ATVOD - how will it impact the nascent VOD market?

The Hargreaves review into Intellectual Property and Growth contained a vote of confidence in the UK video-on-demand (VOD) industry, finding that "competition and innovation [were] thriving" in the market. The market is so thriving that it even has (since September 2010) its own dedicated regulator: ATVOD, the Authority for Television on Demand. Here, we explore the nature of the market and discuss what impact ATVOD may have on its growth.

Hargreaves commissioned research into the VOD sector from PACEC (Public & Corporate Economic Consultants). Its report contains some interesting analysis on the nature of the market. It reported that ATVOD's directory of notified VOD services contained 128 entries in 2010 (although that figure has now fallen to 119), which fall into four groups:

• free-to-air broadcasting organisations and their online simulcast and catch-up services (e.g. 4OD. The BBC iPlayer would be included in this category but is regulated by the BBC Trust rather than by ATVOD);
• cable and satellite broadcasters with a balance of commissioned and acquired programming, who maintain VoD websites and also offer VoD services via their set-top boxes (e.g. SkyPlayer);
• Non-commissioning aggregators of broadcast/distribution rights (e.g. SeeSaw); and
• Content providers who make services available via one of the above services, or on their own websites (e.g. Discovery Video On-Demand).

There are broadly four types of business-model supporting these services: subscriptions, micropayments, insertion of video advertisements, and web adverts. Growth in the market has been steady over the last five years, since (the first service was launched in 1999), with between 14 and 19 new services being notified each year since 2006.

The market is, according to the research, a success story, being described as "dynamic and highly competitive, in a global context, given the increasing scale of the market, with UK and important export markets, which were growing world-wide for UK content, the growing number of operators and the diversity of platforms." The research also emphasised the role played by new entrants which "have to some degree diluted the market power of the larger operators."

The reason why regulators such as ATVOD were created was to provide a level playing field of regulations applicable to all "audiovisual media services", whether traditional television broadcasting or on-demand services. The intention was that on-demand services should be regulated to the extent that they compete for the same audience as television broadcasts and are of such a nature that users would reasonably expect them to be regulated in a similar way to television broadcasts. At the same time, it was recognised that the more intrusive nature of broadcast television meant that that level of regulatory intervention would be more intrusive than is either necessary or applicable for the on-demand environment, where the viewer selects when and what to watch.

So, ATVOD regulates all services whose principal purpose is the provision of television-like programmes. The law sets out four criteria which, if all are met by a service, mean that the service falls within ATVOD's remit:

• It includes TV-like programmes - is the form and content comparable to and in competition with the form and content of programmes of a kind normally included in television programme services?
• It is a VOD service - are videos selected from a service in a way that is not incidental or ancillary to another service?
• There is editorial responsibility; and
• It is made available to the general public.

An example of a service that is likely to be within ATVOD's remit is a TV archive service providing programmes from a variety of sources, aggregated via a dedicated website or television platform. Services that are not likely to be within the remit are electronic versions of newspapers and magazines. Services that may or may not be within the remit, depending on the circumstances, include video content embedded within a text-based editorial article, such as a written news story on a website that contains an illustrative video clip.

Once a service is within the remit of ATVOD, it is subject to relatively light-touch regulation. The provider must notify the services to be provided, pay fees (on which, more later) and keep records of programming. Editorial content is subject to restrictions imposed on harmful material, sponsorship and product placement. Failure to comply with the regulations can result in enforcement notices and/or substantial fines.

It is not the nature of the regulations, however, that poses the greatest risk to the development of this market. Rather, it is the costs that ATVOD charges participants to be in the market. ATVOD currently has an operating budget of over £520,000 per annum but this is too much for its regulated services to support. A number of the existing VOD operators have written to the government expressing serious reservations about the cost and nature of the ATVOD co-regulatory structure.

Notwithstanding PACEC's vote of confidence, VOD is still a nascent business but ATVOD is proposing to charge either an increased flat fee of £3,968 per service or a range of graduated tariffs, one of which starts at £14,580 per service (capped at £25,000 for multiple notifications). The whole industry is squealing, particularly special purpose niche operators who are targeting a particular content genre or audience demographic. The main complaint is that the fees are widely disproportionate to the obligations ATVOD is supposed to carry out. It only has responsibility for limited content regulation. Since it came into being, ATVOD has had 17 complaints but has found no breaches. Contrast this with the 30 determinations as to whether a service is within ATVOD's remit (8 of which are currently subject of appeals to Ofcom) and one gets a sense of ATVOD's relevance and attempts to stretch its jurisdiction beyond its perceived remit when it was originally set up in 2010. Regulation of VOD advertising has been hived off to the ASA to administer. There is also disquiet that the fees are totally out of proportion to those being charged elsewhere in Europe for the regulation of VOD services.

The implication for the Government is clear. VOD operators will either get out of town or, if they stay, refrain from launching more services. The brave new on demand world may be stillborn or at least have stunted growth in the UK. This may suit some larger VOD operators as they colonise the on demand world, but it will not encourage new entrants or new services. It may also mean that the PACEC's research overestimates the rosy future for VOD in the UK. If current concerns with ATVOD remain unaddressed, the competitive and first mover advantage that the industry currently enjoys over other services operating elsewhere may be sacrificed on the altar of regulatory inefficiency.

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