Television, Regions, Rights, and the Internet

February 25th, 2014 by Dylan Leave a reply »

I’ve had many conversations with friends about television in the age of the internet. I have a lot of thoughts about the future of television.

One thing that comes up constantly is the frustration around the timed release and geographic boundaries imposed on television. In an age of worldwide communication and media on demand it just doesn’t seem to make sense, and even sensible people like TUANZ CEO Paul Brislen admit to illegally downloading television content.

Even I’ve done it – television is the industry I depend on for my income and yet I’ve participated in online piracy of TV content.

The obvious alternative then is to make it available to everyone, right? Just like iTunes and its competitors have largely done away with music piracy and also revitalised the music industry, couldn’t the same be done with Television. US streaming media company Netflix has come grown so big it accounts for, by some estimates, a third of US internet traffic – so why not just make it worldwide?

Music Can Do It!

Many people argue that because music has managed to do this then TV (and movies) should be able to also.

Sadly it’s not that simple. The music industry is much less complex than television. While there are some different distributors in various geographic regions they are usually owned by parent record labels, or have exclusive arrangements with given labels. Even if that’s not the case, the rights issues for music retail are much less confusing and fragmented than television.

Unfortunately the existing television business model is basically structure in such a way that international online distribution is impossible.

The Business Model

Television is an incredibly complex business model – for a given TV show there is a large assortment of rights packages. The names and specifics vary but they are usually limited by a combination of geographic, platform and time-based limitations.

For US network shows, for example, the domestic sales is only a small part of the revenue model, they also need to factor in the large potential earnings of international sales.

For a company like Netflix (or Apple’s iTunes) to offer content internationally it would have to acquire worldwide rights for their platform – something that’s simply not going to happen.

If we take a hypothetical show like Lost from a few years ago, the show is produced for a US domestic network and then various rights packages are available to international broadcasters. In New Zealand those broadcast rights (specifically free-to-air rights) are purchased by TVNZ to play the show on TV2, they also purchase rights for on-demand catchup screening. The rights package that TVNZ purchase will likely also include some form of exclusivity, so no Pay TV provider or video-on-demand service will be allowed to offer the content into that region until some set time after TVNZ has screened the show.

These specific deals take various forms but they are primary market for TV programmes. Those broadcast rights, especially free-to-air, command the highest fees and, as such, they are protected. No other rights will be sold into a region until the distributor has either secured a primary broadcast sale or is pretty sure they are not going to (ie. all likely broadcasters have passed on the offer).

Why Not All At Once?

So if broadcast is the hold up, why not try to get content on screens worldwide all at once?

Simply because networks around the world have different content, different audience and different schedules.

There are some practical issues too – in some cases episodes aren’t even completed until very close to their transmission date, meaning that there simply isn’t time to get things to international broadcasters in time. When I worked for TVNZ and they were screening Lost within 48-hours of it’s US screening we were receiving unfinished episodes for the promos department.

Another issue is the US television calendar. TV in the US is a weird thing – shows frequently take mid-season breaks of up to six weeks, and sometimes shows will simply be off-air for a week to avoid conflicting with a holiday or major event. These types of breaks usually don’t fit with international broadcasters, so in most cases they won’t start screening a show until they can be sure they’ll be able to screen it without breaks.

So because we can’t get broadcast happening at the same time worldwide we can’t get secondary rights (such as on-demand streaming and episode sales) happening at the same time.

How About Internet First?

Okay so then why not stop treating broadcast rights as the primary sales channel, and look at focussing on online rights? Allow Netflix, Hulu and Apple to get rights to release shows simultaneously into many regions at once, regardless of the broadcast rights in those areas.

Yes – I think ultimately this is the answer.

But not yet. The fact of the matter is that broadcast is where the money is – those rights are the most expensive and therefore they will get top priority. Broadcasters are less likely to want to buy expensive rights to a show if that same show is already available in their market before they can screen it.

How Can It Change?

I think that services like Netflix, and their ability to create their own high-quality content, are the answer in the long run.

If you look at a show like House of Cards I think you can see the future. A show like that can be funded and produced by Netflix, they could immediately offer it globally to their subscribers. They can then go ahead and sell broadcast rights as a secondary option – being directly subscriber funded they are less concerned with the high premiums of broadcast licenses so can accept the lower prices the show will command as a result of being online already.

Of course Netflix can’t do it alone. But luckily it doesn’t have to. Hulu is also commissioning original content, as are others. These companies are already making content without needing to relying on the income streams provided by international broadcast sales, they are therefore not concerned with undermining the value of those sales by making content available online first.

Currently Netflix is, of course, only available in the US and a few other countries (unless you jump through a few hoops) but that’s largely as a consequence of the cost and difficulty of licensing content for new markets. As their in-house library increases it will make is easier for them to enter into new markets without having to make massive upfront investments in rights for those markets.

So What About Movies?

The movie industry is a lot more like music in how the rights and distribution model is structured. There are certainly less layers of complexity and the overall worldwide ownership is similarly often centralised.

However independent distribution is a little more common in movies than in music, which can certainly account for some frustrating delays in getting smaller features into some markets.

Ultimately though the movie industry isn’t stuck the way the TV industry is. In fact it’s possible to “buy” and “rent” movies from a few different providers in New Zealand, including iTunes. The timing and availability will still depend somewhat on the local cinema schedule, but it’s getting better.

It’s also increasingly common for features to become available in that way that we’d otherwise never have seen due to their inability previously to secure local distribution.

However we still don’t see much in the way of online streaming (like Netflix) here because… well it’s chicken and egg really. The companies that want to provide those services need content to attract customers, and customers want content before they’ll pay.

Spark – Our Great New Hope!

Telecom, in announcing their upcoming reinvention as Spark also announced their intention to spend $20m establishing a new streaming on-demand TV service called Showme TV. Hopefully with that capital injection and Telecom/Spark’s weight and infrastructure behind it the new service will be able to break through the chicken/egg barrier and secure enough unique content to firmly establish itself as a viable provider.

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  • jasonkemp

    Thanks for this Dylan. I had a shot at writing about the ShowMeTV project for Telecom and Mark helpfully noted the difference between streaming rights and other programme rights. My full post is over here
    http://www.dialogcrm.com/blog/2014/02/22/telecom-announces-their-content-play/

    I’m not a mainstream TV viewer generally and so AppleTV and other streaming enablers are very much of interest.

    I suspect with Netflix at some point they will look look at other markets and those people in those markets using VPN’s or similar to access might become more visible and help to give them a critical mass.

    I suspect that rather than Hulu, Netflix or HBO it will be someone like Amazon who will capture the market for their own content. Amazon knows I ma in NZ and it has stats on global markets which should inform its stategy ( as opposed to Netflix – who know they have millions of non US customers but no data on them.)