Everyone agrees video on demand over the Internet should be a goldmine for telecoms and media firms, but the two converging industries have yet to figure out how both can make money, a conference in France heard this week.
Video on demand—the ability to download a movie or TV program via high-speed Internet—is expected to take off in Europe as broadband, already piped to 10.5 percent of households, attracts enough users to merit investing in the service.
But how quickly video-on-demand becomes available is uncertain, as telecoms operators and media companies haggle over how to slice up the revenue pie.
They did not seem close to an agreement at a conference in Montpellier, southern France, this week.
"We want to launch video on demand (in France) before the spring but it is difficult to agree on the business model," said Carlo D'Asaro Biondo, head of AOL France, which has about a 9 percent share of the French broadband market and is part of the Time Warner Inc. media group.
Some small deals have been signed in the past six months between U.S. TV and film-right owners, such as Warner, and European telecoms operators such as Fastweb, Deutsche Telekom AG and recently with France Telecom.
But the choice of films and programs is limited, sometimes giving access only to 100 movies, and profits from such agreements could be difficult to make, partly because of the rivalry between the two camps.
"It is clear that there is a field in which telecoms operators and media companies are in competition and that is video on demand," Jean-Bernard Levy, chief executive of French telecoms and media group Vivendi Universal .
Case in point
France was one of the first countries in Europe to introduce TV on the Internet in 2002 and with half a million IP TV customers shared between operators such as France Telecom, Free and Neuf Cegetel, it is a market leader.
Also, with 14 percent of households in France having broadband access, the country has one of Europe's highest takeup rates. However, online video on demand has not yet arrived.
Part of the reason is that market conditions are so competitive that telecoms operators, especially small players such as and Neuf Cegetel which have made losses for years, say they cannot afford to acquire large film catalogues.
Yet they are keen to introduce a service which allows them to compete with pay-TV groups as broadband connections become cheaper and faster.
For their part, media companies say they are concerned online video on demand could increase their exposure to piracy.
Internet peer-to-peer software enables millions of web surfers every day to download films for free, even though piracy protection technology has improved. Films rented from online distributors can destroy themselves within a few hours.
Simon Kenny, managing director for Europe at Warner Bros. International Television, said Warner was keen to sell and rent films and TV programs online as this represented incremental revenues for the group.
"But the critical question is, will people pay for a market which in the past has been completely free?" Kenny asked. "We need a general agreement between access providers, film studios and broadcasters. We are in talks with a lot of people at the moment about that."
Drawing a parallel between the negotiations and difficulties in agreeing the split of profits from music on the Web, executives said they hoped film houses would be quicker to realize the potential of the online market than music companies.
Had music companies reacted faster they would not have let Apple Computer Inc.'s iTunes online music store become a market leader, they said.
"People in the music industry woke up a bit late and missed the digital boat," Alain Gerset, Vice President for Technology Services at Capgemin, told Reuters. "But they are reacting to it now."
