Sunday, June 04, 2006

Exploiting the unused resource

Yet another new way of renting movies has appeared in the US -- MovieBeam. (Here is the NYT write-up). But there is something much more profound that lies at the heart of that development. Something that gave me a radical idea about how to dramatically improve competition in our television markets. But first I need to explain just what MovieBeam does.

From the user's perspective, you spend US$200 for a set-top box and then pay per view for movies you watch after that ($4 for new releases, $2 for old stuff, $1 extra for high definition). You can watch them for 24 hours as much as you want; including pausing and rewinding. So it is exactly the same as renting a video without the trip to the video store or the late fees (if you are that way inclined).

The bit that interested me was how it all worked. It turns out that the movies are downloaded to the set-top boxes hard-drive (and it has plenty of capacity for 100 movies). But they get there via broadcast. MovieBeam pay PBS (US public television) to piggy back on an unused part of their spectrum. At these rates you couldn't watch this stuff in real time but if it is being downloaded, who cares? So the distribution method exploits a resource with a zero opportunity cost. A true win-win.

What this shows, however, is how truely outrageous our current broadcast television system is. It is all based on licenses for 'real time' viewing. That hogs spectrum but also forces viewers to watch in real time or try and record shows themselves. That is simply an inefficient use of spectrum. It restricts total spectrum use as a function of actual viewership and so makes spectrum a scarce resource; the source of broadcaster's market power over viewers and advertisers. In this respect, it works the same way as other broadcasting regulations (see my earlier post on multi-channelling and my post on the regulation of content).

Now to the radical idea: what would happen if the government gave everyone a MovieBeam type set-top box? Suppose the box was such that viewers could specify what they want to watch and that stuff is what they pick up in the broadcast. I suggest this will dramatically open up competition on broadcast television but allowing more access by 'channels' and 'programs' outside of traditional network broadcasters.

What about objections to this idea?
  • "Where will the spectrum come from?" The possibilities are endless. There is unused spectrum all over the place. More critically, there is unused spectrum held by the traditional broadcasters. We could make it a term of their licensing agreement that that spectrum by opened up for piggy back use.
  • "What about advertising?" There is no reason why the set-top recorder couldn't record programs with advertising. Indeed, it could probably be configured to stop advertisements being skipped.
  • "Does the government really need to fund this?" Not necessarily, but that was the radical bit to get your attention. But when it comes down to it, it would be just like funding roads or rail, this is just the transportation infrastructure for broadcast television. Paying for all of it is probably a tad extreme.
  • "Won't the traditional broadcasters go bankrupt with all this competition?" Ha ha ha, I can't believe you are even asking that. What do you think? They will still be there. This only creates a new option.
In summary, there are huge opportunities here to expand our range of useful spectrum for broadcast services. The technology at the household end has made this possible but also made it possible in a way that actually suits people -- to allow time shifting. In short, the jig is up.

1 comment:

ian holsman said...

would you need to use the spectrum at all?

current copper lines apparently can carry between 1 and 6mbs on them (see http://www.iinet.net.au/about/media/releases/The-Myth-of-Fibre-May-06.pdf) and you could get a 'unicast' of shows downloaded that you want (with a worst case of a 9hour delay for DVD quality @1mbs which you wouldn't need), instead of having to be limited by the 40 movies they are currently choose to show (even if they released more spectrum you will still have this issue where the producers have to choose which shows are interesting)

the other issue is HDTV, which will need to use this extra spectrum to transmit, and will limit the amount of shows on both mediums.


as for advertisers, wouldn't it make more sense for the ads be customized similar to how they are done on most web sites today? the set top box producer would become the person who negotiates with the movie studios directly. they have better access to the usage information, and would be key stakeholder I would think.


I also disagree with broadcasters not going bankrupt. I don't see a role for them. Currently broadcasters are intermediaries between the studios, advertisers, and the customers. They choose what they think the audience will want to watch, and advertisers will pay for.

With limitless choice available directly to the customer, and having advertisers negotiating with the set-top producers directly, what role do they play.

Maybe they will become marketing houses similar to record labels.. but i think the studios/production houses are a better fit.