One of the questions that we are asked most often these days is whether or not the Walled Garden, the ability of cellcos to provide all their own services, will survive.
The question often centers on whether or not cellcos will allow, or disadvantage anyone else that wants to offer over the top services, to the point where they are in danger of breaching anti-trust, or encouraging customers to desert their services and go elsewhere, for instance onto new WiMAX and Wi-Fi class mobile broadband networks, which are not expected to be so restrictive.
Underneath this argument is a major collision that we believe is waiting to happen. This is not only the issue of whether or not entertainment services will be allowed in over the top, on a generalized internet signal, but whether other routes of copying content onto devices will also be allowed.
Technically this is an issue about networks, file formats and DRM compatibility, none of which are too difficult to solve. What is difficult to solve are the content rights issues, the politics if you like.
Take for instance Placeshifting. By using the Slingbox or any other variant of placeshifting, you are sending a service to a remote device for your personal use, technically overcoming the digital copy protection because you are dealing with an analog output and re-digitizing it.
Apart from that last part, the part about potentially bypassing technologies that have been put into place to protect a piece of entertainment, there are multiple instances of where this type of copying happens today, and where it might happen tomorrow.
TivoToGo has a similar result, where a piece of TV is stored in a DVR, moved to a PC and then copied to a portable device. When that TV is broadcast to the home, it might be encrypted using a conditional access system, so much the same is happening here.
The iPod is an example of a device that has its own route to market through multiple devices, where the DRM is actually designed to swap keys through a PC or a Mac with one specific portable device.
Today most handsets are closed in the sense that there are no routes into the handset once it has been issued with a SIM card that is controlled by a cellular operator. Few have extra storage, or a hard disk drive, and few have unmetered internet access or a browser that is good enough to browse existing web sites. But these features are coming, as are memory card slots that will take large amounts of Flash storage and can play Flash that was burned on other devices.
In the simplest view of the entertainment market, the cellular and fixed operators carry data bits from A to B. These can be voice bits, audio bits, game bits or video bits, but they are bits. Operators should really, in essence, be charging for their excellence in the carriage of bits as their main way of earning money. But because they perceive this value of bit carriage to be under constant competitive pressure they seek to earn money in other ways. Mostly they see bit carriage as anathema.
One way of gaining extra revenue is to allow access to their customer base and use it to sell rights to copyrighted data bits. So entertainment and games can be sold to their customers, over their networks. The first problem encountered here is that, especially in the case of cellular networks, their data bit carriage rate is so expensive, partly because they are used to earning such a high margin and want to keep it that way, and partly because they have a precious, limited asset in spectrum.
So the genuine utility of being able to open the doors to their customer base is difficult to execute upon. If a cellular operator sells a film to someone, and it can only be delivered over a network that can charge as much as three to four times what other networks charge for data carriage, then it makes the entertainment too expensive. The cellular operator can then work on the network cost to deliver larger numbers of data bits (video is a very dense data format) and hence the interest in high data rate services like HSDPA and EV-DO. With either faster networks or broadcast networks (DBV-H etc’) the delivery of video might not be quite so painful for the operator, but still this doesn’t really solve the cellular operator’s problems.
The proposition that they should really be discussing is the fact that in almost all cases, handsets are subsidized to a greater or lesser extent, by carriers. So they are providing networks and handsets, which they can define. They can either take a fee for delivery of the content or for allowing it to run on their handsets (both or either).
So if a device dependent version of a film is sold not over the cellular network, but over the internet, and how it is picked up is of no consequence to the transaction, then that’s one way of getting around the problem. If a premium is paid for ‘I want it now’ cellular delivery, that’s fine, pay the going rate for mobile data bit delivery. If the same content is downloaded to a PC using far cheaper or flat rate internet delivery, and then copied to a handset by directly attaching the PC to it or by moving a piece of fixed storage, then that’s also fine.
But transactions of that type rely on the entertainment being sold to the owner of the handset, and as such that owner needs to be identified and handset capabilities need to be understood and the content rights need to be managed and that’s extremely complicated.
In other words it is much easier to worry about what phone the content ends up on, after it has been delivered.
The ideal way out of this is for your cellular operator to sell you a decryption key over the expensive cellular link, and then place the digital content asset at a specific internet location, that can be collected at your leisure via any internet transaction.
This is a poor service because the asset will then ONLY play on your handset, not also on your PC or your mum’s or sister’s handset or on your TV.
It is far better to sell a piece of content once, via the internet, to a device that can issue more limited DRM licenses to devices that are related to it, in a what is usually referred to in DRM circles as a customer domain.
In essence this is what Placeshifting and all those other copying methods we discussed are doing. The content arrives digitally and is then played out as an analog through an S video cable. It then is re-digitized and re-encrypted, but this time the encryption is under the control of the customer. He or she can send that stream to any device in the world. When it arrives, it can only be decrypted because there is a piece of software on the other end that is password protected and uses that authentication to determine that the viewer was the same person who set up the send. If it wasn’t encrypted, and the decryption wasn’t managed, then the file would be open for abuse and re-directing to a file sharing web service.
If placeshifting, copying and re-transmission of broadcast purchased content is legal in the US (and this has never been tested in court) then it is likely to be legal anywhere since the World Copyright Treaty is based on US legislation and is the basis for laws in 100s of countries. And all of this raises the prospect of paying once for content and listening to it or watching it on many devices.
The undisputed leader of the placeshifting movement is Sling Media, whether or not it invented the technology (Sony and Orb are both entitled to make that claim too).
And now Sling is quite rightly allowing multiple place casts to happen in parallel in its new product line. We say quite rightly because if a household has bought cable or satellite TV, then it is likely to have multiple people watching the TV, so they should each have rights to share any number of TV programs that can be tuned into (with dual tuners that’s two at any one time).
Now the cable operator is okay with all this. The operator has sold the rights to watch TV, and that’s what’s happening. The content owner knows (or is fairly sure) that more content is being consumed, and that this preserves the loyalty to the content. At present the content owner would much rather that the consumer bought the cable service, also bought a DVD and a cellular copy of a programming, so that it gets paid three times for the same content. But either way it will likely only get viewed once by each member of a family.
In the end content businesses have got to get used to only being paid once for content, because that’s they way networks are taking us. In the past a film might be viewed in the cinema, a DVD might be rented, then later one might be bought. A cable operator might offer the film pay per view, and because the DVD is scratched the viewer may pay for it again. Then there are TV repeats, online downloads and watching it over a cellular link and finally buying the film in a Blu-ray version.
Over time content owners will adjust their business models so they can sell multiple layers of resolution, but only ever charge once for the film, and find that they end up charging more for each piece of content, but only end up being paid for it once, with perhaps additional charges for more higher resolutions. A lot has got to change before that is possible, for instance customer databases aren’t yet accurate enough for that.
But the cellular operator, in all of these scenarios has missed out and it’s tough to see just where cellular operators are going to get their slice of the content cake from with Placeshifting and file copying as it is.
The next step for placeshifting is to have your Slingbox or whatever device, issue a file copy of a video program designed to play on for your handset, which can only be viewed on your handset, but issue it to a remote PC that has a copy of the Slingbox software on it and your authentication. The customer gets to a remote location, loads the software onto a PC, copies the files he or she wants, and transfers them physically using flash memory to a handset, and then watches them.
Alright that’s fantasy land, what remote PC owners will allow you to load software onto a PC, but you get the idea, in any scenario like this the cellular operator is even deprived of the cost of the data bits to get the film to your phone. But he has still provided the viewing device and in many cases free of charge. Once very high speed same room networks exist, like Ultra Wide Band, the same will happen, and you will make copies of entertainment files before leaving home in a matter of seconds and play them on the device the cellco gave you, with the cellco never getting a penny for the privilege.
Of course Placeshifting is in its infancy, and the image adjusts to the quality of the connection that the remote device can sustain. As that connection gets faster, then the better the image gets. So far it’s not as good a mobile TV service when on a handset, though it is getting close, and it’s not as good as a TV when on a PC, but again it’s getting close.
Given the quality of modern codecs and the availability of a lot of this content on the internet, in some cases free and ad supported, in others, like iPod video, paid for, then why would existing TV services continue to be the main route of getting video to portable and remote devices?
Both placeshifting and watching over the internet need a quality internet connection and both need a viewing device that’s connected to it.
The truth is that viewing habits are already pretty well set up and based on the pay TV connection that you have at home, and that the quality of the original digital file delivered to your home in this manner is in better condition than a file transported over the internet. SD and HD TV is a good starting point to offer multiple resolution video.
Also Pay TV is usually a low, flat subscription price shared between a number of people and we see the most likely scenario download and streaming services both from the open internet and from your home, working in parallel to give the best remote viewing opportunity.
So does that mean that every operator needs to go out there and license a placeshifting technology?
Well yes and no? Surely in an ideal world the broadcaster and the content owner, and certainly the cellular operator would rather placeshifting just went away despite its usefulness, simply because control of the entire process is being taken out of their hands. There is the danger of the placeshifting software being hacked and the content pirated, which worries both the content owner and the pay TV operator, and of course the cellular operator is getting not very much out of this equation.
If there a better way? For instance could the content not be tuned and played out in an analog, but instead delivered as an MPEG 2 or MPEG 4 file directly into another device. This would need to be under the control of the conditional access software being used by the pay TV operator, which would need to work with a portable DRM. Such technology is just about rready for prime time.
But it really isn’t any easier for an encoder chip to transcode from a regular constant bit rate MPEG 2 codec into a ‘best effort throughput rate’ across the internet to a remote device, than it is to re-code from scratch from the analog stream. But if the cable operator supplied the encoder (a good opportunity to someone like Ambarella which offers SoC encoder chips) they could also control the encryption process end to end, having more confidence that no piracy holes were evident.
So how long will it be before Comcast or DirecTV bulk buys millions of Sling or Orb or Sony boxes and offers the service to its customers directly?
It might well reduce churn at the pay TV operator level.
Taking this further, they need to get into cahoots with cellular operators that are getting nothing out of this, and which have instead been forced to offer low quality video streaming over their cellular links which are mostly under the quality level of placeshifting.
A flat monthly fee of $10 or so to add an Orb or Sling device might be shared with the cellular operator when his handset can be shown to be the recipient of the TV that is place cast. The client software could be bundled on various handsets or downloadable as a Java client over the mobile web.
An extra benefit from this is that the cellular operator could guide its customers to become the customer of its partner Pay TV operator, picking up a fee and perhaps a small percentage of ongoing revenues for the introduction. And that operator can offer a flat rate internet charge to placeshifting customers, and set the rate fairly high, because it will be shifting quite a few video bits.
Of course there are further arrangements possible between pay TV operators and cellular operators, for instance file copying from a Digital Video Recorder directly to a handset by direct connection, perhaps requiring a user domain DRM system, one where a limited number of devices can be pre-registered for direct attachment copying.
But we keep reaching this inescapable conclusion that if all else fails, and the cellular operators and pay TV players do not co-operate in this way, and they find, as we suspect, that subsequent generations of placeshifting are eating away into their own video strategies, they will try buying the local Pay TV operators and create their own merged, place shifting, domain based copying system by force.