“Content Wars” Ripping Entertainment Industry Apart

Content WarsEntertainment Industry In-Fighting Benefits Users (FOR NOW)

In my essays here, I spend a lot of time on the Gold Wars. There is, however, another war with which most of us are somewhat familiar but do not realize quite how intense the hostilities have become. I am referring of course to the Content Wars. Basically, if you watch TV or movies on your home entertainment system, your computer/laptop, or on your portable device, you are a foot soldier in the Content Wars—whether you know it or not. And the battle, it seems, is just heating up.

The Good Old Days…

They were really simple. There were four or five networks. You needed cable or an antenna to access them. There was no “time switching.” You either watched the content when it aired or lost it. In the industry, millions of dollars of bonuses were paid not to the executives who produced the best shows—that would be much too simple!—but to those who arranged the air schedule so as to capture the largest audience in the specific time slot…and thereby obliterated the competition. A similar model prevailed in the movie business; the studios managed their releases with strategic precision. U.S. films always aired in the U.S. first before the rest of the world and each wanted the first “blockbuster” in its specific genre.

As I said—simple.

And then the Good Old Days Just Flat Out Broke…

The last 20 years in particular has ushered in something so bizarre it does not even deserve to be called a business model. A better term would be “organized chaos,” because the content providers, as I write this, have pretty much given up on even the possibility of properly controlling the various content delivery systems (for reasons to be explained below). Instead, for the time being, they are satisfied to merely deliver product to as many platforms as technically possible in the hope of maximizing revenue while waiting patiently for order to ultimately prevail.

The cause of this mess was not merely the Internet, if that was your first guess. (Although, in fairness, the Internet was a huge contributing factor.) About the same time that the Internet arrived, cable and specialty channels were already in the process of stratifying and fragmenting the staid old universe of TV and dazzling viewers with never-before-seen variety and choice in the process.

Let’s not pretend this was accidental, because it was not. By offering literally hundreds more channels than had previously existed, the cable boys—already a heavily protected “old boy network” in both the metaphorical and literal meanings—were able to convince viewers to shell out more per month for packages they never, ever could possibly fully use. Who can possibly watch or even manage hundreds of choices at a time? Nice work if you can get it.

And even better, the only way to access these bundles inevitably turned out to be by renting “set-top boxes” from the very same cable companies that sold us the complicated content in the first place.

(Already lost to history is the story of how the major Japanese firms, sensing an opportunity at this time, launched dozens of models of so-called “Hard Drive/DVD recorders” that could record specific programs to either a hard drive, for casual viewing; or to a DVD unit, for storing permanently. This initiative was historic because it managed to violently enrage BOTH the content providers and the cable companies at the very same time—the former because the last thing they wanted was for consumers to store anything of theirs permanently, and the latter because any one of these gizmos, even the base model, was better than any set-top box on the planet.

With the full might and power of BOTH Hollywood and the cable boys behind it, in record time, the now-commonplace “recording” or “PVR” set-top box was born [so you could TEMPORARILY record and time-shift programs] and shortly thereafter the entire electronics category known as Hard Drive/DVD recorders simply vanished in a puff of smoke and was never seen again.)

Again, and this is important to emphasize, none of this was by accident. The preferred “model” for forcing consumers to buy bundles they did not want was as old as the record industry itself. Where, for decades, buyers of LPs and disks were compelled to buy a dozen songs they were not interested in, just to get the one single song they actually wanted. And grateful for the opportunity!

And as for those insidious set-top boxes, the business model for that was borrowed from the telecom sector. For decades, hard-wired phone users used to pay monthly rental fees for their phones—even though (on average) the actual cost of each phone was covered usually in the first year or so of the rental. If a consumer kept that phone for 20 years (not as uncommon as you might think), the revenue was just extra profit for the phone company. (And the box has as much to do with encrypting the cable signal as it does with delivering content—so, effectively, consumers are paying for the privilege of “protecting” the very same companies that are overcharging them in the first place.)

This was all a great scam until the following events happened:

* File-sharing in the music sector (Napster, Kazaa) almost decimated that industry.

* Steve Jobs, who encouraged file-sharing by making his the first company to offer out-of-the-box computers ready for making music CDs from “pirated” data, noticed the market potential quickly, and started cutting deals with content providers to “free up” content for his newly launched “iTunes” store (which was basically the engine behind the launch of all the streaming services that most of us have come to know and love and take for granted).

* Netflix, hard to believe, was once an upstart company that was simply exploiting a flaw in the once-massive “video rental” biz. Instead of forcing you to drive to the store, rent the video (or disc) and then return it (while, at the same time, being reprimanded like a small child for “failing to rewind”), they sent you the content by mail and let you return it when you were good and ready—with no penalties, extra charges, or reprimands. From such simple beginnings we now have one of the most powerful media conglomerates on the planet. And, oh yeah, they charged for the actual rental only a small fraction of what the brick-and-mortar stores did (which is why there are almost no brick-and-mortar rental stores left…?).

* The file sharing and pirating continued while the above was happening. So, the content owners were forced to hire “copyright bounty hunters” to chase down and threaten college kids and octogenarians with lawsuits and fines and general evil-doings.

* Nonetheless, history will most likely record that the greatest damage to the so-called “piracy” model was NOT done by these amoral bounty hunters, but rather by the sheer laziness of the users themselves. It turned out to be so much easier to join services like Netflix, Hulu, and Spotify for your content, then to go through the tedious process of stealing it. (Although Peter Sunde, the founder of the world’s largest pirate site, has, on several occasions, noted that once you rely on a third-party for archiving your content, that third-party can subsequently remove or alter the content at will. Spotify, for example, will “disappear” your favorite songs without telling you if their license rights expire during your membership term.)

* While all the above was going on, what was the reaction from the traditional cable companies as subscribers quit in droves? First, they tried a strategy that had always worked well for them in the past. They simply raised prices for the existing subscribers to compensate for the lost revenue from the departing ones. (This will only make sense to you if you consider how old the cable sector is and how “tight” they are with regulators. Even though this is already a massively profitable sector, it is treated by government almost like a protected utility and allowed serial price-hikes without protest. In fact—another irony—it is much more likely that the increasing revenue from the industry’s secondary business of providing Internet access will better balance out the lost revenue from departing cable customers than the mean-spirited price hikes on the remaining ones!)

* To try to compete, many cable firms did, at least, experiment with offering apps to mobile users (users who were already their hard-wire customers) so content could be accessed that way also. The general view, however, is that these non-standardized apps were difficult to use, unreliable, and provided a dreadful customer experience—which was at least consistent with the experience customers got from the hard-wire connection!

(For example, Canadian telecommunications behemoth Rogers Communications offers four different versions of their mobile app, all with different features, yet all with the exact same name. [Source: “Rogers Anyplace Explained,” Rogers, last accessed May 27, 2016.]

Rogers is also noteworthy for expanding its empire to include Canada’s only remaining national news magazine, a publication which, cynics suggest, is unlikely to ever report anything unflattering about its corporate owner in either your lifetime or mine.)

* And, also a matter of considerable irony, while all this was going on, the Hollywood film industry began to experiment with releasing their product in foreign jurisdictions before the domestic market, finding this somehow improved revenue streams. (And, in the process, often created a new paradox whereby foreign versions of current movies were illegally “captured” on early release and re-entered the U.S. as a pirated product on a file-sharing site before the legal U.S. version was even available.)

To the Future…?

Purely and simply, anyone who tells you that the outcome of the Content Wars is clear and predictable is lying. No one has a clue how this will end.

More recent developments include:

* A lot of secondary streaming services like Netflix and Amazon and YouTube suddenly going into the business of actually creating original content. The irony here is that most of these services launched themselves on their ability to access cheap existing content. Making original content is expensive! It will also potentially alienate the content providers they are striking deals with because they will now be perceived as competitors.

* In the U.S. specifically, an initiative launched by President Obama has attempted to “open source” the standard for those useless and overpriced set-top boxes. The cable industry, already coping with mass defections, is very, very upset about this. Once you open the box up for tinkering, the potential exists—crazy but true—to link the box to both legitimate paid content and 100% pirated content at the very same time; plus—once an open-source box is properly configured in this way—the result will be 100% transparent to the end-user.

In the U.K., for example, police have already raided suppliers of “modified” boxes that do exactly that. One user noted that his now-confiscated box was simply extraordinary—“You turn it on and suddenly every Disney movie ever made is in front of you waiting for you to make a selection. At no cost!” (Sources: “Obama Backs Effort to Open Set Top Boxes,” The Wall Street Journal, April 15, 2016; “UK Police Raid Pirate Box Sellers,” TorrentFreak, March 18, 2016.)

* In Canada, government authorities tried to strike a blow for the much-abused consumer by “insisting” the cable companies “unbundle” their wacky pre-arranged packages (wacky only if you are not already a stockholder of the cable company!) and allow users to “build their own bundle” based on a core $25.00 package.

The initiative is fairly new, but early—and angry!— customers have so far generated “one of the biggest complaint letter campaigns” in Canadian history, as the wily cable companies (like the similarly named character in the Roadrunner cartoons) immediately retooled their packages so that, for most users, building a custom package around the new government-mandated base model usually resulted in a HIGHER charge than what they were already paying! (Source: “Canada’s Unbundling Falls Short,” Yahoo!, April 15, 2016.)

Meanwhile, upstart streamer Netflix now has more viewers than HBO. Who would have guessed? (Source: “Over the Top,” Digiday, July 7 2015.)

Also bizarre is that Netflix, the company that launched itself on a “libertarian” platform of content access, is legally threatening companies that merely try to provide third-party content guides to its own services—i.e., companies trying to become a “Netflix TV Guide,” in essence. (Their motive is not really clear, since this seems like something they should actually welcome? Heavy Netflix users suggest the reason is that Netflix is now attempting to do what the major networks did in the 1960s, and trying to “time-force” content on a rigid schedule—if you do not watch Netflix content precisely when it is advertised, they say, it will disappear into the ether, just as Peter Sunde predicted!)

Also of concern is that Netflix has actually cut off tens of thousands of legitimate, paying subscribers who access their service from a virtual private network, or VPN. The company claims this is because VPN users are trying to “trick” Netflix into thinking they are from a country (like the U.S.) with access to overall greater content (because of the complexities of licensing in various geographical areas, which results in geo-blocking).

The truth, however, is that only a small portion of Netflix’s VPN users attempt this and the majority simply use low-cost VPNs to prevent their ISP (and the government, the CIA, and everyone else on the planet) from spying on them. So effectively, Netflix is throwing the baby out with the bathwater… (Source: “45000 Netflix Users Protest Crackdown,” Tech News, May 12, 2016.)

The company officially denies this state of affairs is having any impact on their image or bottom line. However, the fact that the backlash resulted in an actual march around the company’s headquarters, towing a specially made billboard, suggests that another agenda is being pursued. The most likely reality is that the powerbrokers Netflix needs to deal with to secure ongoing content have drawn a red line in the sand and insisted they deal with any members who resist geo-blocking, no matter the consequences. In fact, the only thing we know for certain about the shenanigans at Netflix is that we are not being told the whole story. (Source: “Blocking Protest at Netflix HQ,” TorrentFreak, May 26, 2016.)

Until Further Notice…Chaos Will Reign

As I commented off the top of this essay, the only thing the future is certain to bring to the Content Wars is more chaos. This skirmish seems literally years away from a resolution.

In the meantime, for the first time in decades, it pays to be aware of how and when you access the content you want. For the short term at least, more price competition from all the players trying to control this space can only be good for the end-user.