Free to see. Free to be.

Michael Hedges July 3, 2009 Follow on Twitter

Rupert Murdoch wants nothing to be free. A billion Web users say otherwise. As such, a line is drawn between old and new media. There are others.

Of course, the content of that media – old or new – carries a cost. Producers – from musicians and actors to writers and journalists – want some sort of compensation for their efforts. Media has always been in the middle – buying a producers work, monetizing it and, in the good times, making a handsome profit. Whether through advertising or subscription, this revenue model has worked for decades.

Along comes the Web and everything changed. Or has it?   Economics is changing the media business model. The Web made it happen.

The Web is new media, the new media. A vast resource has developed through the genius of internet protocol (IP) and the languages created to make content appear, move and change. Five hundred years ago the same might have been said about the printing press. Paper is to the printing press what copper and fiber (wireless is next) are to the Web.

The good people who strung copper wire across the lands and under the seas were the telephone companies. The telephone was the first interactive medium. Technologies improved over that hundred years, not at all to be dismissed, but the telephone companies also perfected a business model. Phoning your grandmother on her birthday costs something. You pay to originate the phone call and, in Europe, Oma pays for the joy of hearing your voice. Love is all around and the telephone companies, now called telecoms, have grown very rich.

Over the course of the last generation telecoms have faced several unpleasant moments. The most unpleasant, for them, has been privatization, competition and de-regulation. The most public affect has been lower telephone bills for you and your grandmother. None of that has caused starving among incumbent telecoms.

With cash in their pockets, a head start on technologies and friends in high places telecoms jumped into any business that needed a good billing system. Not surprisingly, telecoms were early investors in satellite communications and cable TV. The internet spread through their wires.

Telecoms, too, were early investors in mobile communications distribution. Opportunities opened for the new and profitable, the infamous roaming charge being one. The unpleasantness returned as European Commissioner for Info Society and Media Viviane Reding brought some of that fun to an end.

Having the wire (and much of the wireless), telecoms keep looking for greater opportunity with internet delivery of content. Virtually every major telecom offers some variation on subscription TV via the internet. With charges for simple connectivity falling, telecoms want to keep the wired occupied and the billing meter running.

IPTV (internet protocol television) looks to be a killer app as broadband speeds increase and consumers continue to merge usage of television and the internet. One prominent consultancy warns, however, that telecoms will struggle with IPTV services because, among other reasons, customers are fickle. 

“IPTV will remain a subsidized undertaking, even among the large telecommunications companies,” said German consulting company Goldmedia in a new report (June 23) on IPTV business models in Germany, Austria and Switzerland. “The construction and operation of an independent IPTV platform is economically viable only for telecom companies with at least 2.5 million broadband customers.”

Further, the report says: “Revenues from TV services alone do not make IPTV an attractive business model for telecommunications providers. Even for the large network operators, IPTV makes economic sense only after the effects of subscriber churn and growth of customer base are taken into account.”

However, it continues: “IPTV can also be profitable for smaller companies if they market pre-existing offerings. This so-called ‘reselling model’ is feasible for companies with only 250,000 broadband customers. To present, however, such offerings have spread only minimally in the GSA region (Germany, Switzerland, and Austria). Relevant examples can be found only in Switzerland.”

And what would that ‘relevant example’ be? It is my beloved Zattoo, the bitTorrent streaming television service offering dozens of television channels in real-time.  Zattoo benefits from legal frameworks introduced when cable distribution was seen as offering television where broadcast signals wouldn’t go. It is not, as some have complained, a ‘loophole.’   

Pressed further on the subject, Goldmedia’s Mathias Birkel says Zatto may have figured out a workable business model where big telecoms can’t go.

“I think,” he says, “that the right model is a relatively innovative method of financing through advertisements. Zattoo uses channel switch ads, displaying a short, five to seven-second ad when the viewer changes the channel. There's also the possibility for targeted advertisement.”

Targeted ads; the advertising people love that! In fact, they only love targeted ads.

“I doubt that a pay model like the one that telecom and cable operators offer would function online. There simply isn't the willingness to pay online.”

Being quite clever, internet bourn and otherwise irritating to come copyright holders, Zattoo has had to block some movies shown in Germany under Murdochian threat. 

On that issue, Goldmedia’s Birkel is optimistic for Zattoo and similar IPTV providers. At the same time, he says, “the film industry had… and still has… trouble accepting online distribution as a method for selling their content. They haven't completely learned from (the music industry). Neither the film nor the music industry has found a truly successful business model for online distribution.”

“I predict, however, that legal problems will become less frequent -- for both linear and on-demand online offerings -- because new contracts will cover these online distribution issues.”

IPTV remains in its infancy. Goldmedia’s report suggests a long haul – “five years, at least” – for providers to turn a profit. Streaming television is but one aspect of IPTV. ‘Catch-up’ TV is another. At the moment, Zattoo and other providers are going through seemingly endless technical development.

“We have been changing the transmission protocol over the past 4 weeks,” said Zattoo CEO Beat Knecht in an email (July 2). “About 95% of our channels are on the new protocol and we are burning in the new streams.”  Thankfully, he did not encumber me with the details.

He did offer that the famous Zattoo goldfish might return. Telecom people wouldn’t understand.

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