Legal and Regulatory Implications of Cross-Platform Distribution of Digital Content

Advances in multimedia technology and broadband network deployment have led to an explosion of new-media distribution opportunities beyond the set-top box, including such platforms as the Internet, cell phones and portable media players. These developments have spurred innovative approaches by program networks, content owners and multichannel video programming distributors (“MVPDs”) to deliver rich, multi-platform content to consumers. New methods of delivery, including web portals for video (e.g., Vongo), advanced peer-to-peer (“P2P”) networks (e.g., BitTorrent), wireless content delivery services (e.g., MVNOs and MediaFLO), and IPTV, among others, allow programmers, content owners and distributors alike to reach viewers in new ways that add value to programming content. Consumers now are being equipped with the ability to custom-tailor their viewing entertainment experience by watching what they want, when they want, where they want, and how they want.

These developments present tremendous opportunities to program networks, content owners and MVPDs that arm themselves with the technical, business and legal know-how to navigate the complex waters of cross-platform distribution. A brief discussion of each of the new methods of delivering content, and some of the legal and practical questions surrounding cross-platform distribution, follows.

I. Broadband Distribution of Digital Content

MVPDs are looking to program networks to provide “added value” to their linear channels. Increasingly, MVPDs want content for free video-on-demand (“VOD”) channels to complement the networks’ linear offerings, and more recently they also have sought content to feed their own broadband internet services. As digital streaming of video content over the Internet continues to gain momentum, programmers are finding ways to profit from the second box in the home – the cable modem or digital phone line adapter.

Significantly, Nielsen Media Research studies indicate that 61% of all Internet users are accessing the Web via high-speed connections, which further increases the market for high- quality streaming video. Streaming content gives programmers a much stronger web presence that will attract more eyeballs to, and demand for, their linear channels, and in turn drive advertising revenues and the creation of additional content. Developing a strong web presence may be particularly important for some programmers, as it can be a vital means of reaching key demographic groups. For example, programmers with a strong web presence are more likely to reach teenagers aged 12-17, who, according to research studies, spend more time on the Internet than watching television. This will be increasingly important as consumers expand their entertainment viewing time from traditional TV to include the Internet.

There are a number of business models emerging for online video multicasting and unicasting, involving either free access or fee-based access to content. Program networks offering free access to online content are more likely to develop original programming and video clips that are available exclusively in broadband format, in order to avoid cannibalizing their core television line-up. On the other hand, programmers providing fee-based access (e.g., pay-per-view or monthly subscription) are more likely to stream content that is also available on their television platforms, such as licensing movies for temporary download or streaming linear channel programming. Thus, programmers delivering content online will, among other things, have to assess the viability of adopting one or the other of these approaches, or some variation, to provide access to viewers. Indeed, some programmers even see the basic cable advertising-based programming model as an opportunity to subsidize growth in subscription-based access.

II. Downloadable Video and Podcasting

Cable networks and other content providers are striking deals with media and consumer electronic companies to provide audio and video content for portable devices such as the iPod via downloadable video and podcasts. Downloadable video is available on the Internet through online services offered by program content providers and media companies. These online services allow users to download content to a computer hard drive for viewing on a personal computer, television or portable media player. Some content providers offer downloadable video directly from their websites, while others use online stores such as iTunes and Google Video to distribute their content.

Podcasting is a means of delivering digital audio and video content over the Internet using a “publish and subscribe” model. Content providers publish a list of programs on the web, and the user who wants to view or hear the podcast subscribes to the feed using subscription software such as iTunes, which periodically checks the feed and automatically both downloads new programs as they become available and transfers (i.e., syncs) the program to a desktop or portable media player. The subscription feed of automatically delivered new content is what distinguishes a podcast from a downloadable video.

Podcasting offers unique benefits such as high quality compressed digital audio and video, interactivity, time shifting, asynchronous file transfer (i.e., downloads spread over time resulting in less bandwidth usage), and ease of reproduction and distribution. Programmers using this platform are delivering primarily free daily updates to their original programming (such as news reports), which are available for download to computers and portable media devices, to build brand awareness and consumer loyalty. Other content providers are embracing downloadable video as a new business model, using this platform, much like distributors of broadband television, to provide fee-based VOD access to content that is otherwise available through their traditional television platforms.

III. Mobile Phone Delivery of Content

The mobile telephone industry has come to recognize the value of content, and has been instrumental in the development and implementation of rich media services that now are being coupled with traditional two-way voice mobile telephone services. Especially relevant in this area are Mobile Virtual Network Operators (“MVNOs”), who lease spectrum from “traditional network operators” and target customers through branding and content. Early entrants in this segment, such as Virgin Mobile¹ and ESPN Mobile (both leasing capacity on Sprint Nextel’s network), offer content that includes news, video clips and sports and music-themed shows. Also, lifestyle-focused MVNO, Boost Mobile, a wholly-owned subsidiary of Sprint Nextel, has emerged as a market leader² in this space by offering branded wireless handsets and prepaid wireless services targeted at the youth demographic.

In order to realize the potential represented by these new offerings, the wireless industry has invested substantial sums in upgrading existing cellular networks, and other wireless networks are forecasted for such use (e.g., WiMax). However, many questions remain, such as those regarding the nature of the content to be transmitted over this medium. For example, some commentators predict service offerings including both linear and VOD programming in segments of considerable length, such as programs exceeding 30 minutes, particularly as new devices (such as handheld PCs) become viable means of on-the-road viewing of longer-form content. Others expect shorter, two to four minute clips to comprise the bulk of wireless content. Even shorter-form programming – e.g. “bursts” of a few seconds, up to 30 to 60 seconds, of programming -- already has achieved significant popularity. This short-form programming is specially tailored to fit an on-the-go lifestyle, and is intended to supplement -- not supplant -- the traditional, longer format content that is the hallmark of at-home viewing. Regardless of which formats prove to be most successful, it is already apparent that wireless phones will play a significant role in the cross-platform distribution of digital content.

IV. Peer-to-Peer Developments

Last summer, in MGM Studios v. Grokster, the U.S. Supreme Court held that anyone distributing “a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement,” is liable for copyright infringements by third parties, such as end users of P2P networks. (See Update dated June 28, 2005). Nevertheless, P2P usage continues to be a significant part of the Internet user experience, with approximately 60 to 70 percent of ISP network traffic involving data transfers using P2P protocols, and with 50 percent of this P2P traffic comprised of video content.

RIAA and MPAA have been successful in shutting down some illegal P2P networks, but the compelling user experience over P2P is leading to the growth of legitimate P2P networks. (See Update dated January 6, 2006). Companies such as Mashboxx, PeerImpact, iMesh, Intent MediaWorks, BitTorrent and others are harnessing the distributed computing power of P2P technology for legitimate, licensed transfers of copyrighted content. Earlier this year, Warner Bros. announced that it would launch a P2P movie service in Germany called In2Movies using Arvato P2P architecture. And AOL announced that it will be offering long tail content, as well as high definition movie trailers and other free content, as part of its In2TV service, which is based on Kontiki P2P architecture.

V. Legal and Practical Considerations

Program networks, MVPDs, content owners, MVNOs and website operators will need to consider a number of legal and practical issues in structuring relationships for delivery of content across these multiple new media platforms. For example, in negotiating agreements governing production, distribution, licensing, content acquisition, talent, clearances and releases, the following issues, among others, may need to be addressed:

• The extent of “territorial limits,” and how such provisions should be structured and enforced, given developments in “place shifting” technologies. 
• The role of “reversion of rights” clauses. 
• Negotiations over “all rights” provisions, including terms and conditions, and payment of a premium for “all rights” on one platform if “free” content is offered over another platform. 
• The distribution of “back end” revenues between content owners and distributors, and other revenue split issues, as impacted by emerging business models. 
•  Platform exclusivity (including term) and the terms and conditions for multi-platform licensing (including windowing, sequential releases and multi-platform promotions). 
• Clearances of copyrights across multiple platforms, and other intellectual property issues.
• Streaming vs. downloading of content, and related storage, reproduction and redistribution issues. 
• With the exponential growth of user-generated content on the web, increased vigilance by rights-holders in locating, and taking enforcement action against, potential infringing uses of their works, including more cease and desist and “take-down” notices from rights holders to distributors’ customers. 
• The acquisition, nature and extent of use of cross-platform ratings information (e.g., whether a VOD content agreement gives a program network the right to obtain ratings information that can be used for cross-selling its linear channel). 
• Protection of personally identifiable subscriber information in the cross-platform context, which may be complicated given different privacy regulatory regimes for cable, broadband, wireline, wireless and webcasting in the U.S., and the disparate treatment of such issues abroad (e.g., within the European Union). 
• The ability of content providers and distribution platforms to develop location-based services, given related privacy concerns. 
• Requirements regarding the implementation of digital rights management systems to enable the secure distribution of digital content regardless of the platform used for delivery, and complications arising from different approaches to such matters in the U.S. and abroad. 
• Requirements regarding compliance with any applicable existing or future governmental or private regulation regarding, for example, indecency, obscenity or delivery of content to minors, such as the requirement of a rating or filtering system.

Major media and broadband companies recognize that technology is dramatically changing the way their traditional businesses operate. While change undoubtedly creates consumer benefits and business opportunities, it also brings with it new legal challenges. Sorting out the rights issues, developing new business models, protecting existing distribution channels, and addressing privacy concerns no doubt will be complicated, but businesses that navigate through such obstacles will reap substantial rewards.

Please contact us if you would like further information regarding the legal and regulatory implications of cross-platform distribution of digital content.

Footnotes

1 A joint venture between Virgin Group and Sprint Nextel.
2 According to research from the Yankee Group, Sprint Nextel has the largest share of MVNO customers at about 38 percent.