Content Distribution: Carrots & Sticks Required

The Register has just published one of the best articles on Content (specifically IPTV and VoD) that I have read in a long time. Alexander Cameron goes into great depth on the issues faced by content owners and distributors (telco operators and ISP's) in sorting out a mutually acceptable business model for the distribution of digital content.

A word of warning: this article is not for the faint-hearted. It is 9 pages of solid beef so make sure that you set aside a good half-hour.

For the modern-day busy bee, here is our (much shorter) analysis of the piece:

The Challenge of DRM
Cameron outlines the essential paradox faced by the content industry: How to make content available for users to copy across their devices while preventing illegal copying from one device to another? For example, once users have bought a song they feel that they should be able to listen to it on their iPOD, PC or phone and not have it tied to a specific form factor. However, content owners are loathe to offer this as it opens the market up to the abuse of illegal copying via P2P networks.

The Carrot and Stick Approach
What's needed, according to Cameron (and I think he's right) is both better content services (so people feel willing to pay) combined with an effective deterrent. Currently, neither really exist.

Better Services...
Telco operators (and other digital distributors) are not providing a simple, differentiated content distribution service that customers are willing to pay for:

  • The volume of truly personalised content on my phone is low
  • The price of content on my phone is too high
  • My ability to copy and manage content is limited

There are one or two exceptions to the rule. Take MelOn in South Korea. Users pay either a flat-rate subscription fee (for all-you-can-eat) or a per-song fee to 'rent' music from SK Telecom's legal archive during the subscription period. They can play music on any device, anytime. Successful? The service has over 5 million subscribers and is Korea's number 1 music site.

...Supported by Advertising...
If Operators can deliver personalised content services effectively, then this opens up the upstream advertising channel. Cameron argues that more content should be free and paid for by targeted advertising. I mentioned in a previous post that Channel 4 have started doing this with their on-line Big Brother clips. This advertising-led model can then be supplemented with on-demand back catalogue content that users pay for. But this ONLY works with incredibly good CRM systems - an operator has to understand that, despite being an England rugby fan, I would pay to watch re-runs of many of the Welsh International matches from the 70's (what a side Gareth Edwards, Phil Bennett, JJ and JPR Williams...)

...Backed by Effective DRM...
DRM is a problem because people do not understand it and resent it. Preventing me from playing music I have downloaded to my phone on my PC really hacks me off. Cameron argues that content owners should instead be working with ISP's and Telco's to prevent illegal file transfers through P2P exchanges - this is the 'Stick'. Both parties are incentivised to reduce illegal file transfers. The ISP's and opeators need to reduce the loading at the edge of their networks (where the bottle-necks are) and the content owners want to prevent revenue leakage.

A great article, really well thought through.

BTW, we will be covering exactly these issues in the Advertising Funded Content breakout on the second day of our Telco 2.0 Industry Brainstorm 2006.