Shifting The Culture Of Free

Michael Hedges July 20, 2015 Follow on Twitter

Media luminaries through most of this century have taken every opportunity to belittle the online “culture of free,” customers disregarding traditional pathways of commerce for the cornucopia that is the internet. A legal bit torrent was unleashed against those defying the will of content masters. The result has been much as expected; threats bore no fruit, the internet adapted. Consumers aplenty have decided which items on the media menu they will and will not pay for.

The music and film industries were at the forefront of the battle with those who might retrieve a tune or a movie without first visiting the virtual checkout point and the dark forces facilitating such. The cultural industries, not limited to those in Hollywood, mounted emotional arguments filled with anecdotes of starving artists, bookkeepers, CEOs and investment bankers. Laws to protect the innocent and punish the perverse were written, some quite brutal, all intended to change behavior.

Last week two French Senators called for further dismantling of the notorious HADOPI law to remove the threat of civil prosecutions in favor of administrative fines. The law originated in 2007 from report commissioned by the French Culture Ministry that outlined graduated punishment - “three-strikes” - for accessing material under copyright without permission from the copyright holder, meaning payment. HADOPI became a model for copyright holder’s fight against the online “culture of free.” Two years ago the Culture Ministry by official decree began scaling back enforcement as too expensive for too few prosecutions. President François Hollande made gutting HADOPI a campaign pledge.

Also last week “discussions” among telecom Orange and broadcasters TF1, RTL’s M6 and public broadcaster France Télévisions to jointly create a subscription video on demand (SVoD) service drew to a halt “by mutual agreement,” reported Les Echos (July 16). Each of the prospective partners in the “made in France” project have launched SVoD services and none saw “profitability in the medium term” in a group venture. Orange principal Stéphane Richard was unwilling to include the OCS movie service. Pay operator Canal+, owned by Vivendi, launched SVoD service Canal Play in 2011 and did not participate in the joint venture discussions. Canal Play limped along for a couple of years until French viewers got a taste for SVoD services and now, reportedly, has 600,000 subscribers.

Media watchers remain cautious about SVoD development in France. With considerable anticipation, Netflix entered the French marketpace last September and has, reportedly, attracted a half million paying customers. "We must consider the arrival of new players in the sector such as Netflix, Amazon, Apple as an opportunity,” said newly installed Culture Minister Fleur Pellerin shortly before Netflix officially arrived in France. US-based analytics firm IHS, owner of Screen Digest and Global Insight, forecast 2 million subscribers for Netflix in France by 2019, far below the 9 million suggested by Netflix CEO Reed Hastings a year ago.

Investors certainly believe people will pay for the TV they want to see now. After Netflix second quarter earnings call (July 17) revealed a mighty jump in subscribers - 2.4 million outside the US - traders bid up the share price 15%. “When the stock was half this price I described it as euphoric,” said Mr. Hastings, quoted by marketwatch.com (July 17). “So it’s a mystery to me.”

German broadcasters dismissed any Netflix-effect in what appears to be sudden and, frankly, unexpected, growth in pay-TV and SVoD subscriptions. About 7 million Germans are subscribing to pay-TV services, up nearly 10% year on year, reported private broadcaster association VPRT, with another 8% growth expected this year. On top of that SVoD subscriptions grew 46% in the first half 2015, according to a separate report from Deadline Media TV (July 16) that estimated Amazon Prime with 1.2 million subscribers in Germany and Austria followed by Netflix and Maxdome (ProSiebenSat.1 Media), each with 600,000.

“We do not see the strong players in SVoD as a threat to (pay-TV) growth,” said Turner Broadcasting CEE managing director Hannes Heyelmann. (See the VPRT presser here - in German) “It suggests that people in Germany are increasingly prepared to pay for high-quality video content. We must, of course, respond adequately to the changing user behavior.”

Television broadcasters, not unlike newspaper publishers of old, have been slow adapting to that changing behavior. Pricing is certainly consequential and SVoD operators, while raising the rates, have undercut traditional pay-TV. But original series and first-run movies offered on-demand are the key differentiator in attracting new subscribers. And it’s doubtful, in this early stage, that users have yet developed brand loyalty. This makes superior quality content even more essential. Netflix, reportedly, is spending US$5 billion on new series this year, sufficient to give pause to those considering new ventures.

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