Executive Trends: Digital Content, Piracy and Credit Cards

Two conferences held in Buenos Aires earlier this month focused, fully or in part, on what appears to be becoming a major problem for the future of the entertainment industry. Or, at least, it threatens the monetization of big-ticket events, such as sports tournaments or successful television series: it's the illegal dissemination of copyrighted content over the Web, representing a loss of value for those who have paid huge amounts for the rights or have spent millions of dollars in the production of that content.

Piracy is not new to the television business, from VHS tape and DVD bootlegging to illegal hookups to cable TV infrastructure, in addition to the leaking of movie and TV series images prior to the release, an insider job. The issue was discussed at the Antipiracy & Contents Summit, held at the Four Seasons Hotel in Buenos Aires with backing by TAP Latin America, Fox Latin America, HBO LAG and the MPA, and a few days later at the NexTV Series South America conference, organized by Dataxis at the Alvear Palace Hotel. The matter emerged as a problem without a definite solution on the works, coupled with the risk of escalation to dangerous levels if nothing is done. Yet, the anti-piracy conference ended without definite calls to action, aside from a motion from HBO LAG executive Javier Figueras suggesting the entities and programmers should appoint a workforce in order to decide specific actions.

At the NexTV conference, references were more diverse, describing a set of problems that affect the future of digital content exploitation on the Internet. The irony implied here is that, while the linear television business is fearing cord-cutters, cord-nevers and millennials that subscribe to Netflix, Amazon or Hulu for $10 a month instead of signing up for a 150-channel package for $60 to $150 per month, the real problem appears to be the realm of people that believe they should get content for free... and especially those that share the content with their friends, through their device.

The road to digital content monetization has several additional bumps: at the NexTV powwow it was repeatedly mentioned that credit card penetration in Latin America is low, compared to the States and Europe, with an additional problem: many of these cards are just for local usage; therefore, international transactions, such as collecting a OTT monthly subscription payment from a neighbor Latin American country, might be blocked by the card issuer and easily become a nightmare. It was said that, even when a series of monthly payments is accepted, the expiration of a card plastic may interrupt the process. Several alternatives, ranging from prepayment to collecting through local telcos as an additional item in the phone bill, were discussed. But, none of them was deemed satisfactory.

Tax issues
Most local authorities would have rejoiced on these comments: several countries around the world and within the region are mulling over taxation on companies operating from other countries; Netflix is a major target, but not the only one. Second in line after this thought is the will to set local production levels, ranging between 20% and 30% according to the egotism of each nation. The bureaucrats behind this demand seem be unaware --or they don't care-- about the fact that it would be impossible to comply with this obligation if too many countries establish it. Regarding taxes, a sales or VAT levy applied to a $10 subscription would not affect the market balance when OTTs are competing against linear TV packages that cost six to ten times more. The most probable outcome is that the competing local providers would also raise their prices by a similar percentage and the balance would remain constant.

The money collection issues faced by the OTT's do not end here. Some of the panelists where sincere enough to define that 'the social networks are mostly watched by kids, and kids lack money, so we have to go after their parents' or 'there are two kinds of people: those that pay and those that don't pay'. Regarding the controversy around the quality of image and the proliferation of low image-quality content on social networks such a You Tube, the blunt verdict was that 'people don't pay when image quality is poor'. Concerning the possibility of monetization through advertising, the verdict was that 'there is not enough advertising to cover the expense of all the commercially-minded content that is being currently uploaded to the Internet'. One more jab: 'Many of the websites illegally exhibiting copyrighted content are being funded though "programmatic" advertising from companies unaware of this situation, because the algorithms used by those placing the ads take into account the number of impressions but not the legal aspects of the exhibition'.

Will millennials change their behavior?
The idea that millennials will someday adopt usage modes similar to the behavior of folks now in their forties, surfaced from time to time at the NexTV gathering but was met with a degree of disbelief by most of the panelists involved. A couple of them pointed out that kids cannot currently understand why they should wait until a certain moment to watch a certain content, implying that it will be difficult for them, in the future, to become a couch potato. Most speakers chose to refer to sports and news as the type of content that will remain tied to pre-arranged schedules. And, it is expected that a certain viewer will easily start watching at a TV set at home and follow later the viewing on a mobile device. It remains valid that the size of the screen curbs watching time. And, the length of the average content for mobile watching is constantly shrinking, with a current range of three to seven minutes for most social networks, with the exception of YouTube. A two-second initial emotion remains mandatory.