By Jerome John and Mary Anne Reid
Australian Copyright Council
As creative industries around the globe wrestle with illegal file-sharing, and experiment with ways to make online content pay, some interesting new business models are emerging in the music and film industries. This month’s feature looks at the shape of things to come for online content.
It is a given that content has value for the consumer, but does that value depend on the consumer being able to own the content? Not to the extent that it once did, may well be the correct answer. New subscription services offering the consumer access but not ownership are springing up in both the music and film industries, although the models are largely exploratory at this stage.
One catalyst for the shift is that content owners are looking for ways to migrate consumers away from online infringement, where there is no payment for content, to legitimate services that are seen as valuable in some way by the customer. When competing with ‘free’, it is crucial to provide a point of difference, some kind of value-add, to get consumers on board. As ownership has been devalued by online piracy, the subscription model replaces payment for individual pieces of content (e.g. iTunes download) with immediate access to a vast content library that can be consumed on multiple platforms and devices. Several ducks have lined up in a row in recent years, to make this kind of service possible.
Convergence: this is something of a catch-all term referring to the convergence of the major communications platforms (broadcasting, telecommunications and online) so that their functions overlap, as well as the consolidation of multiple functions into a single device (e.g. a smartphone or tablet that operates as a phone/camera/music player/e-reader).
Speaking at the Australian Broadcasting Summit in March this year, Foxtel CEO Kym Williams described the value-add that people are seeking in the new converged environment: “People will want interoperability across the three screens…television, personal computers and tablets and, of course, mobile phones… They will want to be able to access what they want to watch in simple and intuitive ways. And they will want to watch what they want to anywhere and at any time with a seamless degree of integration between all of their devices.” 
The Cloud: In terms of online content, ‘the cloud’ means that instead of being stored locally (on a hard drive, a set-top box or a mobile device), content is stored on remote servers that can be accessed by a variety of consumer devices. The faster the internet access, the more functional and seamless the cloud becomes.
The next step is harnessing these different developments into a model that suits the particular content on offer. The music industry is the most advanced in this regard.
To have and to hold, or access only?
According to the Digital Music Report 2011, produced by the International Federation of the Phonographic Industry (IFPI), there are over 400 legal digital music outlets globally .
Subscription music models, which are the newer of these models, tend to take one of two basic approaches: subscribers are offered something akin to a radio station, with curated music playlists; or they pay a monthly fee that enables them to search for and stream any music from the company's music library to a variety of devices – very much like having access to a whole music store with the ability to play anything in the shop.
EU-based Spotify, for example, has the motto “all the music, all the time” and offers access to its 13 million-plus library of songs. Spotify operates on desktop computers, set-top boxes and mobile devices and is now being integrated into hi-fi components and televisions. Subscribers can create playlists, which then can be shared with others. It also offers an “offline mode”, which syncs music to devices so that they can be listened to without an internet connection, but this is limited to 3 devices at one time and to 3333 songs .
Spotify has several price points for the customer. The “open plan” is a free, ad-supported service that streams to computers only (i.e. no streaming to mobile devices) and has no offline mode. The free plan also limits music streaming to 20 initial hours followed by five hours each week. The smallest payment plan (4.99 euros) removes the ads and removes time limits, and the premium subscription (9.99 euros) adds mobile streaming, higher-quality music playback and an offline mode.
Early indications suggest that the free advertising-supported service is proving difficult to sustain. In April, Spotify announced a number of changes to the free plan , which include reducing the time limits to 10 hours a month and limiting songs to five plays each. The company says that only heavy users of the free service will be affected and looks to be trying to migrate such customers to the paid models.
A number of subscription-based music models have also been launched in the US, including Rdio (with the motto “Your music. Everywhere”) and MOG (“Never pay for a single song again. All the music in the world is now yours”). Each operates in a similar way to Spotify but unlike Spotify, neither has a free option. Instead they offer tiered subscription pricing, with the basic subscription (US$5 per month) providing web-only streaming to computers, and premium subscriptions (US$10 per month) offering streaming access to mobile devices and offline modes.
Rdio co-founder, Janus Friis, provided some insight into the new environment in an interview late last year with the Wall Street Journal: “It did take us some time to get all of the licences done but remember, these types of licensing agreements weren’t around before. A few years ago you couldn’t create a service or form a business relationship where things were available on the web and on mobile and offline. It was really web-only then. Now, this is the way things are going.” 
There is increasing speculation that larger players in the US, such as Apple and Google, are developing similar streaming models.
On the domestic front, Sony launched Bandit.FM‘s streaming feature last year and the Music Unlimited service in February this year (with both featuring music licensed from the other major labels besides Sony). They offer streaming services on a paid-only subscription basis, currently set at $12.99 per month.
Film Models: pay per view or all you can eat?
Streaming is the method of delivery for a number of new online film services in the United States. Netflix, for example, charges its customers a monthly fee for immediate access to a library of movies and TV shows it has licensed from rights-holders and which can be accessed by the consumer on almost any device – television, computer, gaming console or mobile device – with the relevant Netflix software. Other similar streaming services include Hulu Plus and Amazon Prime Instant.
One might ask what’s new about this, because until consumers started purchasing DVDs in large numbers, the concept of owning the content wasn’t pivotal for the film business, as it has long been for the music business. The difference is that the practice of paying to watch an individual film or TV show – the principle behind cinema, DVD rental and pay-per-view TV – has been replaced by an ‘all-you-can-eat’ model, where consumers can effectively watch as much or as little as they want for the one monthly price. That’s similar to broadcast and subscription television, except that you get to program everything yourself in the new models (from a vast library of content) and are able to access the content at any time and on any device.
From a copyright perspective, it is interesting to note that licence terms and conditions take on much greater importance in new subscription (and download for purchase) models than they did in the physical world.
The consumer may find that a licence does not allow some uses that would otherwise be allowed under copyright law (e.g. fair dealing). On other hand, the scope and breadth of what is now technologically possible may result in licensing terms with greater latitude than ever (e.g. streaming to multiple devices or reading chunks of unpurchased books). In this sense, owners’ and users’ copying rights are determined somewhat less by provisions in copyright law and somewhat more by individual licences than in the past. The overall effect is to deliver into the consumer sphere some of the complexity that has previously been restricted to licensing for commercial use.
Making it pay
It is difficult to draw firm conclusions as to the viability of the new subscription-based models at this point, as they are in the early stages of implementation by distributors and adoption by consumers.
Cooperation between content providers and new digital intermediaries is likely to be a key factor in how successful they are in persuading people to shift from unauthorised, free alternatives. What will be the value-add that people are prepared to pay for, and how much will they be prepared to pay? In the long run the access models must be financially viable for content creators, content developers and content distributors, otherwise the capacity to finance new content will wane.
It is technological innovation that is delivering the ‘value add’ needed to make the content attractive for purchase. So while technology is the creative industries’ disruptor, it is also likely to be their saviour.
 Foxtel CEO Kym Williams speaks at the Australian Broadcasting Summit 2011 – 2/3/2011 - http://www.foxtel.com.au/about-foxtel/ceo-speeches/foxtel-ceo-kym-williams-speaks-at-the-australian-broadcastin-117765.htm
 IFPI Digital Music Report 2011 - http://www.ifpi.org/content/library/DMR2011.pdf Page 6
 Goode, Lauren Q&A: Skype Co-Founder on His New Venture, Rdio, The Wall Street Journal 8/8/2010 - http://blogs.wsj.com/digits/2010/08/06/qa-skype-co-founder-on-his-new-venture-rdio/