TVNZ, MediaWorks, Sky and Spark go to War With Global Mode

April 4th, 2015 by Dylan Leave a reply »

I spend way too much time thinking about the future of television (and to a lesser extent, film) in the modern digital environment. I have a background in the internet industry having worked for one of NZ’s largest ISPs in the early days, I am a geek and a massive TV fan. These days my entirely livelihood is dependent on the television industry – I make TV.

But I’m also a consumer. A tech-savvy consumer with a desire to be entertained – I seek content where I can get it. I’ve downloaded TV shows from places like The Pirate Bay (and on other platforms before those guys revolutionised piracy). I’ve been using US-based streaming services like Netflix and Hulu for years.

So with all that in mind, my take on the recent decision by NZ’s main TV broadcasters and Spark to threaten legal action against two ISPs based on their provision of ‘Global Mode’ (a tool for bypassing geographic restriction on services like Netflix) should be pretty simple, right? Well, no. Not quite.

So first a little disclosure… I’ve worked for TVNZ, I’ve worked for production companies producing content for TVNZ, MediaWorks and Sky, I know the person behind the Global Mode service offered by Orcon and CallPlus, and I also know the General Manager of CallPlus, as well as many technical staff at Orcon.

I understand the decision that Sky, TVNZ, MediaWorks and Spark (let’s call them The Incumbents) have made. I understand why they feel that they need to protect their investment. They are paying huge amounts for various rights packages for content on their platforms, the value of which is undermined by the availability of the same content (and more) from overseas providers by means of silly internet tricks.

Ultimately however they are powerless. Even if they are successful in getting CallPlus and Orcon to discontinue their Global Mode product, there are many more services available from overseas providers for just a few bucks a month – New Zealand companies stand no chance of stopping those services, and any sort of legal whack-a-mole in attempting to prevent the use of those services is going to be futile.

Are The Incumbents right to claim that the ISPs have “set out to profit by marketing and providing access to content they haven’t paid for” and that they are “in breach of copyright”?

Well on the first question; yes and no. All ISPs profit in that way – they typically own none of the content which their users access, their profit is simply from providing a conduit to content created and provided by others.  But specifically both ISPs offer Global Mode for free to their users, and their pricing is competitive in the market, so while they may gain some users by offering those services, in general it’s probably not a big deal.

On the second question, I’m pretty sure the answer is no. I’m not a lawyer, but I can’t see any way that allowing a user to pretend to be in another geographic area is a breach of copyright – NZ copyright law does make it illegal to provide tools to circumvent Technical Protection Methods, but it also specifically exempts geographic restriction technology from the definition of TPM.

for the avoidance of doubt, [the definition of TPM] doe not include a process, treatment, mechanism, device, or system to the extent that, in the normal course of operation, it only controls any access to a work for non-infringing purposes (for example, it does not include a process, treatment, mechanism, device, or system to the extent that it controls geographic market segmentation by preventing the playback in New Zealand of a non-infringing copy of a work)

However there is potentially an issue of copyright infringement that in taking place. When a company like Netflix acquires content to provide it in a given region it is basically given a specific license in relation to the copyright. Providing that content to anyone it’s not licensed to is technically a breach of copyright. So every time we watch a video on Netflix US or Hulu we are causing those companies to breach copyright. But I don’t think The Incumbents are about to take on that battle.

The bigger problem I see though is that these geographic bypass services are the digital equivalent of Parallel Importing – an act that has been so widely accepted in New Zealand that government-owned NZ Post even offers its on reshipment service to provide NZ consumers access to overseas retailers.

NZ retailers frequently complain that parallel importing is making it too hard for them to compete. Various distributors sign exclusive supply agreements for various products in the NZ market, only to have local retailers and consumers directly import those products in spite of their theoretical exclusivity.

So then why do we consider with this outdated business model? Well, basically because it isn’t (yet) outdated.

The vast majority of viewers still consumer video content over broadcast (either traditional free-to-air or subscription). SVOD services like Netflix and Lightbox are still tiny by comparison, at least in terms of potential audience. For this reason broadcast is still the primary market for the TV sales.

If you are a TV distribution company you look to sell licenses into broadcast in each region first – they are the highest value. Once you’ve either sold those those rights, or failed to do so, then you might look at other distribution platforms. So inherently the SVOD market has to wait for access, because they won’t pay as much.

Because of the nature of the broadcast market (each channel has it’s own schedule to manage) and the complexities of international media sales (shows may not be available to license until after domestic screening begins) there is usually a significant delay before a show’s first airing in it’s native region and it’s airing in our region. After that first airing there is usually a guaranteed window of exclusivity.

So because broadcast is the primary market, and because broadcast can’t really be simultaneous globally, there can’t generally be global availability of content on SVOD platforms. Offering such licenses would dramatically devalue the broadcast rights for those same shows (given the presumed lack of exclusivity).

A change of this structure, to see online platforms as the primary market globally, would dramatically destabilize revenue within the global TV industry and, ultimately, we’d probably see less of the content we’re currently complaining about having to wait for.

But it will change. No one in the industry can reasonably deny that consumer demand will have to win out somehow, it’s clear that the technology can’t compete with determined consumers – if people want to see something, then they will.

So, how? I’m not sure, but I tend to assume that Netflix will probably be a part of it – in two ways… Firstly they are originating content – given that their business model is satisfied with return on investment from user subscriptions they don’t have the same impetus to protect premium licensing revenue – they can provide their own content in all their regions in the first instance while offering broadcast rights as a lower value secondary rights package. Secondly, as they grow large enough they may be able to bid enough to outweigh the usual premium licensing returns from broadcast – they might pay enough to make it worth giving them first bite basically.

For right now I’m delighted that Netflix, Lightbox and others are now operating in NZ – it offers a great starting point to grow demand here, and will ensure that as the business model starts to tip we’re well positioned to benefit from it. In the meantime many of us will likely remain hybrid consumers – buying some of our content locally, and some internationally.