The ins and outs of online video (part 2)

What does the future hold

In Part 1 of this post we outlined the state of play in New Zealand broadcasting. In Part 2 we look at the prospects for future competition.

A new hope

The best hope for greater competition in New Zealand broadcasting is through new services that allow subscription-based viewing over the internet, i.e., an online movie and television service with a catalogue sufficient to surpass the best local video store. And a service that grows over time to sharply increase the amount of content available on demand to New Zealanders. The best-known international examples today are the US services Netflix, and Hulu – neither of which is yet available to New Zealanders without a workaround – and the US iTunes movie and television show lineup. This is the market gap that newcomer Quickflix is endeavouring to fill in New Zealand.

So far these online services are in their relative infancy. While there are several options for legitimate downloads, (and the article excludes Google’s efforts to create its own online movie, television and book store, Google Play the content available is limited relative to international options, and to video stores. Newcomer Quickflix boats several hundred movie titles, compared with thousands on iTunes, more than 29,000 with Sky’s Fatso DVD rental service, or the more than 50,000 Quickflix offers in Australia.

Nevertheless there are grounds for optimism that growing competition will improve the availability of quality, competitively-priced, timely and legal video content for New Zealand, i.e., the promise of the “long tail” is being fulfilled but it is slow and patchy compared with other places. As mentioned above, competition is speeding up the New Zealand internet, and the UFB, the government’s new fibre network, will make widespread distribution of video content a more economic proposition, dealing with at least one of the concerns of Netflix that led it to announce that it had no plans to come here yet.

That said, there are already calls for the government to intervene, including from the owners of TV3, and from Quickflix, and suggestions that it is Sky’s market position that is responsible for the relative lack of legitimate online video options compared with other places.

Sky responds that it is not standing in the way of online competition, in particular because it does not presently have any of the particular rights, called SVOD, that internet subscription services need, and that it could never get those rights exclusively anyway. Certainly the launch of Quickflix gives some weight to Sky’s argument, but the gaps in Quickflix’s content line-up that are generated by the fact that relevant rights are held by Sky and TVNZ already suggest that life is not going to be easy for Quickflix or other online services.

The Minister has said it is too soon to intervene now. But there seem to be two future scenarios in which the government might in time be convinced to act.

Acquisition of online content rights

TVNZ, Sky and TV3, are competing for rights to show quality content online with any new service. This is, of course, exactly what they should do. Competition generally is a good thing for users, and it is always hard for a new player to get started in any established market. We may yet see one of the existing broadcasters launch an online subscription service of their own. Sky has given broad hints of something like this.

But if TVNZ or Sky, who account for about 80% of viewing, unreasonably restricted availability of their content to competitors or so effectively cornered available rights that new online services could not effectively start up or operate then they might find themselves on the wrong side of the government in due course.

We have some early international examples of controls in Australia , or potential controls in the UK – see also this announcement to prevent broadcasters from monopolising online content rights. As yet their necessity has not been demonstrated here, their effectiveness has yet to be tested, and they do not fit especially well within the existing New Zealand regulatory environment, meaning law changes might be required.

Distribution of online content

Sky makes its television service available through various ISPs but they do not have much ability to chop and change the Sky offering – for example, to offer only some channels, or to move around broadcast times. There are also reported to be limits on zero-rating the video content from competing services so that it does not count against customers’ monthly broadband data caps. These contractual restrictions could be seen as limiting competition, especially from new online services.

That said, there seems to be enthusiasm both from Sky and the ISPs like TelstraClear to rethink the existing arrangements given the changing competitive environment. Again, if these contracts are seen to foreclose competition, and particularly the ability of ISPs to zero-rate content that competes with Sky, then we might find the government interested in intervention in due course, or we might see changes in commercial arrangeements. It will certainly be interesting to see the outcomes of the next round of commercial discussions between Sky and its ISP distributors.

Although the Minister has indicated that she does not presently see the need for policy action, the government in one form is already looking at these issues. The Commerce Commission is investigating Sky/TVNZ joint venture Igloo, and it continues its demand-side study, which is looking at the future uses of ultra-fast broadband with a report expected in late May. The next big news point might be the Commission reaching some firm conclusions about the state of the market as part of these pieces of work.

In terms of the impact of this broadcasting debate on takeup for the UFB, there is plenty of time to see how things develop. The UFB was never justified on the basis of improving video content options for residential users: the priority users for the first six years are health, education and priority business customers, none of which would be big entertainment consumers, one would think.

Summary

The best hope for greater competition in New Zealand broadcasting is with new services that deliver video entertainment over the internet.

The UFB is very helpful. Not only does it speed up the New Zealand internet, which will support new means of distributing content like online services. But it will also continue to put pressure on content owners into opening up distribution of rights, which should boost content availability for New Zealanders.

We can expect TVNZ, Sky, and TV3 will make life hard for any new service providers. To some extent this is just competition for content at work.

But if competition does not develop, there will be increasing pressure for government intervention, particularly to ensure competition for acquisition of rights to show content online or to ensure distribution contracts for Sky content do not unduly inhibit ISPs from distributing competing content. The Commerce Commission is looking at some of these issues at present.

 

Hayden Glass is a consultant specialising in technology, telecommunications and public policy with the Sapere Research Group. This post was originally published on the TUANZ blog.

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  1. Pingback: The ins and outs of online video (part 1) | whereishayden

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