There has been a lot of press around a service called Global Mode in recent weeks. And it highlights just how fast the internet is changing and disrupting established business models and how consumers are changing how they consume.
Background
In short global mode is a service (and many others like it which are surprisingly easy to set up ) that allows the consumer to circumvent location restrictions and access content and services in different countries and jurisdictions. Therefore the consumer can mask a service to say they are in the US and watch content that is available only in the US. My assumption is that the majority of the users are using it to access Netflix US and Hulu getting access to content before it comes to NZ or cheaper than it is available in NZ. Unsurprisingly the broadcasters in NZ are against it as it diminishes there addressable market and they are paying for exclusive access to content (at a premium) that isn’t really exclusive.
The consumer is happy using this system as they feel they are legitimately paying for the content and therefore not pirating it. When you dig a bit deeper into the how the current commercial model works the content provider is actually missing out.
This issue is currently before the High Court in NZ and the argument of the legal case is that Global Model and its customers are profiting from selling content that they don’t have rights to sell, therefore breaching copyright. However one issue that hasn’t really been discussed is how this impacts the business model of the content creators and this is actually where most of the disruption is taking place.
How the content business model currently works:
A Studio will sell content multiple times in different geographies to maximise their revenue. I.e.
- The Studio will sell content to broadcasters in the US, then Europe and then Asia
- They will then sell the digital rights to US, Europe and Asia gaining a revenue stream off each of them.
- As the broadcasters want to maximise their audience advantage from the content in a lot of cases they are buying exclusive distribution rights within their territories and paying a premium for this.
- With Global Mode and VPN’s services New Zealand customers are paying and accessing the content from an overseas provider such as Netflix’s US, which means the exclusive rights that a NZ broadcaster has paid for has significantly been diminished, therefore in effect they have overpaid for the content as it doesn’t have ‘exclusive value’.
- As the NZ broadcasters will not get the same exclusive value in the future they will end up bidding and paying less for the content and if you multiply this around the world with the other Lightbox’s then the studios will miss out on revenue.
- Likewise for the studio they do not get any additional income from Netflix US due to a bigger audience (NZ customers) and while at the moment they they are getting the same income from NZ over time this will reduce.
There are winners and losers in this model. The consumer is the winner as they get access to better content, faster and cheaper . At the moment the broadcasters are the losers as they are over paying for content and not getting the desired benefits, in the medium term they will be able to reduce this cost however remaining relevant to the consumer will be hard. Likewise the Studios/Content Creators are current in the same position as always however as the broadcasts start bid less for content then they will miss out, therefore they will have to change their current charging mechanism or live of reduced revenues.
Key Takeaways
Yet again the internet is disrupting established business models and intellectual property laws and they are struggling to keep pace with the rate of change. If the incumbents win the current High Court hearing it is likely to only be a short term victory step as disruption is here and the incumbents business models will have to be modified and change.
KS.
