If you can’t quite picture a meeting between kids execs turning into the kind of rollicking brawl you might see at the local pub, you’re not alone. But as new digital content delivery modes such as VOD and streaming wireless proliferate (and as broadcasters, producers and any number of home video, cable and broadband players scramble to lock up content rights), there may just be, as one exec puts it, ‘a digital rights bar fight’ brewing.

Consumers around the globe are increasingly migrating to personalized and interactive viewing modes, and the landscape of content distribution is changing to meet their needs. Although it’s still several years away, what we’re talking about here is nothing less than the dethroning of linear network broadcasting as king.

At this point, industry players can’t predict whether it will be VOD, broadband, wireless or a combination of the three that will take over, but everyone is trying to hedge their bets. Looking at broadcast, cable and satellite providers, Mel Alcock, senior VP of commercial affairs for Jetix Europe, says the three parties are effectively trying to future-proof their businesses – seeking to cover off ‘the leakage of their IP appearing on a form of distribution that, at this moment, no one is seeing as viable.’ And many kids content producers are finding themselves caught in the middle.

In short, there’s no longer straightforward deal models for just broadcast rights or just home video distribution. For the last six to eight months, content distributors have stepped up their demands for all digital program rights, and producers are more often being asked for the same sets of rights by competing parties. Getting wise to the idea that while these rights aren’t generating big dollars right now, they may be in as little as five years, players on both sides of the negotiations are no longer lumping them together under one umbrella. And smart producers are immediately striking that vague grant for digital rights applications to ‘all technology now known or discovered in the future’ from their deals.

In the second part of this article, which you’ll find in KidScreen’s October issue, we’ll look more specifically at how content distributors and producers are navigating this tumultuous terrain. But to understand the discussions taking place right now, we first need to explore how the industry arrived at what Catherine Mackay, CEO of FremantleMedia’s Enterprises and New Platforms divisions, calls ‘this land-grab moment’ for digital content rights.

I want my VOD…and my broadband, and could you also make it mobile?

On-demand viewing is one facet of the new digital landscape that’s gaining traction and spooking traditional purveyors of content. Consumers are getting used to watching what they want, when they want it, and without commercial interruptions. According to Scottsdale, Arizona-based media research firm In-Stat, 20% of all digital cable set-top boxes being shipped are now enabled for personal video recording, and worldwide shipments (including PVR and VOD models) were up 11% in 2004 to 10.87 million units.

Moreover, on top of letting a PVR record their favorite programs, viewers are getting comfortable accessing shows on digital cable via on-demand. In the U.S., for example, what’s become known as VOD is heating up, especially as cable giants such as Comcast corral more and more content to entice consumers to subscribe to digital cable. At the end of Q2 this year, Comcast had 9.1 million digital subscribers, giving it a 42.6% penetration with its entire subscriber base. In June, VOD views of its 2,500-odd hours of programming (90% of which comes free with a digital cable subscription) topped 112 million, up 10 million over the previous three months. And according to VP of content development Matthew Strauss, Comcast expects year-end VOD views to crack one billion. Looking at it another way, that means U.S. TV audiences will have chosen to not watch linear broadcast TV more than a billion times this year.

Particularly relevant to the kids entertainment side of the equation, the Sprout VOD service that launched in May is garnering between five and six million views per month, and Comcast is looking for more kids content. And on the heels of launching the Vortex VOD channel with Nelvana in July (Vortex targets kids six to 11 and is programmed by the Canadian prodco), Strauss says he’s now investigating the possibility of debuting original kids shows on VOD.

As for the burgeoning revenue model, Strauss says he expects it will shake out to be a combination of advertising, sponsorship and commerce tailored to each deal. He adds that Comcast isn’t opposed to letting some content providers sell their product via VOD. ‘So if a you’re watching a video, and there’s a call to action to buy the DVD,’ says Strauss, ‘we actually think there’s an added value in that.’

VOD models currently being pursued by cable companies such as Comcast put broadcasters in a position where they may be competing for content with their carrier – their gateway into households – if they haven’t already locked up those rights. As you’ll see in the second part of our story, the problem is the reluctance to assign any real value to those rights.

The quickly evolving world of internet and broadband transmission is another area of contention. Like VOD, household penetration of broadband, while now sitting at approximately 45% in the U.S. and just under 40% in Europe, is on the rise. The growth in broadband installs – essentially putting in a pipeline that’s capable of quickly transmitting data-heavy digital media, be it audio or video – is also reshaping the approach to TV. Big telcos in Europe and North America that are arguably equal in size and reach to their cable counterparts are getting into delivering IPTV (Internet Protocol TV) over broadband. And beyond that, an internet-specific streaming video model made possible by the speed of broadband connections is getting off the ground.

By nature, internet video fits the on-demand model – content is there whenever a user chooses to access it. And to see that internet delivery poses a threat to traditional TV and home entertainment models, you need look no further than AOL’s success with its broadcast of the Live8 concert in July. The on-line transmission drew more than five million viewers, firmly trouncing U.S. network ABC’s audience of just under three million.

Jetix’s Alcock says broadband is what the internet boom of the late 1990s should have been. It’s now possible to access, store and manipulate broadband video content, and the financial models are falling into place. He expects to see a lot of action in this space within the next 12 months and is currently exploring a subscription service set-up to stream Jetix TV content on-line.

And on the kids side of the equation, the AOL Kids Online service, for example, has an audience of three and a half million kids and this year launched its first original web series. Not only has Princess Natasha (produced by New York’s Animation Collective) spawned a consumer products program, but in an interesting twist, it’s also scored a berth on Cartoon Network this fall. And in part to leverage its cross-platform advertising opportunities, Nickelodeon launched its broadband streaming video platform TurboNick in July, with kids accessing 1.25 million video streams in the first week. (Nick Jr. Video followed suit in August.) TurboNick is featuring up to 20 hours of new programming per week, and it’s also going to debut new Nick series before they hit the cable network.

Finally, there’s wireless. It remains to be seen whether kids and adults are going to watch entire episodes of programs on a mobile phone, but the 3-G networks capable of streaming video content are rolling out across Europe and should hit North America in the next few months. Naturally, wireless carriers are looking for content to draw users to their services, and for content owners and broadcasters, it’s another screen to reach viewers and extend brand reach. Jetix Europe has a deal with Orange in France to stream its programming onto phones as part of a subscription service. And in the U.S., Verizon made high-profile deals with companies including Sesame Workshop and Nick for its VCast streaming offering earlier this year.

Again, it’s early days for technology, and whereas revenue models for downloadable games and wallpapers are being established, the same cannot be said for streaming content.

For London-based Granada Ventures’ licensing director Martin Lowde, streaming mobisodes, content made specifically for mobile, offers much potential for reaching tween and teen consumers in the U.K., where it’s estimated that more than 70% of kids 11 and up own phones. He says the company is working on making prequels for shows that will end up on broadcast, noting that once you get a user to download via mobile, it establishes a return path and helps forge a direct relationship with the audience. Not hard to see why industry players are clamoring to establish digital ownership, is it?

What the kids are up to these days

Undoubtedly, the majority of people currently downloading TV shows from the internet and signing up for VOD, IPTV and streaming wireless content don’t fall in the under-12 bracket. However, it’s this very generation that’s growing up with the expectation that they’ll be able to watch what they want, when and where they want to watch it. Much has been made of the fact that kids past preschool age are expert media multi-taskers who prefer to watch TV, play computer games and instant-message friends all at the same time. In fact, the Menlo Park, California-based Kaiser Family Foundation’s March 2005 study Generation M: Media in the Lives of eight- to 18-year-olds found that the average kid in this bracket is cramming as much as 8.5 hours of media exposure into roughly five hours every day.

‘You’ve got a generation coming through who are used to accessing content, paying and downloading for games and entertainment,’ say Lowde. Alcock also recognizes that children’s media consumption is very pick-and-mix right now. ‘They have no loyalty to a particular device and pick from multiple sources. And that, I think, is what’s really fuelling people’s concerns about digital rights,’ he explains. ‘When you launch, you’ve got to launch on TV, the internet, games…your property has to exist on multiple planes.’

It’s certain that kids want portable viewing opportunities; you only need to look at the success of Hasbro’s pioneering VideoNow system and the slew of me-too portable players that have followed in its wake for proof. (Video rights for these toyetic devices are also a bit contentious right now, as we explore in the sidebar on page 74.)

Convergence 2.0

The consumer electronics technology coming around the bend in the next few years should only serve to fuel this upcoming generation’s pick-pack-and-tote approach to media consumption. If software behemoth Microsoft has its way, consumers will be able to receive content through one connection and pipe it into any number of devices, including their TVs, PCs, handheld video players and mobile phones.

The company has been striking deals left, right and center with consumer electronics companies and mobile manufacturers to equip products with Windows Media software that will allow for file compatibility, regardless of device. Interestingly, the house that Bill Gates built teamed up with U.S. PVR provider TiVo in June for TiVo ToGo, which will enable the movement of TiVo content stored on Windows XP-powered PCs to Windows Mobile-enabled portable media centers, smart mobile phones and pocket PCs.

Even if Microsoft fails to use its significant marketing muscle to achieve lift-off, other companies are working in the space, and Fremantle’s Mackay sees two tech trends emerging soon. One will center around portable video-enabled devices, and the other will be the convergence of the computer and TV screen – in essence you’ll have ‘some type of very smart box’ powering your TV and managing household media distribution.

While it’s presumed that it will be the cable operators and telcos duking it out to control who puts the central (likely broadband) pipe into households, content distributors such as broadcasters, home video companies and even the carriers themselves are going to need content and the means to control it in order to continue attracting enough viewers and advertisers to survive this seismic shift. In a scenario like this, holding onto exclusive, proprietary digital content rights becomes paramount. And as the modes of distribution grow in viability, content producers are going to have to take a harder look at who they assign and sell these rights to. Tune in next month when we assess how they’re weighing their options.

Handheld video – Whose right is it anyway?

While content producers and distributors begin to scrap over digital rights to delivery streams that are just building steam, the explosion of toyetic handheld video players (fed by digital video content) on the consumer market is prolonging negotiations for standard home video/DVD deals.

Unit sales for Hasbro’s VideoNow player and proprietary video disks now number in the millions. So unlike emerging digital platforms, this market is making money right now, and both content owners and video distributors want their share. According to Peter Maule, Nelvana’s VP of home entertainment and retail distribution, many major video distributors see handheld devices as competitive platforms and contend that these rights should be included in their overall video/DVD bundles.

FUNimation is one company that firmly maintains this stance. ‘The whole point of home video is to view an entire episode on a screen,’ says president Gen Fukunaga. ‘If you can watch a title on it, then it’s a home video device.’ FUNimation is prepared to split handheld video revenues with the content owner, but in order to limit the impact on DVD sales, Fukunaga usually insists on delaying the disk’s release until after the DVD is out and controlling the packaging of episodes.

Ellen Pittleman, Paramount Pictures senior VP of worldwide home entertainment and acquisitions, asks for these rights on every pick-up, and says if a content producer withholds them, it affects the amount she’s prepared to spend on the advance.

Content producers, however, are not giving in too quickly. Maule says Nelvana works on a case-by-case basis, but tries to restrict the application of video rights to DVDs and VHS. Meanwhile, DIC Entertainment’s director of strategic planning and business development, Leila Pirnia, says there are a number of ways to slice these rights to make all sides happy. In home video deals where handheld video rights are being contested, DIC tries to find a way to make it work, including delaying release windows.