Analysis: Selectable Business Models For Film and TV

Authored by Paul Sweeting on August 8, 2008 - 5:59am.

Media Wonk is still scratching his noodle trying to figure out the MPAA's game plan--assuming it has one--for gaining approval of its petition to the FCC for a waiver on the rules restricting the use of selectable output controls on set-top boxes. As noted last week, the studios' reply comments in response to other public filings was a study in obdurateness. They flatly dismissed all of the concerns raised by other filers and rejected any and all proposed limitations on the waiver. Not only does that leave the FCC little to work with were it inclined to try to forge a compromise between content owners and opponents of the waiver, it alienated potential allies. TiVo, for example, stuck its neck out by expressing cautious support for the waiver, to the chagrin of other electronics makers, only to get its head chopped off when the MPAA rejected its suggested limitations out of hand.

Perhaps there's a master plan somewhere. In the meantime, let's turn our attention to another nonplusser: the threshold question of whether what the studios are proposing to offer should they get their waiver qualifies as a "new business model." The question is important because in imposing the ban on the use of SOC in 2003, the FCC acknowledged that "[SOC] functionality might have future applications that could potentially be advantageous to consumers, such as facilitating new business models," and that therefore the commission would "consider waivers, petitions or other proposals for the use of [SOC] in this regard."

In its reply comments, the MPAA dismisses the objection raised by some that the contemplated early VOD release of movies doesn't really rise to the level of a new business model as envisioned by the FCC:
Although major movies are not and never have been made available for MVPD home viewing prior to the VHS or DVD release, these parties seem to see no compelling public interest in giving consumers an opportunity to view such movies sooner and in a higher quality format.
[...]
Given that the proposed Services involve high-value content in high-definition format that has never before been offered to MVPD subscribers in such an early window, they without question represent a new business model along the lines the Commission envisioned with respect to SOC waivers.
Here the studios commit a common (for them) logical fallacy: the false assumption that their view of the universe is the default setting.

Moving up the VOD window only looks like a new "business model" from inside a studio, where, generally speaking, each distribution channel is accounted for as a separate profit center. Thus, introducing a new distribution window means introducing a new profit center, which, by definition represents a "new business."

To an outside observer, however, the studios' business model could best be described as sequential release of movies through exclusive windows. Creating a new, exclusive VOD window ahead of the exclusive DVD window doesn't fundamentally change the model. The actual order of the windows really only matters to the individual profit-center managers inside the studios, which, from the point of view of a regulator, is not a particularly compelling constituency.

The MPAA itself, in fact, kind of gives away of the game when, elsewhere in its reply comments, it rejects the suggestion that the SOC window ought to be limited to 120 days from release.
Based on present practices, a 120-day window might allow most new movies to be included in the proposed new services. However, all movies do not experience the same release pattern. Some exceptionally popular movies remain in theatrical release much longer than less popular movies and could be artificially excluded from the new Services by a fixed window. Other movies have a limited theatrical opening followed by a broader release and likewise could also be excluded from the new Services by a fixed window.
In other words: Different movies can follow different sequences of windows. There is no, one sequence so fixed that it can't be changed at the whim of the distributor based on marketing considerations. So why, then, should a similar reshuffling to accommodate the high-def VOD release be considered an entirely new business model?

Nor, to an outside observer, would the studios' basic business model appear to be dependent on the use or non-use of any particular form of digital-rights management. The effectiveness of the DRM used for any given platform may influence the distributor's risk/reward calculations in setting the order of the windows or establishing a licensing fee. But the exclusivity of a window is determined by the deal structure, not the DRM. Thus, an early VOD window prior to the DVD window would be no more or less "exclusive," in the prevailing sense of that term within the industry, because of the use of SOC. It would simply be one stage in an essentially arbitrary sequence of exclusive windows. Nice, perhaps, but not exactly new.

Does any of this really matter? If the studios decide they will only offer consumers early access to high-def movies if they can use SOC, does it really matter whether it's a "new business model" in some logical or legalistic sense?

Maybe not. But it ought to at least serve as warning to the FCC to avoid premising regulatory decisions on such arbitrary grounds as one industry's preferred marketing strategy.

Paul Sweeting

Paul Sweeting is the Editor of Content Agenda, a business-to-business brand dedicated to the nexus of content, technology and business. This piece was originally published on Paul's blog "Media Wonk" on Content Agenda and is posted on DMW with the author's permission.

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