Business models and consumer habits

We will devote most of this chapter to this final segment of content, since the legal dilemmas arise in relation to its protection rather than to the safeguarding of UGC content, which by definition is freely usable. Essentially, the legal dilemma stemming from content protection in this new era of Convergence is linked to the search for a legal system capable of reconciling the interests of users (who today are massively engaged in infringing current Intellectual Property Laws) and the interests of content owners. In seeking such an ideal system, capable of satisfying both sides, it is necessary to assess existing legislation, but business models, consumer habits, and the enforcement of those laws are also decisive factors. Business models and consumer habits are closely interconnected. This is particularly evident in the field of online content protection, since the current landscape reflects a profound shift in consumption habits that the so-called entertainment industries (that is, the content owners most resistant to “releasing” such content on the Internet) have not yet been able to assimilate.

Let us begin by examining the business models and consumption habits of cultural products prior to the explosion of the Internet (record stores or music shops). Cinema relied on a well-defined chain of exploitation through so-called “windows,” designed to maximize revenue by clearly separating theatrical exhibition from home consumption via video (and later DVDs), and from television consumption (where several “windows” existed: pay per view, premium channels, basic cable, and finally free-to-air television). Sports events and news were consumed through a variety of distribution channels (radio, television, print media, etc.). During this “pre-Internet” period, each consumption habit related to cultural or entertainment products determined the business model of each industry. The music industry based its business primarily on album sales and, more recently, on income derived from public performance rights (paid worldwide by radio and television stations, hotels, supermarkets, restaurants, bars, nightclubs, and others for music broadcast or publicly performed on their premises). The film industry maximized revenue through its exploitation chain, with the “home video” window becoming the most profitable in recent years. Television operated under different business models depending on its format. Free-to-air television, like radio, relied on advertising sales (with rates determined by audience measurements or ratings). Pay television was built on subscription revenue (or specific payments, as in pay per view), although in recent years this original model evolved into a “mixed” one, supported not only by subscriptions but also by advertising income. The news industry was primarily exploited through television and print media (newspapers and magazines), also supported by advertising sales. Sports events, which traditionally derived their main revenue from ticket sales, gradually evolved into a business fundamentally sustained by income from “television rights” (that is, revenue obtained from selling broadcasting rights for sporting events).

These business models were gradually affected by changes in consumption habits. With the development of the Internet, some underwent radical transformation, as in the case of music. Others changed to a lesser extent. Yet all experienced, to varying degrees, modifications that impacted their established business models. In a recent study, it was noted that, according to some analysts in the entertainment industry, Convergence will transform content distribution channels and reduce them to two major new channels: the “in home” consumption channel and the “out of home” consumption channel (Vibes, Delupí, Alesina, Carbone, 2006). Under this new scenario, consumers will have the possibility of receiving in their homes, through a single channel, any content (films, television programs, music, information, etc.) that was previously available through multiple channels. Only when consumers seek to “live an experience” beyond the mere enjoyment of content will they turn to the “out of home” channel (for example, when they wish to experience something more: going to the cinema, attending a music concert, going to a stadium to watch a football match, etc.). In this latter type of consumption, motivation will not lie solely in access to content (which will likely be available through the home channel), but also in the intention to experience something different (going to the movies with friends, feeling the adrenaline of a football match or a live concert, and so on).