Disrupting the Digital Dinosaurs

What’s the Big Idea?

Many Internet users embrace the utopian view that progress lies in the removal of barriers to the free exchange of all the fruits of human labor, from intellectual works to entertainment and media. This idea of the web, of course, runs afoul of many intellectual property issues.  

The explosion of open source content on the Internet is of particular concern to the media industry which generates its revenue by charging for content. New technologies have enabled users to access articles, TV shows, and songs for free. The music industry is one of the more prominent examples of an industry that has suffered from the repercussions of open source content. Users expect to find media content for free and are increasingly unwilling to pay for it. 

On the other hand, there are companies such as Boxee that have made a business out of providing free online content to their users. Boxee has created an open source media platform through which users can have access to a wide range of free and paid content on the Web. Users can purchase a “Boxee Box” for approximately $200, or even build their own thanks to Boxee’s open source software. Boxee allows them to search for and organize free content from the Internet. Boxee users can also instantly share videos and links with other users as well as have access to all media files stored on their computer. 

However, Boxee’s run-in with Hulu in early 2009 shows that media corporations aren’t entirely willing to accept open source content as the future of mass media consumption. Until February 2009, Boxee supported NBC Universal’s Hulu. Users could freely access TV shows, videos and movies through the Hulu video streaming service. Then, in February, Hulu’s content owners demanded that Hulu be removed from Boxee. Why? The content owners, NBC, were allegedly unhappy with the fact that their content was being made freely available through an open source media platform which purported to replace television. Furthermore, NBC disliked the fact that the Hulu ad platform was configured on Boxee in such a way that advertisers were not getting their money’s worth. 

Boxee has experienced other controversies which are representative of some of the limitations of its open source aspirations. The company has been criticized for engaing in tivoization, that is, incorporating software under GPL (General Public License) while using hardware restrictions to prevent users from modifying versions of their software. GPL licences are intended to protect the rights of users to freely modified open source software. In defence of this recent controversy, Boxee CEO Avner Rosner pointed out that in order “to release a device with premium content, we’d need to put strict security measures in place. Lose the security requirements and lose access to some of the Boxee Box’s most popular content.” 

What’s the Significance?

Media companies need to adapt to the new reality of an open-source media world. The reality is that media consumers will continue to find free content online rather than pay for it through the traditional channels of media such as cable television or print newspapers. The technology that enables users to stream free content will perfect itself in the coming years, leading to an even greater number of media consumers who will seek free content online. Look at Cable Cable television, for instance. With over 100 million paying customers it is still a highly profitable, multi-billion dollar industry. And yet, free online streaming is emerging as a real threat.

As NBC Universal CEO Jeff Zucker put it:  “What we’ve lost in viewers and advertising dollars on the analog side isn’t being made up for at all on the digital side. We want to find an economic model that makes sense.” 

Mr. Zucker is right. Media corportations need to find new business models in order to deal with the rising popularity of open-source media content. Some media companies have already started the transition. The New York Times, for instance, has set up a pay wall. Whether this move will prove successful remains to be seen. It also remains to be seen whether cable companies can still rely on the type of subscription-type models where users pay a monthly fee for a package of channels, many of which they will never watch. 

Media companies need to wake up, for new competitors are entering the market. Netflix and Spotify are two notably disruptive companies. Rather than being forced to pay for packages of channels or purchase individual songs, users can have access to a wide range of content on these platforms for a low monthly fee. Furthermore, Netflix and Spotify are not simply taking free content from the Internet and making it available. Both companies have signed contracts with the content owners. By having done so, they avoid some of the problems encountered by Boxee.

Media corporations need to adapt their business model to our open source world. Users will continue to find ways to bypass copyright issues in order to access content. TV content owners and the music industry in particular must loosen up their closed source conception of property rights and  make develop new business models. If not, they will risk becoming obsolete dinosaurs out of place in the digital age.