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Can Kangaroo bounce back?

Updated Thursday 5th February 2009

An update by Mike Richards on the Kangaroo (video-on-demand) project, currently put on hold by the Competition Commission

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On Wednesday 4th February the Competition Commission decided to block Project Kangaroo, much to the surprise of the media industry - hold on - Project what?

The last few years has seen a steady development of television-on-demand; the idea that individual viewers can choose what they want to watch and when rather than just watching what is being transmitted at any given time. Video-on-Demand, (VoD) is the descendent of the good old-fashioned video recorder, but rather than choosing what to watch in advance and having to remember to set the recorder (and indeed how to set the recorder), users can select programmes from a catalogue and have them delivered directly to their TV or computer when they choose. Many cable companies have been offering services for a number of years, but more recently TV companies have been investing in services that deliver content over the Internet.

Internet delivery is appealing for television companies; more and more of us are spending ever greater amounts of time in front of the computer, we're on the move and we're demanding ever greater amounts of choice. Conventional television cannot possibly hope to offer enough channels to satisfy everyone's tastes; but the Internet can. And it gets even more appealing when television companies look at their back catalogues of programmes made decades ago. There is little or no chance of ever broadcasting most of these programmes, but the Internet makes them viable (and indeed lucrative) properties. Once the programmes have been scanned into digital data there is almost no cost in storing them, costs which can be recouped when they are downloaded by users.

All of the main British television channels have invested heavily in online delivery. The BBC has its iPlayer service, launched in 2006 and made available in early 2007, which had delivered some 180 million programmes by the end of 2008. It is by far the most popular service of its type in the UK and is trailed by the ITV Player, Channel 4's 4OD and BSkyB's SkyPlayer. However, the market is badly fragmented - some issues are technological - for instance, 4OD is restricted to users of Microsoft Media Player and does not work on Apple Macintosh and Linux computers, whilsy SkyPlayer requires a monthly subscription fee.

Kangaroo was a plan to bring some order to the market. It was a collaboration between BBC Worldwide (the commercial arm of the BBC), ITV.com and 4oD to build a single portal for all on-demand content. Users would only have to go to a single Web page and could choose programming from all three organisations knowing it would work on their computer. Kangaroo was commercially attractive as it would allow media companies to offer on-demand content on a paid-for basis. Users could select programmes from the huge back catalogues, pay a small fee and watch the program or save it to disk. The project should have launched in late 2008 or early 2009 under the name SeeSaw (which I think is one of the cleverest brand names in a long time). However, in the middle of 2008, the Kangaroo Project was referred to the British government's Competition Commission on the grounds that it could distort competition within the as-yet developing VoD market. An interim report in December 2008 said:

"However, we are concerned that a loss of rivalry between BBC Worldwide, ITV and Channel 4, who are normally regarded as close competitors, could restrict existing and future competition for video on demand. Whatever benefits viewers would gain from this rivalry would clearly be lost."

Kangaroo offered concessions to try and turn the Commission in its favour; these included allowing partners in the project to set their own pricing, and a block on cross-marketing of content between partners. It was thought these concessions would introduce competition back into Kangaroo, but it appeals these were not enough. The interim finding was upheld this week much to the delight of BSkyB and Virgin Media and to the dismay of Kangaroo's backers.

In one way, the Competition Commission's report should come as no surprise, Kangaroo clearly does reduce competition in the sense that there would only be one underlying delivery technology, but it would not reduce the diversity inside the programming itself. However, there are benefits for having a single delivery mechanism; users can be sure that if they can watch one programme they can watch them all, there is a single entry point for browsing the catalogue and there are great opportunities for providing search facilities so users can look for suitable programmes across all channels.

The setback to Kangaroo has very real implications, both Channel 4 and ITV are suffering long-term declines in income from advertising which have been made worse by the current economic climate. Kangaroo would have helped offset these falls, but now this money will not be so forthcoming. Both of them are going to have to invest in their incompatible, less-successful VoD services if they are going to see any benefits from their huge archives. One long term proposal is that BBC Worldwide may actually end up merging with Channel 4 which would allow the pair of them to develop a Kangaroo for their commercial services, but that would not be integrated with the iPlayer. Meanwhile, the BBC itself is planning on offering iPlayer technology to other public-service broadcasters in an ambitious development called Project Marquee. Beyond that there is Project Canvas, a tie-up between the BBC, ITV and BT to offer on-demand public service programming, but it is still very poorly mapped out.

The report causes a potentially huge problem for VoD in the UK. There are already a number of companies offering Internet delivery of programmes from multiple channels - and they aren't British. The most well-known in Apple who already provide television and film content on their iTunes Store in the UK; but the fastest growing company, currently restricted to the US, is hulu.com. In less than a year, hulu.com has become a major VoD provider in the United States, delivering content from the major broadcasters NBC and Fox, as well as popular cable channels including Comedy Central, the Disney Channel and PBS. It is clear that hulu.com could easily move into the UK market and make agreements with individual channels to offer the same sort of cross-channel distribution it performs in the United States. if that happens, what would be the point of Kangaroo?

The competition rules for VoD appear to be somewhat arbitrarily applied, after all, so far no one has complained that Apple is unfairly dominating the paid-for VoD market in the UK and what of Google's 90%+ share of VoD through its acquisition of YouTube? But is there a darker motive behind BSkyB joining the complaints about Kangaroo? BSkyB is owned by the News International group who are co-owners of - hulu.com.

Unless a well-thought-through plan for VoD is developed by British broadcasters, Kangaroo will be eaten alive by foreign competition. Another great British invention that might-have-been.

 

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