the delivery of video. Many internet service providers – such as Comcast in the US or Virgin and Sky in the UK – provide broadcast television and on demand video services. In doing so, they run the risk of a conflict of interest when it comes to Over-the-Top video services, many of whom are striving to provide a service which competes with traditional media outlets. As such, groups representing online video companies have joined forces with advocates of open internet access to argue that all internet service providers should treat traffic in an impartial manner – neither throttling traffic from high-usage companies such as Netflix, or being allowed to charge extra to carry the traffic to subscribers.
                This lobbying has proven successful in the US. The picture is different in the UK, where the government introduced legislation in 2010 which allows BT, the dominant telecommunications company and provider of ADSL broadband to homes, to manage traffic in a way which throttles high-bandwidth services where such traffic is deemed to have a negative impact on delivery of other data[15]. The government's argument has been that allowing ISPs to potentially charge to route certain types of high-bandwidth data will ensure the network is not overwhelmed and will give ISPs extra revenue to continue with improvements in the UK networks reach and capacity. While it is indisputable that the UK desperately needs improvement in internet infrastructure, this is a controversial way to fund improvements and has resulted in a number of high-profile figures criticising the government's policies in this area. It remains to be seen how the legislation will impact the development of online video businesses in the UK and whether companies such as Lovefilm and the BBC will be charged extra by ISPs to carry traffic to subscribers. 

[1]    "Netflix heads for Europe", IP Television International, Vol. 7 No. 3, p. 6
[2]    Ulin, p. 165
[3]    "Anti-piracy ad promotes cinemas", BBC News, 21 June 2005. . These series of ads showed pirate copies as fuzzy camcorder recordings of threatrical screenings, complete with people standing up in front of the camera "because there's always someone who needs to go to the loo". In reality, most digital piracy orginates from DVD and is of good quality.
[4]    Such software includes DVD shrink and DVD decrypter.
[5]    "iTunes stays on top of growing internet movie business", Richard Lawler, engadget, 9 Feb 2011.
[6]    This remains the case, despite considerable research and changes in web-site design to combat such issues. See
[7]    Adaptive bitrate streaming is used to manage fluctuations in network speed. "The next big thing in video", Liz Gannes, gigaom, 10 June 2009.
[8]    See Appendix A for the author's personal experience of service loss during this outage.
[9]    "Cloud busting video content", Joe o'Halloran in IBE, September/October 2011, p. 6
[10]  Interview with Edd Uzzell. The BBC iPlayer help site also used to recommend these speeds. This advice has recently been replaced with a tool which can measure a user's bandwidth automatically and recommend whether this is fast enough for iPlayer use.
[12]  "Netflix grand 20% of peak time US traffic", Don Reisinger, CNET, 22 Oct 2010.
[15]  "BT accused of iplayer throttling", BBC News, 1 June 2009.