Are reports about the death of IFE exaggerated?

Rotation

While inflight connectivity services may not support bandwidth for streaming movies over the Internet, can’t airlines or a Netflix-type service provider capture that content and redistribute it?

We frequently hear people speculate that, today, airline passengers can just connect their personal devices onboard via the WiFi connectivity service to a terrestrial Internet-based VOD service like Netflix and the IFE industry is a thing of the past—only connectivity remains. But inflight connectivity is a shared pipe and high-quality video experiences—without a separate onboard IFE network—are limited by today’s bandwidth.

Technological challenges aside, I’ve been asked the question: What if an airline—or service provider—decided to capture the signal of such an Internet-based VOD service and redistribute it over a separate and more robust WiFi network than the one providing connectivity?

Or what if an Internet-based VOD service—like Netflix or others—were to put a server on the aircraft and stream content from there so that this issue of connectivity bandwidth was no longer an issue?

Either scenario would raise an even bigger issue—one that would almost certainly require the provider of such services to have—or to obtain—nontheatrical public performance rights to all of the content on that server. So let’s put aside whether an IFE service based on curated content might have some advantages over just a library and consider whether such a concept could work at a business level.

IFE is a “public performance”

If this were to happen, it would not be the first time that a company with rights to serve individual consumers in a home environment fell afoul of nontheatrical public performance rights—specifically inflight entertainment (IFE) public performance rights. This hypothetical scenario is, in fact, very similar to a situation that occurred several years ago.

In 1999, a new airline—JetBlue—was about to launch in the U.S. and was looking to differentiate its service with a different kind of inflight entertainment (IFE). At the same time a new company launched by BE Aerospace and Harris Corporation—called LiveTV—was looking to provide satellite-delivered television to IFE, and a satellite-to-home provider in the U.S. had agreed to provide them the content.

JetBlue, their CEO told me at that time, believed that it was going to be able to provide HBO, Showtime, The Movie Channel, Cinemax—a selection of more than 100 channels from which his airline could pick the most appealing twenty-five or so for use onboard.

A short time prior to 1999, I had been heavily involved in television and pay television licensing and was aware that the major studios and television producers were carefully writing their contracts for these markets so as to exclude nontheatrical public performance rights. I explained to the somewhat disgruntled airline CEO that he probably didn’t have the rights that he thought he had.

There was a category of rights referred to as “semi-public” rights—that include places like bars—that most studios did include in some television and pay television agreements that the satellite-to-home service provider believed would include public performances onboard aircraft. But, to keep it short, the studios disagreed—“semi-public” and “nontheatrical public performance” rights are not the same—and it turned out that the satellite-to-home provider had to obtain nontheatrical public performance rights in order to provide their service on aircraft. Only a very limited amount of such rights were available then, and HBO, Showtime, The Movie Channel and Cinemax were not among them.

Rather than “premium” channels like HBO and Showtime that license most of their content from third parties (there was even less original production by such services at that time), JetBlue was limited to so-called “basic cable” channels that produced nearly 100 percent of the channel’s own content and held all rights. (JetBlue did a heckuva marketing job on the more limited service, however—to their credit.)

Back to 2015.

Can a service provider intercept a signal, boost its strength, and redistribute that signal?

And are nontheatrical public performance rights included in the rights granted by studios to providers of Internet VOD services? While I had been involved in the licensing of television and pay television rights several years ago, and was familiar with such contracts, I am not involved in licensing Internet VOD rights today and do not know—from first-hand knowledge—exactly what rights are in such contracts.

I am, however, reasonably familiar with the business practices of the content community vis-à-vis nontheatrical public performance rights and think it highly unlikely that nontheatrical public performance rights would be broadly included in agreements with Internet-based VOD services that currently have no distribution presence in such markets. Why would a content provider grant nontheatrical public performance rights to a Netflix-type service and not to an HBO-type service?

Let’s consider why the category of nontheatrical public performance rights exists, and what the implications are for inflight entertainment.

Limiting “first sale” to create a “home video” market

Until Betamax came along in 1975, there was never any reason for a content owner to sell copies of content, and there was no capability—save 16mm film—to use movies in homes. Theater-owners paid “film rentals” and were provided with film prints on loan. Television licensees were also loaned film prints or ¾-inch Umatic tapes, or broadcasts were live. The so-called “first sale doctrine”—born of common law—was a legal concept which held that the sale of physical delivery media—versus the loan of such media—transferred rights to the use of that copy without established limitations.

In order to limit the rights transferred to buyers of physical delivery media, the U.S. Copyright Act of 1976 was instituted. This law provided that a copyright owner could sell a physical copy of a movie (or other content) while only transferring certain limited and specified rights to its use, e.g., the right to view a movie on videotape in one’s home.

In order to create a “home video” market, but limit the use of home video cassettes to private homes, the 1976 act distinguished between home video rights and nontheatrical public performance rights. “Private home use” was defined as a place accessible to only a family and its social acquaintances. This distinction prevented the owner of a videocassette from playing it in a theater or college or church or a cruise ship or an airplane, and protected the copyright owner’s exclusive right to exploit such markets.

Similar “place-based” limitations were used to limit where a television broadcaster’s signals might be received and displayed.

So the 1976 Copyright Act was written largely to establish the boundaries for a home video market that would eventually out-gross the theatrical market, while protecting theatrical, nontheatrical public performance, television markets, and future means of delivery. The authors of the act proudly stated that they had written a law that would last for twenty years. And that’s just about how long it did last until it was necessary to replace it or supplement it to take into account the impact of digital media, digital networks, and the portability of content.

“Place-based” versus “digital network” limitations

The 1976 act was largely “place-based”—while audiences were defined, the definition of rights fell rather neatly into the definition of the place in which the content was consumed. But digital media and personal entertainment devices were not entirely consistent with these “places.” As the “home video” market gained portability with DVDs, and had begun to be Hollywood’s largest source of movie revenue, copyright owners didn’t want to tell consumers they couldn’t watch a legally licensed movie on a laptop even if that laptop was in a “public” (as defined by the 1976 Act) place—such as an airplane. But such largesse does not extend to allowing the laptop owner to connect the device to a distribution network on the aircraft that redistributes the content to multiple screens.

To deal with the portability issue, digital networks, and other considerations based in digital technology, content owners preferred to supplement the 1976 Act with the Digital Millennium Copyright Act (DMCA) of 1998, rather than replace it. While DMCA is a U.S. law, its impetus was the World Intellectual Property Organization (WIPO) Treaties that essentially spread the tenets of this law globally.

The 1976 Act continued to provide legal geo-fencing, but content providers now relied on the provisions of the 1998 law limiting the digital network transmission of legally owned copies of copyrighted materials. DMCA is best known as the law that made it illegal to download copyrighted digital media such as music, movies, and software, and is what the RIAA and MPAA have used to combat piracy in the courts.

But as the DVD was threatened with replacement by two new competing forms of packaged media, consumers stepped back from the buying frenzy and library-building that had accompanied DVD’s launch. Would new packaged media make DVDs obsolete? If they chose one of the two new competing forms of discs, would they have to buy two, three or more copies of a movie or other content each time the packaged media platform migrated to something new? Would digital downloads replace everything?

New business models with both purchase and rental options were needed to prevent plunging home video sales—and one of the things that the new business models had to embrace was the “pay once, play anywhere” model. The model used by the Digital Entertainment Content Ecosystem (DECE), an alliance of 85 companies that includes film studios, retailers, consumer electronics manufacturers, cable TV operators, ISPs, network hosting suppliers, and other Internet systems—but notably excepting Disney, Google and Apple—is called “UltraViolet.”

The UltraViolet model is that of a cloud-based digital rights library for movies and TV content that permits consumers to stream and download licensed content to multiple platforms and devices. Users store proof-of-purchase criteria to media rights in the cloud enabling playback of licensed content on different devices, using multiple applications and different streaming services wherever an Internet connection with suitable bandwidth is available. Users may share access to their libraries with up to five additional people, 12 different devices, and up to three simultaneous streams.

But while the term “home video” is now largely obsolete, the concept of nontheatrical public performances remains intact. While individuals can playback packaged media and stream content from the Internet outside their homes, such rights are limited to each individual—separately, or in groups made up of family and a few friends—but not collectively. While the UltraViolet model broke a lot of barriers, and allows individuals to use content privately in public places, the ultimate consumers of that content remain much the same as the “family and social acquaintances” defined in the 1976 law.

The Aereo decision

In a case with far-reaching implications for the entertainment and technology business—and perhaps the case most similar to the issue at hand—the United States Supreme Court ruled in June 2014 that Aereo, a television streaming service, had violated copyright laws by capturing broadcast signals on miniature antennas and delivering them to subscribers for a fee.

This decision essentially says that it is not legal for someone to intercept a signal transporting content and redeliver it via an alternative means—without a license to do so. The Aereo model appealed to “cord-cutters” seeking an Internet alternative to cable. But the Aereo model, said the court, threatened the broadcast ecosystem. So while a passenger on an aircraft might use onboard WiFi to access the Internet and in turn access his/her own Netflix account to watch movies—if the network can support the signal—the Aereo decision says that a third party cannot intercept and redirect that signal—threatening that ecosystem—without a license providing rights to the content being distributed.

So the first hypothetical—the service provider intercepting and strengthening the signal for redistribution onboard the aircraft in a manner similar to Aereo—seems to be clearly disqualified by the Aereo decision.

Now, the second hypothetical we were discussing—that of an Internet-based streaming service provider putting a server onboard an aircraft and streaming content to passengers—is more likely to be considered a contractual matter rather than a statutory matter. Does that service provider have the contractual right to distribute content in a nontheatrical public performance venue such as an aircraft?

What do contracts specify?

Content contracts nearly always include these limitations: the rights granted (the audience), the territory in which the rights may be exploited, the term (length) of the agreement, and the means of distribution. If the authorized means of distribution granted in the contract is limited to the Internet, and the actual means of distribution onboard the aircraft is an intranet, it must be presumed that no rights have been granted for the latter means of distribution. Onboard connectivity services provide access to the Internet; onboard intranets bypass the Internet.

Again, without knowing the specifics of any given contract, any assumptions are purely speculative. But as someone reasonably familiar with nontheatrical public performance licenses, it seems most unlikely that content providers—particularly the major studios—would ever grant nontheatrical public performance rights in such agreements.

Without actually granting such rights in a contract, might a content provider simply ignore this kind of exploitation? To movie rights, that is highly unlikely; to TV rights, perhaps. While turning one’s back on a contract violation may tend to undermine the whole contract, IFE generates so little revenue for TV content that this remains a possibility.

So could an Internet-based VOD provider craft a viable product offering in the form of a branded onboard service based on the content that it has produced and owns outright, plus some TV content—perhaps the occasional movie? Or would it make more sense for such an entity to directly—or through a distributor—license the content to which it actually holds such rights to airlines for use on each airline’s existing platform?

Going back to 1999 again, HBO and Showtime (as examples) eventually established licensing entities that license the content on which they own IFE rights directly to airlines. This would seem to be the most likely model for Internet-based VOD providers.

Will bandwidth in inflight connectivity continue to improve so that streaming quality from the ground gets better? Over a number of years I’d say so. Will the number of passengers who consume content inflight in this manner increase? Over time I’d say so.

Will OTT displace cable?

Will this kind of viewing displace traditional IFE? In a world of ever-evolving technology and business models, a similar question faces the providers of cable and satellite-delivered content to consumers at home. A new generation of “cord-cutters” is opting for over-the-top (OTT) content consumption, and entities like HBO, CBS and Nickelodeon, as well as DirecTV’s Taveo and DISH Network’s Sling, are offering their content directly to consumers in addition to cable and satellite delivery. Will OTT displace cable and satellite? Comcast, Time Warner Cable, Cox Communications and Verizon FIOS have dropped the price of HBO to about US$10 a month as a result of HBO’s announcement of its streaming service.

Among the biggest reasons that cord-cutters are defecting from cable and satellite services is that such services generally bundle content into packages that enable them to charge more for the bundle than the consumer might pay for individual selections. Time Warner Chairman and CEO Jeff Bewkes recently acknowledged that cheaper and more flexible bundles are necessary to meet the needs of younger viewers who are the most likely cord-cutters. Apple’s iTunes completely changed the music business by allowing consumers to buy the tracks they want rather than an entire album. This is the paradigm facing cable and satellite providers.

But IFE is different than “home” entertainment. The vast majority of IFE is free—bundled pricing is not an issue. Cable and satellite TV are largely linear services, supplemented by growing amounts of VOD. But IFE has been replacing linear content with VOD at a much faster pace than cable and satellite. AVOD is the norm.

New opportunities for “second screen” and multi-screen capabilities in IFE are emerging. And the demographics of cord-cutters are younger, while the demographics of airline passengers are older.

The OTT trend, and the ability of passengers to carry their own content as well as their own devices, should challenge IFE managers to be more creative in designing and programming IFE. While passenger expectations from IFE are broadly driven by their terrestrial experiences, the criteria for successful IFE versus terrestrial service offerings are not the same. Cable and satellite television is in the background at home—something that consumers can access at their leisure. IFE takes place during a finite period of time, has the objective of taking passengers’ minds off of some of the less desirable aspects of flying, and is a much more immediate kind of experience.

Content curation at an airline—and even route-specific—level is possible and highly desirable. IFE content can be programmed at a more granular and personalized level than cable and satellite-to-home offerings. IFE content curators have more tools at their disposal than does the passenger, who is limited by the need to download content in advance of the flight, or to access content through the limited bandwidth of today’s connectivity. I’m willing to bet that a robust, immersive, properly curated IFE offering will trump what the passenger can do for herself more often than not.

About the author, Michael Childers:

Micahel ChildersMichael Childers is a long-time content management consultant with extensive experience in nontheatrical public performance markets. He was a distribution executive in worldwide home video, pay television and syndicated television markets prior to running IFE’s first independent distribution company as COO for 12 years. He was president and CEO of LightStream Communications Group, a digital content management company, before entering independent consultancy. He is currently on the board of directors of APEX and serves as chair of its Technology Committee, and is the recipient of APEX’s Outstanding Contribution Award for his work in the development of digital delivery specifications. The opinions in this op-ed are entirely his own and may not reflect the opinions of APEX or any client company.

 

3 Comments

  1. MS Kirby,

    One of the best explanations I have read regarding these topics.

    Kudos to you for publishing Michael’s treatise. Clear, concise and to the point!

    Bill

  2. Great summary of the legal (and commensurate technical) issues surrounding content distribution in the era of personal devices. It would seem that a “hybrid” model of distribution whereby licensed content is distributed via onboard server would be the first major foothold. UA is doing this – though the technology is still pretty rough around the edges – and I can see this easily taking hold. Absent streaming live television to personal devices, most PAX are looking for just enough fresh content to make it through the flight. With storage dirt cheap, and wireless infrastructure not that much more, it would seem that this would be pretty achievable nowadays.

    Thanks for the write up!

  3. Wayne

    Truly excellent and thorough summary of content licensing (which only gets more complex as one contemplates cross-border use). Michael knows his stuff!