Industry comment "The problem is that they want the world, but they don’t want to pay for it", said the BBC executive sitting opposite me, sipping on his cappuccino. "They are all knocking on our door wanting all our content for free, and it’s so difficult when they don’t understand the costs involved and how this industry operates."
The reason I started Digital TX Ltd was due to hearing this in conversation more times than I care to remember. Time and time again I’ve heard movie studios, broadcasters, TV production companies, record labels and games publishers express to me their deep concern that the enthusiasm shown by ISPs to offer premium content is not tempered by any consideration or understanding for the processes, risks and costs involved in the acquisition of rights to their intellectual property.
When you have the same conversation with ISPs, the talk is of a highly competitive market where loss-leading products are the norm and margins are forever falling. The landscape never seems to stabilise for a minute, with both regulatory and market forces changing faster than the rate of the technology that is being deployed There is frustration and bewilderment at how time-consuming licensing negotiations are with content owners, indignation at apparent arrogance and pre-paid sales guarantees, and even the most innocent of confusion as to why an industry that could seemingly prosper so effectively from technology seems to regard it with such fear and contempt.
Both industries are stepping out into a brave new world and taking commercial risks based on excitement over an as yet unproven technology. ISPs want to deploy ‘triple play’ services that include IPTV entertainment, and content owners are realising an entire new audience has emerged that they can licence the rights to their intellectual property to. Both also suffer the nagging issue of chronic piracy, but in differing ways. Ironically, they are the answers to each others’ problems. My company exists to help them understand each other and to help them build a vision of a very exciting future ahead.
The old cliché is that content is king. Now the structural issues of IPTV are reaching an initial degree of quasi-maturity (in the sense that working deployments are in place around the world and operating effectively), and both management and engineering teams have solved what are the intellectual riddles of putting the equipment into the field, the focus is now on getting hold of the right material that will attract and keep viewers. For those that have been here before, that is an absurd way of going about things as that content takes a very long time to acquire and is the lifeblood of an entertainment business.
Cigars, champagne and dancing girls
The business of agreeing rights over the distribution of content is almost always tedious and long-winded. If you’ve ever been privy to negotiations for channel carriage, record deal signings or sub-licensing, you’ll know that it’s about as unsexy as it gets – lawyers talking to other lawyers, defining every last detail of allowances, sub-clauses and limitations, for every single time the content is re-licensed to someone new. Forget cigars, champagne and dancing girls – this is solid paperwork and a crash course in pulling teeth. And it is a big boy’s game – a billion-dollar industry that everyone wants a piece of, which means you better have some serious chips to get a seat at the table.
The international movie industry is worth $44bn and dominated by the Hollywood studios, almost all of which are based in Los Angeles and known as the "Big 10" – 20th Century Fox, Paramount (Viacom, MTV, Dreamworks), Sony Pictures (Columbia Pictures, Tristar, MGM), NBC (Universal), Warner Bros, New Line Cinema (HBO, Fine Line) and Buena Vista/Disney (Hollywood Pictures, Miramax, Touchstone). There are plenty more (for example, LucasFilm, Pathe, Ljons Gate, Momentum and of course those responsible for adult titles), but none come close to the size of these established brands. Most of these companies represented in London’s Golden Square, near Piccadilly, and spend over $2bn promoting their warez.
The sister arm to these studios are the "Big Four" major record labels of the music industry which preside over around 70 per cent of their own $40bn market – Universal Music (Island, Motown, Polygram), Sony BMG (Columbia, Epic), EMI (Odeon, Virgin) and Warner Music (Elektra, Atlantic). Independent labels abound, as they have always done since the advent of phonographic media. They are mostly based in West London, particularly Hammersmith and Chiswick, and are renowned for their insularity.
The TV production industry is a fluid one, consisting of over 500 broadcasters in the UK (TV and radio) and over 3,000 TV production companies. In London, most are clustered within a 1000ft radius of BT’s Great Portland St tower (i.e. Soho, Fitzrovia), to take advantage of their distance-based charging of SDI circuits (uncompressed video which needs 270Mbit/s). Premium channels that have powerful audience-pulling ability tend to charge operators for carriage on digital platforms and maintain a direct relationship with the viewer (e.g. MTV, Sky One etc), whereas smaller brands have to pay for their channel to be featured. Digitisation has brought about a growing trend of moving further from the centre of London to cheaper pastures as multi-channel viewing begins to affect income the income of their customers. The gorillas in this marketplace are the likes of BBC Worldwide, RDF Media, Fremantle, Endemol, ITN, Channel 4, Tiger Aspect, BSkyB, UKTV/Flextech, SMG, Celador and more.
Last, but certainly not least, is the video game industry, which is a comparatively spring chicken in comparison to the other established media groups and now closely aligned with the movie studios, with a value at just over $30bn. One name dominates above them all – Electronic Arts (EA). Others of note include Activision, Microsoft, Nintendo, Sony, Ubisoft, Take Two, Vivendi, Atari and Codemasters. Rewards are lucrative, and they have to be – some estimates claim that 95 per cent of all games never make a profit for their manufacturers.
These companies are powerful, and because of the high-profile nature of their respective businesses, they are inundated with requests every day and can afford to be choosy about who they work with. Effective deal-making is dependent on long-term relationships that have taken many years to develop, with networking almost impossible as those with contacts guard them jealously as their most valuable trade secrets. Like vulture capitalists, it is often more costly to do smaller deals than the larger ones – but when we say smaller here, it’s important to stress the context: small to these guys is six figures. In exactly the same way as property developers control retail, content owners control entertainment services.
Their fundamental goal is to maximise the profitability of their intellectual property, and there is no group of industries who are more aware of, and better are exploiting, the value of it. The way this is done is through the use of release “windows”, which are basically periods of time in which their media are allowed to be distributed for a specific purpose (e.g. DVD rental, jingles etc). They break the world down into continents, countries, regions and then break it down further into "windows", split into commercial and residential release. This allows them to create a massive list of opportunities for selling what they produce, and has worked beautifully for many years. Until now.