Trust assessment of 'Canvas' proposals – Revised governance and cost information
About Arqiva
Arqiva has its headquarters in Hampshire, with other major UK offices in Warwick, London, Buckinghamshire and Yorkshire. It now has 9 international satellite teleports, over 70 other manned locations, and around 9000 shared radio sites throughout the UK and Ireland including masts, towers and rooftops from under 30 to over 300 metres tall.
The company is owned by a consortium of long-term investors led by Macquarie Communications Infrastructure Group and has 3 operating divisions: Terrestrial Broadcast, Satellite & Media and Wireless Access.
Arqiva is technology- and service-neutral and operates at the heart of the broadcast and mobile communications industry. We are at the forefront of network solutions and services in an increasingly digital world. The company provides much of the infrastructure behind television, radio and wireless communications in the UK and has a growing presence in Ireland, mainland Europe and the USA.
Arqiva is a founder member of Freeview (Arqiva broadcasts all 6 Freeview multiplexes and is the licensed operator of 2 of them) and was a key launch technology partner for Freesat. Arqiva is also the licensed operator of the Digital One national commercial DAB multiplex.
Alongside the BBC, Arqiva’s Spectrum Planning Group plays a critical role in planning Digital Switch Over (DSO).
In addition for broadcasters, media companies and corporate enterprises Arqiva provides end-to-end capability ranging from – • outside broadcasts (10 trucks including HD, used for such popular programmes as Antiques Roadshow, Question Time, Proms in the Park, a wide range of sporting events and the IIFA Awards 2007 “BollyWood Oscars” watched by 2 billion people worldwide); • satellite newsgathering (30 international broadcast SNG trucks); • 10 TV studios; • spectrum for Programme-Making & Special Events (PMSE) through subsidiary JFMG; • playout (capacity to play out over 70 channels including HD); to • satellite distribution (over 1200 services delivered).
In the communications sector the company supports cellular, wireless broadband, video, voice and data solutions for the mobile phone, public safety, public sector, public space and transport markets.
Major customers include the BBC, ITV, Channel 4, Five, BSkyB, Classic FM, the five UK mobile operators, Viacom, Turner Broadcasting, Metropolitan Police and RNLI.
- 1 -
Arqiva welcomes the Executive’s revised governance model and supports, in principle, the proposed changes to the governance structure and admission criteria.
However there are some issues where additional clarity is required:
1. Admission criteria
Arqiva supports the proposed opening up of membership of the company to a wider range of shareholders than public service broadcasters and internet service providers. Arqiva also supports all shareholders taking an equal shareholding, with all shares in a single class, and consequently equal liabilities, including funding contributions, from each.
A requirement that the shares of a shareholder which is exiting (for whatever reason) be offered to remaining shareholders pro rata is then a logical consequence of that.
Arqiva also supports objective admission criteria being established but there are limited details provided and, on the assumption that it is proposed that the current members of the JV determine these, we expect that those criteria when finalised will be subject to the approval of the Trust and Ofcom. The particular requirement for each shareholder to promote the Venture in its more general marketing activities may introduce complexity to the associated costs for admission of new members.
We note the proposal that the board continually assess the ongoing alignment of shareholders with the criteria which they satisfied on application, but it isn’t clear what the legal means of expulsion would be or what the right of appeal might be.
2. Limiting the number of shareholders
Arqiva also agrees that there should be a means of limiting the number of shareholders so as not to undermine operational efficiency or viability, but there is a risk of creating the appearance of a backdoor means of blocking a potential new shareholder, even if it satisfies the admission criteria.
To mitigate this Arqiva suggests that there should be a route of appeal whereby the board’s assessment of the effect on operational efficiency or viability should an application be approved be subject to external scrutiny by Ofcom.
To the extent that the board’s assessment is confirmed, and a shareholder is subsequently expelled or (after the initial 4 year period) voluntarily exits, then the company should automatically restart the application process for those applicants not considered because the shareholder limit had been reached.
- 2 -
3. [TEXT REDACTED]
There is a real risk that the next generation of audiovisual access technology, the seamless incorporation of broadband functionality into television receivers, could remain the province of a relatively small number of early (principally pay TV) adopters for many years.
Canvas should make this development an easy upgrade for the many, in the process underpinning the UK's position at the forefront of convergence in Europe.
The BBC, with its unique position as a trusted guide to new technology, and as the producer and commissioner of the majority of high quality UK-originated content, should rightly be in the driving seat of this initiative.
But Canvas will have the widest and fastest impact if partners are genuinely able to contribute towards the development of Canvas's strategic direction. That will require clarity over the above points.
Arqiva looks forward to continuing to work with the BBC Executive in working towards the consumer launch of Canvas.
- 3 -
Audience Council Northern Ireland Project Canvas Submission to BBC Trust in Response to Additional Information August 2009
The Audience Council Northern Ireland has been actively involved in the BBC Trust consultation on the Project Canvas IPTV proposals. It has already responded to the first phase of public consultation on behalf of local audiences. At this stage its advice to the Trust recognised the potential of Project Canvas to provide key audience benefits, particularly through the availability of programmes on demand through the television. However, the Audience Council also expressed some caution, particularly in areas of importance to the audience where it believed that more detailed information was required.
The Audience Council therefore welcomes the provision of additional information from the BBC Executive, in response to a request from the BBC Trust. It has scrutinised this carefully on behalf of audiences and makes the following additional points in advice to the Trust :
The Audience Council is concerned above all that the service and retail offering of Project Canvas will be distinctive and meet audience needs, and that this can be sustained over time.
The Council notes that a number of devices offering some of the proposed benefits of Project Canvas are planned or already on the market. For instance, it understands that Freeview manufacturers have announced an intention to integrate IPTV with Freeview under the next set of Freeview standards. The Audience Council recognises the need to evolve the Freeview offering, providing parity with pay TV and thus securing the future of subscription free Digital Terrestrial Television in the UK. However, it is important that Project Canvas, if approved, provides a distinctive offering to consumers and that licence fee payers’ money is not spent on something which would be provided in the marketplace anyway. The Audience Council asks the BBC Trust to ensure that the offering is distinctive and will provide value for money for licence fee payers.
If the offering is not sufficiently distinctive and beneficial to audiences it would be better to invest in developing existing services, such as the iPlayer. The Audience Council notes the appetite for more content which is available for longer periods through the iPlayer.
1
It is important that consumers are not obliged to buy new set top boxes too frequently. The Audience Council notes that consumers will not at launch have a choice between a Freeview and Freesat set top box as Freesat is subject to a different approvals process. In its submission to the first stage of consultation the Audience Council noted that the £200 cost of a set top box was likely to be prohibitive for some sections of the population. This continues to be an issue which will affect the take up of Project Canvas, if approved. The Audience Council asks the Trust to ensure that the proposition, is approved, offers value for money and appeals to a sufficiently wide customer base.
The Audience Council has expressed some caution about the lack of information in the original proposal with regard to certain areas of interest. It therefore welcomes further information on key aspects of the offering including quality of broadcast, usability, future proofing/digital switchover timescales, streaming and support.
The Council noted particular interest in the electronic programme guide, accessibility and parental controls in engagement with audiences for the first phase of consultation. It welcomes the further information which the Executive has provided and which indicates that there is due consideration of all of these areas at an early stage in the planning process. It is especially pleased to note that the electronic programme guide will have a search function, which was considered a ‘must have’ and a real benefit to local audiences. However, it highlights the need for easy access to subtitles, signed and audio described content and would welcome further assurances and information about this aspect of the proposition.
The Audience Council also welcomes the additional information in Section 5 about how Canvas fits into the wider BBC platform strategy and the existing content syndication agreements.
The Audience Council’s first submission also noted that audiences want the BBC to do more to reflect local communities, and that this is particularly strongly felt in Northern Ireland. It is important that local content suppliers find the experience of getting local video and web content onto Project Canvas both straight forward and low cost.
The Audience Council has also highlighted the importance of cross platform support so that audiences can consume content in a variety of different ways. It would like to see the proposal offering consumers the ability to download (and, where appropriate, pay for) content just once for consumption across multiple devices, both home based and mobile.
The Audience Council wishes to be assured that Project Canvas will develop with new communications technology such as wireless and 3G mobile.
2
The Council agrees that public service broadcasters should have a majority of shares in Project Canvas. However, it wonders if convergence in the industry means that, in time, there could be less clear distinction between public service broadcasters and internet service providers.
The Audience Council welcomes further detail about support arrangements. It believes that sufficient support arrangements will be critical to the success of Project Canvas. It will therefore be important to ensure that all aspects of the support service, whether provided directly by Project Canvas or by manufacturers, meet audience needs. The Audience Council suggests that adequate information and support arrangements, within the overall support service, might be a condition of displaying the Canvas logo on a set top box.
The Council welcomes the assurances that there will be good arrangements in place for user data and measurement. It will be important to ensure that Canvas user data can be measured as part of output across all platforms for the BBC and other broadcasters.
The Audience Council notes that the proposal requires a new organisation and governance structure to be established. Whilst it understands the reasons for this it also notes that this creates a high level of overhead, particularly in the initial years. It asks the Trust to exercise due oversight to ensure that, as far as possible, licence fee payers’ money returns value in content and services.
3 BSG response to BBC Trust consultation
“Response to additional information provided about Project Canvas”
11 September 2009
Introduction and Overview
The Broadband Stakeholder Group (BSG) welcomes the opportunity to respond to the further information on Project Canvas made available through the BBC Trust.
As highlighted in our original response to the Trust’s consultation on Project Canvas, the BSG brings together a wide range of organisations from across the broadband value chain and views on Canvas will vary depending on where individual stakeholders sit in that value chain and whether or not they are directly involved with Canvas.
As per the BSG’s previous response, it is not the aim of this document to take a view for or against Canvas, but to highlight issues where we believe further consideration is required as Project Canvas is developed.
As we stated in our original response, the BSG believes that Canvas would have a significant impact on the UK communications market. Project Canvas is being put forward at a time where the market for on-demand video content is increasing and also when companies and organisations within the broadband chain are considering their commercial strategies as the first tentative steps are being taken in the difficult transition from current to next generation broadband.
In light of this context, Canvas has the potential to make a positive contribution to the market through increasing demand for broadband and creating new revenue streams through the value chain. However, the introduction of Canvas will not necessarily create those outcomes automatically. Achieving such a positive scenario will greatly depend on the way in which it is brought to market.
The BSG endorses the objective of Project Canvas to become “neither a gatekeeper nor a competitive bottleneck.” However, given the ambitious timescales outlined, close and meaningful engagement with all stakeholders will be required to achieve that goal.
Whilst the potential positive impact of Canvas is significant, should the project not pay due diligence to the potential impacts of its introduction to the full value chain, a scenario could be created where Canvas results in an increase in traffic on the network without achieving associated revenue generation, the passing on of these costs to the consumer without an improved or more compelling end-product and a chill on investment across the communications market in alternative platforms.
This response aims to respond to the further information that has been made available and highlight issues where ongoing scrutiny and consideration will be required in order that any introduction of Canvas to the market avoids the potential pitfalls outlined above.
Page 1 of 6
IP distribution and network impact
The BSG welcomes the provision of further detail on how Canvas could be delivered most effectively and what solutions may offset delivery challenges and costs for ISPs. A variety of solutions are put forward, including:
• the delivery of content to the consumer by “managed delivery” i.e. guaranteeing bandwidth for certain Canvas content and brokering a QoS agreement between a content provider and ISP to achieve this • content delivered “over the top” as per standard delivery over the internet but with the Canvas specification allowing a delay of the start of the playback until sufficient content has been buffered to enable continuous playback (communicated to the consumer through a message about whether this content is ready to ‘play now’ or ‘play later’); • popular content made available through Push VoD, which is not dependent on the capability of the IP network
A clear advantage of Canvas is that it could provide an opportunity to optimise the use of broadcast infrastructure for the delivery of on demand content through Push VoD to a PVR. This has an advantage for the consumer, who would be able to immediately view popular content. It would also relieve pressure on the IP network, reducing costs and making available more bandwidth for the delivery of other traffic. Obviously there would need to be an agreed, clear and transparent system for determining which content would be delivered through Push VoD, but in principle this solution should allow for collaboration to minimise network impact.
In relation to the delivery of content “over the top”, it is worth re-iterating the point made in the BSG’s original submission that the cost impact on individual ISPs will vary, depending on the nature of their networks and in particular their backhaul capacity. Considering these costs in the context of the counterfactual where it is highly likely that there will be an increase in the volume of over-the-top video traffic regardless of whether or not Canvas is implemented, Canvas could be a vehicle for ISPs to manage such traffic more efficiently and recoup costs from consumers through charging a premium for the content and services that will be made available to consumers through Canvas.
However, we would like to stress that this is not purely a technical consideration. As stated in our introduction, any decision from an operator in relation to Canvas will be rooted in a much broader commercial strategy as operators look to leverage value in the transitions to both universal broadband coverage and next generation access.
A central component of this decision making process will be the management of the relationship with their consumers. The further information made available discusses how a “play now” and “play later” mechanism could help manage consumer understanding of Canvas enabled services in light of anticipated traffic delivery challenges.
It is widely accepted that currently consumers have much higher expectations of quality when accessing content via a television-set in comparison to access through a computer or mobile phone. It will be a judgment for individual operators to consider whether the potential opportunities offered by Canvas are consistent with their brand, commercial strategy and wider consumer offering.
On a related point, the nature of broadband means that very localised circumstances, such as the distance from your home to the exchange, electronic interference and home wiring issues, can impact on what one individual’s broadband connectivity is compared to another.
Page 2 of 6
Whilst the proposed development of a Canvas quality standard or ‘Canvas trademark licence’ seems a sensible one in selling the idea to consumers and providing operators with a hook to monetise the service through an appropriately priced “Canvas” broadband tariff, there remains a consideration for ISPs in thinking through how they will market that to their full addressable market and manage the consumer relationship in relation to individual circumstances.
Furthermore given the different nature of networks and services between ISPs and the difficulty in measuring the performance of broadband products, further information on how such a quality standard would be developed would be welcome in order to ensure the outcomes of assurance for the consumer and the development of a standard that will be achievable for all ISPs should they wish to offer Canvas supported services.
The BSG highlighted the importance of managing the customer relationship in our initial response and we therefore welcome the proposal that the Canvas venture will operate a front-line customer service call centre in order to have a single point of call to manage the customer relationship and direct consumers to the relevant party in light of questions or complaints (e.g. billing, broadband connection, problems with operating the device). However, further information on how this would be managed and resourced would be useful. In any event, as explained above, this will remain a core cost for ISPs, and as such it is not purely the costs of IP distribution that will inform any one operator’s assessment of whether Canvas offers a real and sufficiently appealing and viable revenue generation opportunity.
It is true that one option to ensure delivery of content to the consumer is “managed delivery” i.e. guaranteeing bandwidth for certain Canvas content and brokering a Quality of Service agreement between a content provider and ISP to achieve this. However, it should be acknowledged that whilst this concept is not new, it has not yet become a mainstream commercial reality. Canvas may well support the evolution of such arrangements over time, but it would seem unrealistic to identify this as a prominent tool to manage network impact in the short to medium term.
Finally, there may be further options available in managing the network impact of content delivered via Canvas. For example, satellite technology has demonstrated its ability to contribute to the effective delivery of video content and as such it would be worthwhile to see how this could be incorporated into the Canvas technical specification so that this option is available for operators when assessing how best they might ensure delivery of Canvas enabled content to their consumers.
EPG and enabling access for content and service providers
Development of the user interface (UI)
In our original response, we requested further detail on the rationale and operation of a specified user interface (UI) and are grateful for the further information made available on this point and illustrations of how this may appear in practice. In sum, the proposal is for a “thin” core UI managed by the Canvas Joint Venture, which would allow for content providers, manufacturers etc to develop sub-sections of that UI.
It is clear from the information made available that the intention to introduce a specified UI stems from the view that consumers will benefit from a uniform “homepage” that is easy to navigate. It is also stated that this approach will support the most “democratic” system for content and service providers interested in participating in Canvas.
Page 3 of 6
Both these objectives seem sensible in theory, yet, as we stated in our original response, as with any platform, there has to be a system for listing content and services. The current EPG market has shown that the vast majority of consumers have not taken advantage of options to personalise listings and as a consequence a market has developed in purchasing prominence on an EPG across platforms. Indeed, experience has shown that flexibility for innovation has allowed for the most user-friendly and effective solutions to prevail in the market.
The suggested business rules contained within the additional information makes reference to an “objective measure” of allocating listings, with reach of services cited as a potential measure or by allocation on a first come first served basis or within genre categories. These would be in addition to browsing and search functionality allowing consumers to select content by genre or popularity of the content. Further information on these business rules would be desirable to inform a more developed position on this issue. However, whichever measure is taken, it will of course result in some services having a prominence with the consumer, over others. In such a scenario, even if there is a uniform charge to make content and services available on the Canvas platform, some services will gain heightened prominence via the UI.
Ultimately the UI is the gateway to engaging with the consumer, where content and services will be featured and signposted. As the UI proposal stands, it gives very limited options for potential Canvas partners to differentiate its potential offering at the entry point to the service that all consumers will use. Without this ability to differentiate, premium “Canvas-quality” broadband services could quickly become commoditised.
Making content and services available on the Canvas platform
Clearly the finer details of the access model will need to be developed over time, but the principles to inform this model, expressed in the documentation, seem sensible and are welcome. It is encouraging to see the commitment to ensuring different forms of monetisation are supported on the Canvas platform, for example that Canvas would support conditional access technology, pay per view models, subscription over IP and personalised services. However, we would urge the Canvas Venture to make explicit how monetisation options will be realisable in practice in order to engage all relevant stakeholders.
The proposal to offer a ‘software developer kit’ to enable content providers to quickly integrate their existing web services with the platform seems to be a welcome tool from the Canvas Joint Venture to reduce barriers to making services and content available on Canvas and to offer a wide range of innovative content for the consumer. The proposal of a flat fee for all content providers (for equivalent services) to make content available on Canvas, on a ‘cost recovery’ basis also seems sensible.
Clearly the decision by any content provider to make content and servicse available over the Canvas platform will be informed by wider commercial objectives, the resource implications of meeting the technical specifications set by Canvas, the anticipated audience they could reach via the platform and how they are able to target audiences through the UI.
Implications for content regulation
One issue we would like to highlight at this stage is the requirements outlined in the documentation in respect of the editorial policy that the Canvas Joint Venture will set. The documentation stresses that this is intended as light-touch and would simply carry a basis commitment to satisfy basic standards relating to harm and offence and the provision of metadata to support parental controls. Page 4 of 6
We understand that it is not the intention of the Canvas Joint Venture to act as a gatekeeper in this respect, but it remains unclear as to how compliance with these editorial standards will be ensured and/or monitored.
It is envisaged that through Canvas, consumers would have access to both broadcast content, video on demand content and web and interactive services. There is an established regulatory framework for broadcast, the transposition of the Audiovisual Media Services (AVMS) Directive into UK law in December 2009 will introduce a regulatory regime for Video on demand services, yet there is no parallel system for web and interactive services.
The very nature of the proposed editorial policy suggests that Canvas would not in practice support full internet access or browsing functionality. Indeed for web-based and interactive services to gain access to Canvas they would need to satisfy the editorial standards and provide sufficient metadata to support Canvas required parental controls. This would suggest that consumers would only have access to services which pose no obstacle to editorial policy or refashioned versions of such services for the Canvas platform. The latter option would be an issue an individual content provider would need to consider in assessing the commercial attractiveness of Canvas as a platform for their services.
Given the established difficulties involved in assessing whether content which is legal but may be described as “harmful” and what content may or may not be appropriate for children, young people or vulnerable groups, the question of how content may be assessed by the Canvas Joint Venture becomes all the more relevant in relation to web and interactive services and an area which the BSG believes will require further consideration as Canvas is further developed.
Finally, it is worth emphasising that the consumer will be able to access all the above types of content through one Canvas-enabled device. As described above, they all have different regulatory frameworks. Arguably the different types of content provoke different levels of expectation from consumers in terms of regulatory protection. However this could change if they can be accessed through one device with the brand backing of an organisation such as the BBC. We would be keen to learn more about how Canvas intends to manage such consumer expectations and deal with any consumer complaints or questions about the type of content available on this platform.
Agreement of the Canvas specification
In its original response, the BSG urged the development of a true partnership approach, open to all interested vendors, in the development of the Canvas specification. We also argued that further consideration is given to align work on Canvas with that undertaken by various standards bodies at both a European and global level.
The stated intention in this additional information to align work with the Digital Television Group’s (DTG) Executive 2009/10 is a welcome move to ensure closer cooperation with stakeholders. However for this to work in practice, it needs to be a fully transparent process that allows for the full range of players to be involved in the development of the specification. It needs to be made more explicit what this roadmap will be, what the exact timetable and working arrangements will be and be widely promoted to all stakeholders. This also relates to the point made earlier in our submission regarding the incorporation of satellite delivery into the technical specification.
Page 5 of 6
Given the stated timescales of launch to market in September and October 2010, this requires the upmost urgency. The aim of publishing DTG D Book 7 by March 2010 to inform devices that will go to market in the autumn is a very challenging timescale. This gives rise to the need to actively engender wide participation through the DTG, involving ISPs and the internet technology and application development community, to work on developing the Canvas technical specification over the coming months.
In terms of how Canvas relates to wider developments, we would urge Canvas partners to take note of the recently announced Hybrid Broadcast Broadband TV (HbbTV)1 and how the underlying technical specifications may compare.
Governance of the Canvas Joint Venture
The BSG welcomes the further information made available on the governance of the Canvas Joint Venture. Whilst the proposed structure looks sensible and logical in light of the current partners, we question whether this allows for sufficient flexibility over time for a venture that naturally affects many commercial players throughout the broadband value chain.
The BSG believes that as such a project will have such a significant impact on the market, the governance structures need to ensure for close and meaningful engagement with stakeholders, though possibly beyond the forum of the Canvas board.
We also question whether the qualifying test of a 5% UK market share for ISPs is appropriate to become a shareholder in the Canvas venture and believe this may act as a barrier to those smaller ISPs who may want to scale-up, possibly incorporating Canvas into such a strategy.
Canvas fit with the wider BBC platform strategy
The BSG welcomes the commitment given to ensuring that the BBC’s syndication policy will not be negatively affected by Canvas. Access to on-demand and archive public service broadcast (PSB) content is likely to remain central to the consumer value proposition throughout the broadband value chain. As such, it would be detrimental to the competitive nature of the market as a whole should Canvas result in unfavourable terms to make PSB content available on other platforms.
As has been emphasised throughout this response, the incentives for commercial players to engage with Canvas take root in a much broader commercial environment and different companies will naturally form different strategies to leverage value in the transitions to both universal access and next generation access.
In order that Canvas can make a positive rather than disruptive impact on the UK communications market as a whole, it will be imperative that its introduction supports competition rather than minimising consumer choice across an array of competing platforms.
1 http://www.hbbtv.org/
Page 6 of 6
Jonathan Pacey Chief Economist BBC Trust Room 211 35 Marylebone High Street London W1U 4AA
22 September 2009
Dear Jonathan As follow-up to our meeting on Friday, we write to confirm Sky’s position on the BBC Executive (the Executive)’s Canvas proposals (the Proposals), in light of the further information provided on 23 July 2009 (the Further Information). Our response first describes our principled objections to the Proposals, as well as describing how the BBC might achieve its aims in a more proportionate and appropriate manner. We then highlight the main areas of further information that must be made public in order for stakeholders to gauge adequately the likely impact of the Proposals on the relevant sectors, and without which the Trust cannot reasonably reach conclusions on whether to approve the Proposals, provisionally or otherwise. Without prejudice to our principled objections and the further information required, since the Trust has indicated that it is minded to reach provisional conclusions imminently, we also explore potential conditions that might be attached to any approval of the Proposals. For completeness, we conclude with a brief summary of our continued concerns with the process pursued by the Trust in considering the Proposals. In the short time available for consideration of the Further Information, Sky has limited its response to the key areas of concern. The Proposals clearly raise many additional questions that require further analysis, for example, the extent and manner of any promotion of the Canvas platform by the BBC and joint venture partners; the use of meta data and usage data by the joint venture; and the lack of information and clarity over participation in the Proposals beyond the joint venture partners. It is hoped that the Trust’s provisional conclusions, or any additional information published by the Trust in due course, will provide a comprehensive description of all aspects of the Proposals. 1. Appropriate role of the BBC 1.1. The Further Information confirms the Executive’s apparent intention to develop, launch and operate an entirely new content distribution platform together with a limited number of competitor venture partners, for mutual benefit, to the exclusion of other industry participants. 1.2. As such, the Proposals go far beyond the BBC’s remit described in the BBC Charter and Framework Agreement. For the reasons set out in detail in section 5 of Sky’s response of 7 May 2009 to the Trust’s initial consultation (“Sky’s First Response”), the BBC’s duties do not require it to develop, promote or operate its own means of delivery. Moreover, the Executive has failed to demonstrate any need for the BBC to take the disproportionate step of creating an entirely new platform in the manner described by the Proposals.
British Sky Broadcasting Ltd, Grant Way, Isleworth, Middlesex TW7 5QD Call 0870 240 3000 Fax 0870 240 3060 Visit Sky.com Registered in England No. 2906991. VAT Registered No. 440 6274 67 Jonathan Pacey BBC Trust 22 September 2009
1.3. Whilst the BBC has certain specific duties in relation to supporting the development of digital terrestrial television,1 the particular circumstances relating to the creation of Freeview are not relevant to the proposed creation of a new IPTV/video on-demand platform. Nor can the BBC’s unnecessary participation in the development and launch of BBC/ITV Freesat be used as a precedent to justify further intervention in content delivery platforms. 1.4. In particular, the Executive has failed to demonstrate adequately that there is unsatisfied consumer demand that would be met by the Proposals. Moreover, the BBC’s objectives, namely the development of standards for online services capable of complementing other digital television services (including Freeview and Freesat), could be met in a less interventionist and distorting manner. 1.5. The Trust, in its supervisory role, should, therefore, ask first, whether there is robust and compelling evidence of the alleged unsatisfied consumer demand. If it is satisfied that there is such demand, the Trust must then ask whether the Proposals are consistent with the BBC’s primary purpose and obligations, including as to whether they are a proportionate means of addressing the alleged unmet demand. The question is whether the Proposals are an appropriate use of the licence fee (not whether there is any reason why the BBC should not implement the Proposals). 1.6. Only if the Trust is so satisfied, should it grant approval, and only then, subject to appropriate conditions to ensure proportionality in the implementation of the Proposals by the Executive. 1.7. The Trust must make this assessment against a counterfactual in which the Proposals are not implemented. This is not one in which hybrid broadband-enabled devices are not available or are limited to niche products. The counterfactual is that a wide range of IP- connected televisions, set top boxes and games consoles are emerging exponentially, providing access to the same content. Where the BBC’s content is made available, this is at no extra charge. A good example is the availability of the BBC’s on-demand content via the PS3, in particular when used in conjunction with the Play TV DTT tuner. To the extent that standardisation is required, this is taking place through the DTG and through global technology manufacturers. 1.8. As set out in detail in section 5 of Sky’s First Response, the BBC’s primary purpose is to create public service content and to distribute it as widely as possible, without discrimination.2 Moreover, in its unique, privileged position in receipt of substantial guaranteed public funding, the BBC is also required to adopt the least intrusive, proportionate means of fulfilling its core purpose, and to minimise any distortions of competition that might arise from the commercial deployment of its public funding.3 1.9. In Sky’s view, the BBC’s public purposes and obligations could be discharged more efficiently and proportionately through a genuinely broad policy of linear and on-demand content syndication across third party platforms and services. Such a policy would support the development of a wide variety of devices and services capable of distributing audiovisual and audio content to consumers in innovative and efficient ways. At the same time, this would minimise the negative market impacts likely to result from the Proposals: namely the stifling of investment and innovation in a nascent sector faced with competition from a platform supported by the licence fee, free of the commercial pressures faced by other platforms and retail services.
1 For example, Clause 35 of the Framework Agreement. 2 Article 5(1) of the BBC Charter. 3 For example, through the application of the Competitive Impact Principle.
2 Jonathan Pacey BBC Trust 22 September 2009
1.10. The Trust must determine whether technical standards development is required to facilitate such a policy in light of current industry developments (including, for example, the existence of devices containing similar functionality to that described in the Proposals). If the Trust considers that they are required, the Executive should work with industry to develop such standards and to achieve a broad consensus in the appropriate manner. We consider both aspects in more detail below. 2. Further information required and possible conditions to approval 2.1. Without prejudice to the question of whether it is appropriate for the BBC to be engaged in platform development and commercialisation, we consider below the main areas where more information is required in order to clarify the Proposals. The Trust cannot reach any robust conclusions without such information (or stakeholder views on such information), as without it, the impact of the Proposals cannot be properly assessed. 2.2. Nevertheless, since the Trust has indicated that it is minded to reach provisional conclusions (without necessarily having all the appropriate information, including adequate responses to its questions) where relevant we have also identified below the conditions that the Trust should attach to any decision to approve the Proposals. We do so in respect of each of the main areas of the Proposals, namely: (i) participation in the joint venture; (ii) control over the core user interface; (iii) technical specifications; (iv) content syndication; and (v) ISP standards. We also consider briefly any potential state aid and merger control issues. Venture participation 2.3. In the first instance, for the reasons given above, Sky does not consider that it is necessary for the BBC to enter into a joint venture to achieve its stated objectives. The BBC should work with industry to develop open standards for the delivery of IPTV and on-demand services to television related devices, and make its content available to such devices whether directly or for (re)distribution by third party service providers. 2.4. Even were it prudent or necessary to divide any risk or costs with other parties, Sky can see no reason why there should be any limits as to the permitted venture partners. In particular, there is no justification for restricting joint venture partners to ‘public service broadcasters’. Neither general competition law nor the BBC’s Fair Trading framework, including the Competitive Impact Principle, allows the BBC to favour other public service broadcasters to the exclusion of others. Furthermore, by allowing BT to be a venture partner, the BBC has already widened membership beyond public service broadcasters, and cannot now limit participation further (whether by different classes of membership as previously described, or by exclusion). In this regard, the Trust will recall Ofcom’s concerns in its letter of 17 April 2009 that, “an inequitable approach to participation in the joint venture which favours certain participants may lead to potential harm for consumers as a result of market distortion”. 2.5. Were the Trust minded to approve the Proposals in a form that retained the joint venture structure, it should, as a condition of approval, require the Executive to make full membership of the joint venture open to all. In particular, this should be irrespective of business model (for example, pay or free), both in terms of initial and subsequent participation (i.e. in relation to parties joining at any time after this initial phase). 2.6. With regard to subsequent entry to the joint venture, conditions are also required to safeguard against discrimination, both as between post-launch partners, and as between them and the initial partners (recognising that an objective, cost-based methodology for determining fees, applied uniformly and transparently, may legitimately require post- launch participants to bear a proportionate share of the development as well as ongoing costs of the venture).
3 Jonathan Pacey BBC Trust 22 September 2009
Control over the Core User Interface 2.7. The Further Information amended the Canvas proposition to clarify that the joint venture would control the ‘Core User Interface’ (UI), intended to mean a fixed menu and listing structure within which content is made available and accessed. Within the UI, non-linear content providers appear to be able to determine the environment in which their content services are made available. This is a significant development from statements in the first consultation that the joint venture would control the Electronic Programme Guide (and means of accessing content). 2.8. As noted above, control over the UI represents an additional level of intervention by the BBC which is unnecessary and disproportionate. First, the UI is one of the ways in which services are differentiated from each other and compete for viewers. Standardisation necessarily reduces innovation and competition between manufacturers and service providers. 2.9. Furthermore, contrary to the Executive’s assertion, a uniform UI is not “vital” to “repeat the success of Freeview” (paragraph 2.5 of the Further Information”). Freeview does not have a uniform UI, and differences between the UI’s of different boxes, and in particular, their ease of use, is often referred to in product reviews as a key distinguishing feature. Notwithstanding these differences, Freeview has been a success. There is no reason to assume that a Canvas proposition that does not dictate the UI, would not be similarly successful, whilst avoiding any risk of stifling innovation in the development of UIs.4 2.10. Accordingly, as a condition of any approval, the Executive should be required to allow different UI’s within the Canvas-approved specification. The Trust must also clarify any differences (other than the use of the Canvas trade mark) between the Canvas-approved specification and the content and functionality that would be available to those not wishing to use the Canvas UI under the present proposals. Technical specification 2.11. For a set of Proposals positioned as “a standards based open environment for internet connected TV platforms” (as per p.10 of the Executive’s Summary), Sky considers it remarkable that the technical standards remain unspecified (and more remarkable still that the Trust is seeking to reach provisional conclusions in respect of them) and that the means by which they will be developed remain unsettled. 2.12. The Executive must first decide on the process to be followed for development of the technical specifications. The loose “intention to work closely to assess the feasibility of working with the DTG” (as per the Further Information) is not sufficient. The Trust should require the Executive to work with the DTG to develop a further version (for example, version 7) of the D-Book to fit the Canvas purpose, including both the ‘base player’ aspects of the Proposals and any further optional chapter of the specification concerning the Canvas UI. Furthermore, DTG must own the process for developing this specification, rather than be handed a fait accompli by the Executive and joint venture partners. This would ensure that all aspects of the Canvas technical specifications are developed in a way that enables full and open participation of industry and minimises distortions to existing developments and investments. At the same time, the DTG process would help
4 It is unclear from the Proposals whether as an indirect consequence there will be standardisation of the linear EPG. The mock-ups published by the BBC appear to contemplate a particular linear user interface, but merely note that this will be controlled by DMOL. However, DMOL merely manages the channel numbering on the DTT platform and does not specify particular UI. Accordingly, the BBC/Trust should clarify whether, in addition to the risks associated with non-linear services, the Proposals would result in a standardisation of the linear EPG.
4 Jonathan Pacey BBC Trust 22 September 2009
to test fitness of the standards for the Canvas purpose/s, with the broadest range of manufacturers. 2.13. Of particular concern to pay TV providers such as Sky, is the Executive’s suggestion, in the further information provided, that it should develop aspects of the standards governing conditional access (CA) and digital rights management (DRM) only after Trust approval, in particular, the technical means by which CA and DRM technologies would interface with the Canvas specification, and any protocols governing the relationships between them. 2.14. Currently, following discussions with various of the joint venture partners, including the BBC, Sky is unclear as to whether its Sky Player service would work on a ‘Canvas’ set top box. It is not certain whether the service would require further development, or whether the proposed standard would meet Sky’s requirements in terms of the way it will interact with CA technology and DRM software, both for the purpose of managing subscriptions and to protect the interests of rights holders (including Sky itself). 2.15. Once approval is obtained, the Executive will have no incentive to develop these aspects beyond the requirements of the core joint venture partners, with the attendant risk of foreclosing access to the platform to other pay television providers (such as Sky) wishing to make their content available on the platform. One of the original aims behind Canvas was to support those platforms on which the PSBs have a high share of viewing due to limited competition from other free and pay channels.5 The PSBs, therefore, have an incentive to maintain their competitive advantage by restricting access to the platform. BT also has an incentive to favour its pay TV service that it intends to replace with the Canvas platform. 2.16. The Executive must, along with the DTG (thus securing the abovementioned safeguards) identify a clear framework for the development of technical pay television interoperability standards. Only once those standards are known can the Trust properly evaluate the impact of the Proposals, for example, the risk of foreclosure to pay TV content providers and, thereby, properly consider the case for approval of the Proposals, and any conditions that may be required if they are to proceed. 2.17. If the joint venture partners are able to develop the specification, rather than working with industry groups like the DTG, there is a far greater risk that the standard will be a UK-specific solution. If this is the case, then it is reasonable to assume that a further negative market impact will be to increase the cost of consumer equipment. Manufacturers will not be able to implement their chosen technologies across their entire product range. Separate technical solutions will have to be developed for the UK, increasing costs. 2.18. A further example of the extent to which the lack of information regarding the technical specification undermines the Trust’s market impact assessment (MIA) can be seen in the desire of the Executive for the technical standards to be mainly open source, but its failure to identify, or exclude, any proprietary elements. The extent to which the technical specifications may include proprietary technology is a key aspect of any assessment of the potential for the Proposals to create gateways or bottlenecks, that would act as significant barriers to access to the platform (and might even been fatal to the Proposals if their existence is only made known at a late stage, when it is too late to
5 See section 4 on page 13 of “Public service partnerships – Helping sustain UK PSB” which states that one of the BBC’s aims in putting forward the Canvas proposal is to protect the PSBs market shares by favouring free to air platforms such as Freeview which have limited competition - http://www.bbc.co.uk/thefuture/pdf/phase2/partnerships.pdf
5 Jonathan Pacey BBC Trust 22 September 2009
adopt an alternative open standard and parties are unwilling to pay licence fees)6. This highlights both the prematurity of any Trust decision to reach provisional conclusions, and the need for adequate safeguards regarding the development of the technical specification that the DTG’s processes are best placed to deliver. Access to BBC on demand content 2.19. Further information is also required on the Executive’s proposals for use of the Canvas technical specifications (both at base player and UI levels) and access to the BBC’s on demand content, so that the full impact of the Proposals can be properly assessed. 2.20. In Sky’s First Response (see paragraph 6.10), we raised concerns at the BBC’s approach to distribution of its on-demand content, which has been to restrict its content exclusively to ‘iPlayer branded’ services, and to limit online distribution of its content to its own service. The BBC has restricted licence fee payers from accessing BBC on- demand content on other on-demand services to the television by bundling access to its on-demand content with the iPlayer service or elements of the iPlayer service. As part of its MIA, the Trust must review the application of the BBC Syndication Guidelines by the BBC to examine whether they have been applied in a manner that is consistent with the spirit and letter of the Trust’s Syndication Policy and Public Value Test approval. 2.21. We said in Sky’s First Response that the Trust should, if it is minded to approve the Proposals, ensure that the BBC adopts a genuinely complementary content syndication strategy across all platforms. This would allow a broad range of services to incorporate BBC on-demand content, irrespective of whether a service is able to recreate the BBC’s vision of an ‘iPlayer experience’, through requirements on the volume of content required, branding and navigational paradigms. 2.22. We remain of that view and consider that the Trust, if minded to approve the Proposals, should attach conditions so as to require the Executive to adopt a genuinely broad distribution strategy, rather than pay lip service to their own syndication guidelines which require fair, reasonable and non-discriminatory access to BBC on-demand content. 2.23. In this regard, the suggestion of the Executive in the Further Information that it will simply revisit its content syndication guidelines after approval is inadequate. Firstly, as a condition of any approval, the BBC should be prohibited from insisting that its on demand content appears only in its iPlayer-branded application, so as to provide for greater innovation and variety of services. Instead, the Executive should be required to make available its content in open standard format to enable third parties to access that content, and incorporate it in other services (subject to necessary constraints on copyright and branding, etc). Secondly, the BBC should be prevented from making access to its on demand content (or iPlayer service) conditional on use of any of the Canvas specification, including the UI, so that, for example: (a) the BBC cannot favour distribution to the Canvas specification over distribution over other platforms; and (b) a party wishing to use the Canvas hardware and software specifications, but its own UI, would have guaranteed access to BBC on demand content. ISP distribution 2.24. The ISP distribution aspects of the Proposals also remain underdeveloped, which the Executive acknowledges (for instance in its suggestion in the Further Information that the
6 A relevant example is the decision to mandate MHP API at a European level, only to find subsequently that the licence fee payments for certain IPRs used in the specification were prohibitively expensive – see for example, http://www.broadbandtvnews.com/2008/06/13/via- licensing-drops-mhp-fees-for-fta-broadcasters/
6 Jonathan Pacey BBC Trust 22 September 2009
current consultation could provide feedback with which it would engage). For example, insufficient detail is provided as to the “TV quality standard” to be adopted, or as to the exceptions that might be made to it, raising questions as to objectivity and non- discrimination. The Executive should provide further information on the ISP standards envisaged, so that their likely impact can be assessed. 2.25. There is a further concern that the joint venture partners will be responsible for setting the criteria by which broadband services will be accredited as being ‘Canvas compliant’. The participation of ISPs (whether BT alone or in conjunction with others) in the joint venture creates a clear conflict of interest and opportunity to restrict competition. As Ofcom has found in relation to its broadband speed research7 the measurement of broadband speeds involves so many variables, which may vary from subscriber to subscriber, that any attempt to define criteria of suitability, would be inherently subjective, and could be used as a means to exclude competitors. 3. State aid and merger control issues 3.1. Hardly any further information has been provided on the costs to the BBC of Canvas. One significant oversight is in relation to the costs to the BBC of developing the Proposals, prior to incurring ongoing costs of operation. It is not sufficient for the Executive to say that such costs will be determined after approval. Without a robust assessment of the BBC’s development costs, for example, the Trust cannot assess the extent of any state aid from which the joint venture partners will benefit. Sky welcomes the Trust’s confirmation at our meeting on 18 September that the significant R&D costs of the BBC in developing the Proposals will be considered as part of the Trust’s own state aid analysis. 3.2. Moreover, there remains insufficient clarity as to the Executive’s proposals for the transfer of existing Freeview and Freesat operations and assets into the joint venture, to be jointly controlled by the joint venture partners. The Executive must make such aspects of the Proposals clear, in order for the Trust to be able to consider whether UK merger control is likely to apply. 4. Trust process 4.1. As Sky made clear in its recent correspondence, the Trust’s process in considering the Proposals has been flawed as: (a) the information regarding the Proposals has been inadequate, (b) the periods given for responding to the initial consultation, Further Information and proposed for consideration of the provisional conclusions, were and are unduly short given the complexity and far-reaching nature of the Proposals; and (c) the Trust’s failure to appoint Ofcom to conduct the full MIA has significantly undermined the (perceived and actual) independence and robustness of the assessment. 4.2. The Proposals, whilst more developed than initially in some respects, in others (not least the failure to specify the technical standards),8 remain substantially undeveloped and unclear. Until such information is provided, the Trust cannot properly assess the impact of the Proposals, nor properly reach conclusions, provisional or otherwise, which would necessarily be rendered invalid by the continuing lack of clarity. 4.3. The Trust needs to build more time into its consultation and assessment process as further important aspects of the Proposals are made clear, such as the technical
7 See, for example, http://www.ofcom.org.uk/media/news/2009/07/nr_20090728. 8 There are numerous other examples, such as the lack of clarity as to the “Business rules and navigational grammar” that content providers will need to comply with in order to make their content available, and the “Business rules” for listing in the UI and the costs of listing. It is moreover, unclear how users will be able to adapt their UI, which the Executive should make clear prior to any Trust approval.
7 Jonathan Pacey BBC Trust 22 September 2009
specifications. The Trust’s published timetable sought stakeholder views on some 70 pages of further information within 5 weeks and over the summer holiday period. It is not appropriate for the Trust to categorise the present phase as an informal consultation, in order to shorten the time made available to respondents (and for its own assessment). Whenever material aspects of the Proposals are clarified, there is in effect a further iteration of the Proposals, on which the Trust must properly consult. 4.4. In Sky’s view, the Trust would be better equipped to assess whether the Proposals were proportionate to their intended purpose with an MIA conducted by Ofcom. This is due in large part to the wide range of sectors likely to be impacted (for example, the wholesaling and retailing of free and pay audiovisual content on a linear and on-demand basis as well as through web applications, the impact of arrangements with ISPs for the delivery of content over their networks, the impact on box manufacturers and retailers), and to the complexity of the issues involved. An MIA by Ofcom would also address concerns within industry as to the appropriate independence and rigour of the Trust’s process. 4.5. Similarly, to discharge its functions effectively, the Trust cannot rely on any impact assessment provided to it by the Executive, such as its impact assessment on commercial models and sensitivity analysis of user demand, nor for that matter on analyses provided by joint venture partners, all of whom have a vested interest in the outcome of the Trust’s review. 4.6. The Trust is urged not to repeat these procedural errors between provisional and final conclusions (in respect of which four weeks, as currently envisaged, is wholly inadequate, particularly if further information such as the technical specifications emerges, as indeed it should). Should the Trust have any further questions for Sky in relation to this response or the matters discussed at the meeting on 18 September, please do not hesitate to contact me, or my colleague, Salim Gunny. Yours sincerely
Daniel Austin Senior Legal Advisor
8
Jonathan Pacey Chief Economist BBC Trust Room 211 35 Marylebone High Street London W1U 4AA
18 November 2009
Dear Jonathan
Introduction
Sky’s previous submissions have raised a range of fundamental concerns relating to the Canvas proposals. These concerns remain largely unaddressed and we would like to take this opportunity to briefly restate our primary objections and outline our general position on the development of common standards for the delivery of video over IP. We will then consider the specifics of governance and costs, as set out in the BBC Executive’s latest iteration of the proposals.
Ongoing concerns
There continue to be principled objections to the BBC engaging in the development, launch and operation of an entirely new content distribution platform, together with a limited number of venture partners, for the mutual benefit of current joint venture participants and to the exclusion of other industry participants.
This goes well beyond the BBC’s public purposes to create public service content and to distribute it as widely as possible, without discrimination. Given its unique and privileged position in receipt of substantial and guaranteed public funding, the current proposals remain inconsistent with the BBC’s obligations to adopt the least intrusive and most proportionate means of fulfilling its core public service purpose.
Sky remains platform agnostic and recognises the opportunity of broadband delivery, as demonstrated by Sky Player and its evolution. In addition to being available via PC and Mac, Sky Player recently launched on Microsoft’s Xbox and will soon launch on IP Vision’s Fetch TV service, with other deals likely to follow.
Sky is actively engaged with, and committed to, the distribution of content via the internet, through a range of platforms and devices that are currently serving consumer demand for such services. Sky, therefore, fully supports the aspiration for industry to innovate in this space and for common standards to develop.
Accordingly, Sky does not object to the BBC independently participating in the DTG’s work to develop technical standards (which it has failed to do so far), nor indeed to the delivery of television over the internet. Indeed, Sky is actively participating in the development of such standards through the DTG, which it considers to be the most
British Sky Broadcasting Ltd, Grant Way, Isleworth, Middlesex TW7 5QD Call 0870 240 3000 Fax 0870 240 3060 Visit Sky.com Registered in England No. 2906991. VAT Registered No. 440 6274 67 Jonathan Pacey BBC Trust 18 November 2009 suitable route for their development, with the appropriate degree of industry participation and consultation.
There is also no objection to the BBC seeking to make its content available to as many commercially developed platforms as possible, although it should do so without insisting on the use of its iPlayer service and brand.
With the DTG working to create a common set of standards, and with the evidence of new services coming to market/in the pipeline, there is little justification for the BBC to invest public money in replicating something that is already being delivered. Canvas is just one platform amongst many, but with the advantage of having the marketing, content and funding support of the BBC. This risks seriously distorting competition and dampening innovation from the commercial sector in this crucial stage of development.
Sky’s principled objections remain (as above) that the BBC’s public purposes and obligations could be achieved more efficiently and proportionately than presently planned.
Conditions required prior to approval
For the reasons outlined above, and based on the current proposals, Sky does not believe that Canvas should be allowed to proceed, or at least, not with the BBC, and the licence fee, playing an active role. Should Canvas be approved, however, the BBC Trust should require, as a minimum condition of that approval, the following:
• the BBC to make full membership of the joint venture open to all, irrespective of business model and of initial or subsequent participation, and to do so without discrimination;
• the BBC’s proposed control over the user interface (UI) is unnecessary and would stifle innovation and, accordingly, the BBC should be required to allow different UIs within the Canvas-approved specification;
• the BBC should be required to work with the DTG to develop all technical aspects of the proposals (including in relation to the UI and interoperability of the platform with pay services) in a way that allows full industry participation and minimises distortions of existing developments and investments;
• the BBC Trust should require the BBC to adopt a genuinely broad distribution strategy, prohibit it from insisting that its content appear only in its iPlayer service and brand and from making access to its content conditional on use of the Canvas specification, including the UI;
• further details are also required as to the proposals for accreditation of Canvas- compliant internet service providers, bearing in mind the conflict of interest arising from BT’s participation in the venture and the risks of accreditation being used to exclude competitors.
2 Jonathan Pacey BBC Trust 18 November 2009
Governance and cost – a response to the BBC Executive’s ‘New Proposals’ (4th November)
The latest iteration of the proposals, in respect of governance and costs, as published on 4th November (the ‘New Proposals’) seek to address widespread industry concerns only in relation to one aspect, membership, of the joint venture, and fall some way short of addressing them. The remainder of this response is focussed on the New Proposals.
Notwithstanding their protestations to the contrary, the New Proposals represent an acknowledgement by the BBC that the initial proposition was not an open one, and that accordingly, there is no ‘principle of openness’ underlying the Canvas proposition.
Furthermore, the New Proposals pay lip-service to the idea of an open joint venture, and the governance changes will make little difference in practice to the current Canvas members’ ability to pick and choose their partners in future.
Crucially, as demonstrated below in sections 2 and 5, since there is no free-to-air or open principle underpinning Canvas, the BBC’s “central rationale for involvement”, by its own admission, is non-existent. Accordingly, the Trust cannot approve the Canvas proposals and should instead require that the BBC limit its participation to making its content available to the open standard that will be developed by the DTG.
There is no ‘free-to-air principle’ underlying Canvas
The BBC Executive’s ‘Governance Model’ document states that “[w]ithout a guaranteed PSB majority, there is concern that the free-to-air and open principles of Canvas, which are central to the rationale for BBC involvement, will no longer have adequate protection”.
The statement that there is a ‘free-to-air principle’ underlying the Canvas venture is fanciful when considering that: (i) the BBC accepts that the joint venture cannot discriminate in favour of free-to-air services over pay services; and (ii) the BBC’s founding joint venture partner is a pay television provider which intends to cease to provide its own platform so that it can replace it with the Canvas platform once launched.
The governance changes are of limited effect and membership is likely to remain unjustifiably exclusive
The proposals for membership of the joint venture remain exclusionary. Firstly, the admission criteria to be applied by the Canvas board are subjective and therefore open to arbitrary interpretation:
• the overarching criterion (paragraph 1 of the Appendix) that applicants “would be of benefit/make a positive contribution to the venture as a whole”, which is subject to the Board’s ability (paragraph 2 of the Appendix) not to consider any new applicants “where it reasonably determines that the addition of any new members to the Company would undermine the operational efficiency or viability of the Company”, is totally subjective.
3 Jonathan Pacey BBC Trust 18 November 2009
• when read in light of the criteria in b(i) and (ii) of the Appendix (the commitments to spend a “reasonable proportion of own marketing budget to promoting Canvas” and “to affording Canvas effective prominence within such marketing” to be determined with reference to “comparable existing shareholders’ own Canvas marketing commitments”), it is clear that the BBC’s proposals for membership remain exclusionary and disproportionate. Why is it necessary to require partners in an ‘open’ venture to commit to marketing the venture in a particular way, potentially to the detriment of other products? How can the BBC itself comply with these admission criteria, given the restrictions on the BBC in advertising commercial services? If the BBC is to be excluded from the “Commercial Objects”, this should be made clear on the face of the proposals and justified.
• the ability to limit the number of shareholders for reasons of “operational efficiency or viability” (in paragraph 2 of the Appendix) is also subjective and arbitrary, with existing members, should they face the possibility of no longer forming the overall majority and risk losing control, more likely to seek to protect their own positions as founding members, than to act in the interests of “operational efficiency or viability”. The proposals on super-majority voting are adequate to safeguard against any legitimate concerns of operational efficiency/viability. The current members should not be allowed to maintain de facto the privileged shares they sought to protect under the original proposals.
Secondly, the “commercial objects” reinforce the exclusive nature of the arrangements. In particular, applicants have to commit to “promote, develop and enhance take-up of broadband services and the availability of Public Service and other Broadcast content in the UK”. This obligation is likely to prevent non-PSB content providers from joining, as they would not be able to agree to promote competing (PSB) content.
Thirdly, it is perverse to have as an object of the Canvas joint venture in of itself the “Promotion of broadband”, with the availability of content secondary to, or at least conflated with, that. Surely the object should be to enhance the availability of audiovisual media and other services delivered to the television, and as a by-product of that, potentially to promote broadband take-up.
Finally, the level of funding that new shareholders are required to meet is set at a level that will exclude many, if not all, new members. More particularly, the budget is disproportionately high when compared to any other start-up and cannot be said to represent ‘value for money’ for the licence fee payer or be proportionate when considering the application of state aid law. For example, the £15.5m marketing costs for the first year are two and a half times the current marketing budget of Freeview, notwithstanding the clear overlap between the two services and likely cross- promotional marketing (as would be the case for BBC/ITV Freesat).
Costs information
Sky remains concerned that the BBC has not disclosed all relevant costs, particularly those in developing the proposals prior to the ongoing costs of operation, without
4 Jonathan Pacey BBC Trust 18 November 2009
which, the Trust cannot properly assess the extent of any state aid from which the joint venture partners will benefit. For instance, it seems unlikely that the figure of £715k given for the work to develop the application between July 2008 and August 2009 includes the salaries of BBC employees working on the project. In addition, what costs were incurred in developing the project before July 2008? How much has the BBC spent on research and development and what of that research and development is now being shared with the DTG beyond the Canvas commercial requirements? Why is this research and development not included within the BBC’s accounting of the cost of Canvas?
By its own admission, there is no rationale for the BBC’s involvement
The ‘Governance Model’ document states that “…the free-to-air and open principles of Canvas, … are central to the rationale for BBC involvement”. As Sky has demonstrated above, and in its previous submissions, the Canvas joint venture, including this latest iteration of it, is not based on any “open principles”, but rather is intended to be an exclusive commercial joint venture to the benefit of its founding partners. Equally, there are also no “free-to-air…principles” underlying Canvas, which is to include pay and free to air content providers among its original shareholders, and which will make available free and pay content.
Accordingly, since there is no free-to-air or open principle underpinning Canvas, the BBC’s “central rationale for involvement”, by its own admission, is non-existent, and the BBC Trust must reject the BBC Executive’s application.
Should the Trust have any further questions for Sky in relation to this response, please do not hesitate to contact me, or my colleague, Daniel Austin.
Yours sincerely
Salim Gunny Senior Legal Advisor
5
Digital TV Group (DTG) response to the BBC Trust assessment of 'Canvas' proposals - second consultation
Executive Summary
Following the publication of the BBC Trust’s consultation on an application from the BBC Executive to define and promote an IP television standard (‘Project Canvas’), the Digital TV Group (DTG), the industry association for digital television in the UK, invited feedback from its membership on the proposal1. This feedback provided the basis for the DTG’s response to the BBC Trust’s initial consultation which was submitted in April.
There was support from DTG Members for the Canvas project’s objective of universal deployment of IP to the TV and recognition of the vision and technical leadership of the BBC’s iPlayer service, however the majority of DTG members who responded voiced high level concerns over the proposal put forward by the Canvas project. These fell broadly into three categories:
• Despite widespread BBC consultation there are still concerns regarding the process the project has taken to engage with the wider industry • The DTG’s membership were confused over the detailed proposition, precise project definition and technical specification • The remit under which the Trust is considering the Canvas project: The industry sought clarification on why Canvas is considered an upgrade to the Freeview and Freesat platforms and not a service launch in its own right, however this is not within the remit of the DTG.
Feedback the DTG received from its membership suggested that the BBC will not derive sufficient value from the current approach, which is unlikely to be adopted universally by manufacturers and would therefore cause market fragmentation. The DTG therefore proposed supporting and promoting the Canvas project and the wider objective of universal deployment of IP to the TV by securing an industry consensus for universal receiver deployment through proven industry mechanisms.
Since the submission of our response to the original consultation, the DTG has held a number of productive meetings with our members, the Trust and members of the Canvas JV.
The DTG welcomes the BBC’s recognition of the particular role that the Group play in the UK consumer electronics market as a representative industry body, as a profiler of standards and specifications - and as the leading player in compliance testing.
The DTG also welcomes the Canvas JV’s preferred approach, outlined in the additional information, to work closely with the DTG Executive and DTG members, including our
1 DTG members who are directly involved in the Canvas project were invited to provide feedback to the Group on this consultation but understandably declined, citing a conflict of interest.
1 | DTG
expanded membership from the ISP industry, Internet technology and application development community. The DTG’s proposed publication of a “DTG D-Book 7” by March 2010, will enable fully tested and compliant broadcast/broadband hybrid devices from a range of partners to enter the market later that year.
To expedite this process, the DTG, with the full support of the Canvas JV, has scheduled a project kick-off event for the 24th September to include all major stakeholders (not just DTG members) with a view to agreeing the standards work required, defining “D-Book 7” additions and creating a detailed delivery and engagement schedule. The industry has a high expectation that there will be full disclosure of information during the meeting on 24th September and that this will be the first major project milestone.
The DTG is actively recruiting new members from the ISP, internet technology and service provider community. We will continue to engage with the Canvas JV, our members and the wider industry to develop and support the Canvas initiative and the evolution of the D-Book.
The Group feels it is important to highlight that, at time of submission, the only technical document the Canvas JV has shared with the DTG is a high level overview of the “Canvas eco-system”. Despite requests from the DTG Executive, the Canvas project has been unable to share Canvas’ Commercial Requirements, Service Proposition, Technical Specification or any detailed technical background information that would facilitate the industry review process or development of detailed planning activity.
Given the lack of detailed specification and technical engagement to date, it has been assumed (given the hybrid nature of Canvas devices) that full conformance with D-Book 6 and the existing testing and certification processes will be required by the Canvas JV. The Group remains confident that the additional Canvas specific elements can still be layered on to create “D-Book 7” by 31st March 2010.
2 | DTG
Context:
Following the publication of the BBC Trust’s consultation on an application from the BBC Executive to define and promote an IP television standard (‘Project Canvas’), the Digital TV Group (DTG), the industry association for digital television in the UK, invited feedback from its membership on the proposal2. This feedback provided the basis for the DTG’s response to the BBC Trust’s initial consultation which was submitted in April.
There was clear support from DTG Members for the Canvas project’s objective of universal deployment of IP to the TV and recognition of the vision and technical leadership of the BBC’s iPlayer service as well as support for the use of “over the top” and “closed or managed system” architectures delivered by industry-agreed open standards.
The majority of DTG members who responded voiced high level concerns over the proposal put forward by the Canvas project. These fell broadly into three categories:
• Despite widespread BBC consultation there are still concerns regarding the process the project has taken to engage with the wider industry • The DTG’s membership was confused over the detailed proposition, precise project definition and technical specification • The remit under which the Trust is considering the Canvas project: The industry sought clarification on why Canvas is considered an upgrade to the Freeview and Freesat platforms and not a service launch in its own right, however this is not within the remit of the DTG.
Feedback the DTG received from its membership suggested that the BBC will not derive sufficient value from the current approach, which is unlikely to be adopted universally by manufacturers and would therefore cause market fragmentation: this puts at risk the quality of consumer experience and would ultimately limit the platform’s reach.
The DTG proposed supporting the Canvas project and the wider objective of universal deployment of IP to the TV by securing an industry consensus for universal receiver deployment through proven industry mechanisms (See below):
2 DTG members who are directly involved in the Canvas project were invited to provide feedback to the Group on this consultation but understandably declined, citing a conflict of interest.
3 | DTG
Process:
The DTG proposed to support the PSB’s objectives by securing industry-wide consensus for universal receiver deployment with:
• A proven structure to transition the project to the wider industry
• A published, open specification (“D-Book 7”)
• A proven high integrity receiver conformance regime
• Future proofing through a published five year roadmap
• Management of market impact to protect the launch of Freeview HD and the completion of digital switchover
• A rapid roll-out of compliant receivers from a number of manufacturers that meet the rigorous requirements of the DTG test regime
Proposal
• DTG Council already includes BT Vision, BBC, ITV, Freeview and Freesat along with a balanced mix of manufacturers, service providers and technology companies
• The DTG has already taken steps to expand its membership - integrating additional ISPs, Service Providers and global technology companies relevant to the Canvas initiative
4 | DTG
• The DTG proposes using its proven industry mechanisms to drive the rapid deployment of universal IPTV receivers via a cross-industry IPTV Steering Group, supported by technical and commercial industry expert groups. The precise structure of these working groups and project plan are dependent on the transfer of further details from the Canvas JV.
• The DTG proposes the rapid development of new “chapters” under the existing D- Book mechanism to support the requirements of the Canvas JV. We have proposed a structure that will support the evolution of existing broadcast and interactive service standards and the incorporation of components required for broadband delivered services.
Canvas: Industry Engagement
As highlighted in Annex 1 of Chapter 3 of the additional information published by the Trust, the DTG enjoys a good working relationship with the BBC, its Canvas partners and the wider industry. Since the submission of our response to the original consultation, the DTG has held a number of productive meetings with the Trust and members of the Canvas JV.
The DTG welcomes the BBC’s recognition of the particular role that the Group play in the UK consumer electronics market as a representative industry body, as a profiler of standards and specifications - and as the leading player in compliance testing. The DTG can ensure alignment with the “sovereign bodies” (such as the EBU, DVB etc) referenced in the Executive’s response. Many of our members deliver products and services on a global basis and alignment between Canvas specific requirements and international standards and activity is vital in rapidly delivering cost effective and innovative products.
The DTG also welcomes the Canvas JV’s preferred approach, outlined in the additional information, to work closely with the DTG Executive and DTG members, including our expanded membership from the ISP industry, Internet technology and application development community. The DTG’s proposed publication of a “DTG D-Book 7” by March 2010, will enable fully tested and compliant broadcast/broadband hybrid devices from a range of partners to enter the market later that year.
To expedite this process, the DTG with the full support of the Canvas JV, is to hold a meeting to kick-off the profiling and development of a common set of standards for hybrid broadcast/IP delivered television in the UK for incorporation into D-Book 7 on 24th September at the BT Auditorium.
The meeting is open to all stakeholders including organisations that are not members of the DTG. The draft agenda for the meeting covers:
• Introduction and Project Status • Canvas Proposition 5 | DTG
• Trade Mark • Agreed Principles of Engagement with the DTG • Approach to Standards Adoption and Standardisation • User Experience • DTG Project Scope and Structure • Key Issue Resolution (CA, DRM, EPG) • Test and Conformance • Project Plan • Key Dependencies and Milestones.
Following the publication of the BBC Trust’s original Canvas consultation, the DTG invited feedback from its membership on the proposal. The Group’s membership voiced a number of high-level concerns; those of primary relevance broadly fell into two categories:
• The process the Canvas project has taken to engage with the industry • The lack of detailed proposition and precise project definition and specification and the impact on time to market
It is hoped that this event will provide the definitive forum for the Group and the Canvas JV to address these issues.
Canvas: Alignment
The Canvas venture partners’ preferred approach of working closely with the DTG Executive and DTG members (including the expanded membership) towards the incorporation off the Canvas specification into D-Book 7 by March 2010 is an ambitious but achievable goal.
The Group welcomes the JV’s proposal to share “...now with the DTG Executive initial work by BBC R&D on Canvas functional requirements, the technical solutions which might meet these requirements, the criteria by which relevant technical solutions would be chosen and an indicative timeline for such decisions and the proposal to share completed development work on an ongoing basis should approval be granted”.
The DTG understands and fully supports the commercial rationale behind the JV’s commitment to delivering a range of Canvas devices from multiple vendors to market by Sept/Oct 2010 - providing availability during the peak retail window in the run up to Christmas. We also support the aim of offering consumers interested in upgrading to Freeview HD the option of a connected device as quickly as possible.
The current consultation highlights the Canvas JV’s concerns that the DTG’s normal industry liaison processes would not easily fit with the BBC Executive’s stated intention to bring the benefits of Canvas to licence fee payers in 2010.
6 | DTG
As the Executive’s document highlights, the DTG fully recognises that a fast changing industry requires its representative industry bodies to also move quickly. In its last annual report, the DTG confirmed its aim of “responding promptly to platform and manufacturer requirements”. The DTG Executive reiterates its belief that it will contribute to, and fully support, the timely delivery of Canvas with, and on behalf of, its members.
Canvas: Timely Specification and Review Activity
The DTG feels it is important to highlight that, at time of submission, the only technical document the Canvas JV has shared with the DTG is a high level overview of the “Canvas eco-system”. Despite requests from the DTG Executive, the Canvas project has been unable to share Canvas’ Commercial Requirements, Service Proposition, Technical Specification or any detailed technical background information that would facilitate the industry review process or development of detailed planning activity.
While the request for information makes provision for the Canvas JV to sideline the DTG should the Group be unable to meet the ‘challenges’ of delivering the 7th edition of the D-Book in time for a Canvas service launch in Sept/Oct 2010, at present the DTG’s process of industry engagement is delayed by the Canvas JV’s failure to share the project’s Commercial Requirements/Technical Specifications and other necessary documents.
Given the lack of detailed specification and technical engagement to date, it has been assumed (given the hybrid nature of Canvas devices) that full conformance with D-Book 6 and the existing testing and certification processes will be required by the JV. The additional Canvas specific elements can still be layered on to create “D-Book 7” in a timely manner.
The DTG and its members presume that the broadcast components required for full backwards compatibility and co-existence with the existing broadcast networks within Canvas are largely per D-Book 6 specification and minimal additional work is required to support and integrate existing broadcast services (including those of Freeview HD) in Canvas enabled devices. D-Book 6 already supports a basic IP based interaction channel for both Freesat and Freeview HD, and integration with the iPlayer specification for Freesat devices to be launched this year.
A number of DTG members are currently providing innovative hybrid broadcast and broadband delivered services (to the television) using both open and proprietary standards. The DTG provides an established mechanism to review, endorse and distribute this material. Hybrid devices from members are already subject to DTG testing
7 | DTG
which ensures conformance within the D-Book specification and interoperability for broadcast services. The DTG is keen to support ongoing innovation amongst its members and provide mechanisms to ensure that as open standards develop, and are adopted within the wider industry; these are aligned with the aims of the Canvas JV.
Inherent in the Consultation document is a desire for flexibility in the overall specification for Canvas. The DTG currently supports this via the D-Book layered approach - providing minimum conformance requirements which allow manufacturers (and service providers) to differentiate their products and ranges. The existing DTG process provides this flexibility for Canvas – for example providing baseline specification and testing for devices that deploy large parts of the Canvas specification, but not for example the full Canvas User Experience (UX). This approach also allows for incremental and timely development of the overall specification and the incorporation of Canvas specific elements (or “Chapters”) that can subsequently be administered both by the DTG processes and the Canvas JV’s Trademark Licensing mechanisms for fully compliant devices.
The DTG provides access to a cross industry group of members encompassing CE manufacturers, broadcasters, service providers and ISPs. We will actively work with the Canvas JV to ensure that our members, and their business partners, promote and develop the specification and supporting materials - encouraging the widespread adoption of connected devices and ensuring the alignment of Canvas initiatives within the wider context of the industry.
Delivery of non-linear and interactive services form a vital piece of the Canvas proposition. The DTG proposed in its original submission that we would create specific expert working groups that would encompass all Canvas requirements. It is envisaged that the scope of this activity is currently limited to definition of metadata, input and output formats and associated compliance activities, rather than application and service authoring environments. The DTG fully recognises this as an extension of our previous remit, but the introduction of D-Book 6 and support for Freesat and Freeview HD IP based interactivity has enabled the development of this expertise, the creation of D-Book elements and associated test procedures and mechanisms.
Canvas: Next Steps
The DTG understands and fully supports the commercial rationale behind the JV’s commitment to delivering Canvas devices to market by Sept/Oct 2010 - providing availability during the peak retail window in the run up to Christmas. We also support the aim of offering consumers interested in upgrading to Freeview HD the option of a connected device as quickly as possible.
As outlined above the DTG has already scheduled a project kick-off meeting on 24th September. The Group are currently developing a working group structure and project
8 | DTG
plan, which we intend to propose to the industry on the 24th with the framework for D- Book 7 established and agreed at the same meeting.
To help facilitate this event, the DTG is hosting a series of meetings with the Canvas JV to enable us to clearly understand the Canvas product and business requirements, technical program milestones and technical solution.
At time of submission the Group anticipates the majority of Canvas workstreams can be delivered via our existing Receiver Recommendations and SI Groups with additional workstreams delivered via the newly established IP Steering Group with work commencing shortly after 24th September.
To ensure all companies are treated equally we plan to disclose the proposals for discussion to all stakeholders at the same time, either at or before the meeting on 24th September depending on the timing of information transfer from the JV.
9 | DTG
Digital TV Labs Limited Venturers House King Street Bristol. BS1 4BP www.digitalTV-labs.com
BBC Trust PO Box 1922 Glasgow, G2 3WT Tuesday, 11 August 2009
Dear Sir/Madam,
This letter is a response to the current BBC Trust open consultation on Project Canvas and in particular with reference to the BBC Executive.
Digital TV Labs is an independent digital TV receiver lab based in Bristol with 18 people, specifically focused on European DVB-T conformance. With almost all of the consumer electronics brands in our customer portfolio, we believe we have a good understanding of the provision of digital TV receiver testing across Europe.
As a member of DTG we support the BBC’s intention to work with stakeholder organisations and in particular the DTG. We particularly recognise the importance of open-standards and the provision of consumer electronics compliance testing in order to Canvas a success. However, we are concerned about the BBC statement with reference to the DTG as “the leading player in compliance testing” and the implications for Canvas implementation validation.
As the Trust may be aware, compliance testing for Freeview, Freeview HD and Freesat are all executed by DTG’s wholly-owned company DTG Testing Limited. DTG testing has a monopoly on this testing activity and no other organisation can provide conformance services for any of these platforms. This monopoly is effectively guaranteed by DTG’s rather tenuous IPR ownership of the interactive (MHEG-5) test suite and the relationship between the DTG as a standards body working closely with its own testing company. The BBC was the lead instigator in the Freeview, FreeSat and forthcoming Freeview HD standards and is complicit in this.
Our view based on the BBC’s past engagements and its statements regarding compliance testing and the DTG will again result in a monopoly of Canvas-enabled receiver testing by its commercial arm, DTG Testing. We urge the Trust to take steps to avoid a repeat of this closed- monopoly for the Canvas project and ensure open access based on merit for commercial Canvas consumer electronics testing.
Yours faithfully,
Keith Potter, CEO
Digital TV Labs Limited. VAT No: 869505581 Registration Number 5556060`
Freeview’s Submission to the Second BBC Trust Consultation on ‘Project Canvas’ in Response to the BBC Executive’s Clarification Submission
Introduction
Freeview is the UK’s largest TV platform. Over two thirds (18.0m) of the country’s homes receive digital TV and radio services from Freeview1. Almost 10m of these have Freeview on the main television set in their home¹. Since the launch of Freeview in 2002, receiver equipment sales have reached 44.5m and box sales of Freeview’s digital TV recorder, Freeview+, have now passed 1.6m after its consumer launch in June 2007 2 .
Freeview is currently available to over two thirds of UK homes and after switchover will be available to virtually everyone (98.5%). It is the easiest and most cost-effective way to access subscription-free digital TV. The channel line-up of up to 48 free TV channels (including 9 of the 10 most watched channels)3 and over 25 digital radio stations are delivered through a rooftop aerial and can be accessed via a set top box, a digital TV with Freeview built-in or a Freeview+ digital TV recorder. Freeview continues to innovate with Freeview HD launching in the Granada region in December. By the World Cup in mid 2010, 50% of UK homes will have Freeview HD coverage rising to 60% by the end of the year.
This paper contains Freeview’s additional comments to the response submitted to the BBC Trust’s consultation on Project Canvas in April. The response has been prepared by the company’s management team and does not necessarily represent the views or opinions of Freeview’s shareholders, who have not been involved in putting this paper together. Once again, we have focused our response purely on the consumer.
In summary Freeview’s key points are:-
• Research has shown that Freeview’s consumers expect Freeview to further develop the platform and enhance its current offering with the addition of both Freeview HD and on-demand content. Freeview’s consumer insight has consistently shown that Freeview HD is the more attractive proposition among both Freeview consumers and all consumers than an on-demand service 4;
• Considerable goodwill and equity has been built up in the Freeview brand. It is known for being great value for money, simple and easy to use, reliable and hassle
1
free, and a provider of great entertainment. Consumer advocacy is strong and levels of customer satisfaction are at an all time high. In order to maximise the opportunity for take-up and minimise any risk of confusion, it will be important that Freeview consumers see Canvas as one of the next steps in the evolution of Freeview; and
• Freeview endorses the approach of Canvas’ venture partners to work closely with the DTG to develop a single set of open standards. As we have already seen with Freeview, open standards allow fair competition and innovation, leading to lower prices and a greater guarantee of a high quality consumer experience.
The Alignment of the Canvas Proposition with Freeview
Freeview would like to restate that it is very supportive of Project Canvas and its ambition to enable the delivery of IPTV via the development of new free to air Freeview products. We recognise the importance of an upgrade path for existing Freeview households in helping to secure the long term future of the DTT platform. Canvas provides the opportunity for consumers who’ve chosen to receive free-to-air digital television to enjoy a whole new range of audiovisual services via a broadband connection. We firmly support the aim of giving the millions of homes who have chosen Freeview the opportunity to upgrade their equipment and experience integrated converged entertainment and information services on a par to those which will be offered by other platforms.
We welcome the ambition that Canvas devices will be compatible with Freeview HD products and believe it is of great importance to Freeview’s existing consumers that a co- ordinated, aligned approach is adopted to branding and communication for Freeview HD and Canvas to minimise any potential confusion in the eyes of the consumer. Between now and the end of 2010 5.6m homes are in switchover regions with a further 10.5m in 2011. It is vitally important that the Canvas proposition does not lead to unnecessary confusion in the market-place during this period.
Freeview, with its clear and compelling consumer proposition has been an outstanding consumer success story and is currently in 18m homes (70% of homes) across the UK. Part of Freeview’s appeal has been its ability to evolve in line with changing consumer needs and developments in technology. The recent success of Freeview+ and the
2
imminent launch of Freeview HD has enabled Freeview to remain relevant to the millions of consumers who value the Freeview brand and its simple proposition of free digital terrestrial TV for all.
Sales of Freeview+ have topped 1.6m since launch in June 2007 and iDTV’s cumulative sales of over 21m now outstrip basic set top boxes5. Freeview HD and Freeview HD+ both launch in 2010 and we forecast very strong sales6 next year based on consumer demand for HD, product supply, the projected 50% UK coverage by the end of May and the broadcast content itself including the World Cup which kicks off in June.
Consumers expect Freeview to deliver emerging technologies. Our consumer insight shows that demand for Freeview HD, is greater than that for an on-demand offering (19% for Freeview HD vs 12% for on-demand of Freeview homes)7. This is consistent with previous research findings in which demand for Freeview HD has always been greater than for on-demand content.
Freeview equipment with the capability to deliver on-demand content (via an Ethernet connection) is already in existence. Freeview is currently working with the BBC and the DTG to make the iPlayer available on the platform. This will increase the opportunity for consumers to access the BBC’s on-demand services via broadband-enabled Freeview products ahead of Canvas’s potential launch. iPlayer functionality is expected to be included in the D-Book 7 technical specification to be published in March 2010.
Linear and time-shifted television will continue to dominate viewing consumption over the next few years, with VOD initially being a niche viewing habit. Because of this, the strong Freeview brand has a vital role to play in driving the uptake of Canvas, by offering the simplest route for the consumer to migrate into the next stage of television’s evolution. It is therefore very important that marketing messages for Canvas build on the Freeview offering by being next-generation Freeview and be seen as complementing the existing Freeview family of products. This will minimise the risk of consumer confusion while Canvas can leverage the substantial existing consumer goodwill and faith in the Freeview brand. If this does not happen there is a risk that consumers will be confused and consumer goodwill built up in Freeview may be damaged or lost, thereby ultimately restricting the take-up and enjoyment of the new Canvas technology, Collaboration with the DTG
3
The DTG is an independent and platform neutral organisation that uses open and participatory processes to secure industry consensus on standards specifications. The DTG works closely with its members (broadcasters and manufacturers) to ensure open international standards can be adapted for UK interoperability. The DTG and its members have worked on developing DTT standards since the inception of digital terrestrial television. They have been instrumental in the specification of Freeview HD (D-Book 6). As we have already seen with Freeview open standards allow fair competition and innovation, leading to lower prices and a greater choice for consumers.
We have noted both the industry response to the original consultation and the BBC Executive’s recent statements of the Corporation’s intention to work with the DTG. Freeview endorses the approach of Canvas’ venture partners to work closely with the DTG Executive and DTG members to publish a DTG D-Book 7 by March 2010. We welcome the move by the DTG to extend its membership to the ISP industry and internet technology and development community in order to accommodate the industries likely to be involved in the successful deployment of Canvas.
We firmly believe that Canvas should work with the DTG and its members to produce D- Book 7, which manufacturers must then abide by to use the Freeview and Canvas trademarks. All Canvas products would then be rigorously tested by the DTG to ensure technical compliance (as will be the case for all Freeview HD products), which is of clear benefit to consumers. If this approach is not taken there is a very real concern that any proposed Canvas specification would not be adopted widely, which in turn is likely to limit the potential take-up of Canvas and ultimately might reduce value for Freeview consumers.
1 Ofcom Digital Progress Report, Q1:09
2 GfK, LekTrak, July 2009
3 BARB, Q2:09
4 TNS Freeview Brand Tracker July 09
5 GfK, LekTrak July 09
6 Freeview projections August 2009
7 TNS Freeview Brand Tracker July 09
4
HighDefNow
Dear Sir/Madam,
I am writing in response to the project representing a small startup who would like to see Canvas as a more open project. This is open both in terms of equal access to the platform and in terms of the technical side utilising open source software.
Our main product is a system for delivering HD content at less than 2Mbit/s, TV quality SD at less than 500kbps as well as offering 1080p50 and other future standards using industry standard technology and with a significantly better picture quality than other rivals. I am certain that there are other small startups in other Canvas related fields that feel that the closed nature of this project is "crowding-out" the ability to innovate and merely dictating future standards in the UK based on the wishes of large content providers. (If there's anything that the last 3 years has shown is that content providers aren't in the position to dictate everything to consumers any more)
We are also concerned about the significant barriers to entry for the product and the unfair balance that BT/other providers' own CDNs will do to the concept of "net-neutrality", mainly owing to throttling. We hope that a situation where BT CDN customers for example have non-throttled access to BT customers meaning only content providers who can afford this can offer customers a proper service will not occur. The groundwork for doing this is already there to an extent since BT Vision traffic is not throttled whereas watching the same programme on iPlayer would be. If edge caching were to occur it should occur at an equal price to everyone and with a low barrier to entry. (though this might be more of an Ofcom issue)
We do not want to see another HD-DVD/Blu-ray style format war between a market-driven solution (most probably one of the devices from the US) and the standards created by Project Canvas and certainly our customers do not want use wasting time/money making sure each format is supported. Ideally a system with the best features from Boxee, which is a US-based commercial platform somewhat similar to Canvas would be useful - Boxee is an open source application that takes the best pieces from the open source community - the important thing being anybody can improve it. (It's interesting to note how they incorporated DRM features into the software in spite of it being ideologically
On a technical side we would like to see patent-free open source standards be included. The main standards being the lossy audio codec Vorbis (sometimes mislabeled as Ogg Vorbis), the MKV container standard for VoD content and the FLAC lossless codec (this is an EBU radio standard but usable in video). These standards are equal to or better than patent- encumbered equivalents and are possible to implement without additional cost burdens. (Note: Unlike many from the open source community we are pragmatic and do not include the Theora video standard here because it is not comparable to H.264 and for technical reasons will cost a significant amount to implement) We would also like to see equipment being installed with a H.264 Level 4.2 decoder (which means support for 1080p50/1080p60 which is better than Blu-ray) so that consumers will not face another round of Set-top-box updates when technology improves in 4-5 years.
We hope that Canvas will learn from the open source community during its development phase and publish its standards and the associated development process. There are countless
1
knowledgeable people on the web from industry, academia or just knowledgeable enthusiasts who will almost certainly improve the product. Having said that there will need to be a good leader to stop "design-by-committee" from happening.
I hope this has given some insight into our opinions about Canvas and an insight into the difficulties small organisations face when -- Kieran Kunhya Founder of highdefnow - HD without the fuss [email protected] +44 (0) 203 051 1695
2
Huawei Technologies Co., Ltd
In response to the BBC’s request for responses to the Canvas consultation Huawei is pleased to offer the enclosed inputs to the process.
Huawei Technologies has more than 5 years of commercial IPTV deployment experience, covering 40 Service Providers with more than 4 million subscribers in 10 countries. Delivering both IPTV and converged (Internet, and Multi-media )Value added services.
In addition Huawei Technologies is a leading global telecommunications solutions provider (uniquely ranked in the top 3 for the key market segments of Mobile, Fixed and IP network products with long-term partnerships with operators around the world. Based in China Huawei Technologies has delivered IP systems into some of the fastest growing and most cost competitive countries in the Far East, Africa and European markets.
On reading the consultation texts the following observations were made:
a) EPG and enabling access for Content and Service
1) Section 2.5 –“Consistent Approach to the End User’s experience”
It is essential that the Canvas venture maintain a light touch in terms of the EPG environment as this is an area where the Service provider can add value and enhance the end user’s experience through tailored offerings. In Huawei’s experience a Network based EPG has enabled Operators to increase their sales of content and also enhance commercial offering by offering new services such as targeted advertising and Internet mash ups.
Further Huawei believes that the EPG environment needs to provide Service Providers access to suitable SDK’s to meet the need for continual refresh and integration with new Internet style applications required for delivery to both fixed and mobile networks. Fundamental to this are:
i) The support of a widget ecosystem to ease the introduction of new applications and enhancements to the user experience. ii) The ability to change the EPG styles and content through use of protocols and standards such as HTML, HTTP, XML and JavaScript.
2) Section 2.8 “Approach to pay services”
Huawei absolutely agrees with need to use Conditional Access to protect the Content providers intellectual property and facilitate its commercialisation. The concern is that this will focus on one solution that will be proprietary and potentially costly. This could have the effect of closing the Canvas solution to many Content providers and add punitive costs to the STB’s etc.
b) The agreement of the Canvas specification and Industry engagement
1) Standards Development and engagement
1
The selection of the DTG (standards profiler) as being the most appropriate forum for the published Canvas specification and part of the Industry engagement is sensible. There is a question concerning the statements about the D. Book 7 being a subset of Canvas and therefore the potential of elements of Canvas being withheld from IPTV suppliers. This will have the effect of not only giving prime mover advantage to the Venture partners but also continued competitive advantage.
2) STB ‘s
One of the key elements of Standardisation will be to allow many vendors of STB’s to offer cost effective products that will reduce the cost of IPTV dramatically. In China Huawei has been one of the major contributors to an Open IPTV standard for STB’s called IPTV2.0. This incorporates many of the developing standards within the Standards bodies listed within the BBC documents and because it is open is intended to ensure that low cost STB will be available for IPTV. It would therefore appear to be sensible to consider some aspects of the IPTV2.0 standard as there will be many 10’s of millions in production within the next few years and as such the greatest potential for the lowest cost STB.
The core of the Canvas proposal is the standardisation of Metadata and the need to ensure that it covers not just fixed network but also the needs of Mobile Networks and device. A good starting point for an open standard is the Cable-labs Asset Distribution Interface (ADI).
c) IP Distribution and related issues
1) As highlighted in the documents the use of Multicast will reduce network bandwidth for Live TV. In addition on-demand traffic loading can be dramatically reduced with the introduction of Content distribution as the traffic is no longer seen as being random. This is mainly due to the end user’s viewing habits are similar to Live TV but time shifted and usually only by a few hours. Huawei’s experience has shown network reductions of up to 80% for certain media assets. Further benefits are accrued through improved service quality due to the content being closer to the user and prioritised to make it more predictable.
2) One of the key areas that will require development will be the ability to provide Service quality assurance and monitoring. Providing software probes at key points including the STB provide a cost effective way of maintaining quality and also identifying and resolving service problems as and when they arise, reducing the time to resolve from days to minutes.
Overall the Canvas project looks to be an important step in establishing a fundamental change in how IPTV content can be offered over Broadband networks in opening up the market for Content and delivering it to many devices across both fixed and mobile networks. With the BBC taking a lead role with its vast Media expertise and remit to deliver Public Services the UK public the Canvas project is off to a good start. It is essential that the next phase opens up
2
the dialogue with the IPTV community to ensure that it will be adopted widely at the most attractive price points offering a range of functionality to suit particular market segments.
Huawei technologies would welcome the opportunity to work with the Canvas community to ensure the success of Canvas and hope that the comments above provide a useful contribution to the process.
Yours sincerely
Michael Owens Key account Marketing
3
Hugo Cox
Dear Sir/Madam
When users of Project Canvas access content from the web, will it be possible for them to access content that is either (a) on the web against the wishes of the copyright owner or (b) on the web with the consent of the copyright owner but the copyright owner does not give permission for it to be accessed via Project Canvas?
Will Project Canvas make it possible to record content from the web? How and where will the content be recorded?
Yours faithfully
Hugo Cox
1
Intellect Consumer Electronics Council response to BBC Trust consultation
Response to additional information provided about Project Canvas
September 2009
Background
Intellect is the UK trade association for the IT, telecoms and electronics industries including the consumer electronics industry and the fixed, mobile and satellite telecommunications industries. Within its membership, Intellect includes Consumer Electronics (CE) manufacturers who are all represented on our CE Council. These companies manufacture a range of digital products for the consumer market, including digital set‐top‐boxes (STB), recorders and digital televisions (DTV) for the digital terrestrial and satellite platforms. We estimate our CE membership represents over 70% of the UK digital TV equipment market. This response is supported by the companies listed in Annex 1 who are all members of the Intellect Consumer Electronics Council.
To provide further context to this response our response to the initial BBC Trust Canvas consultation in April this year can be accessed at http://www.intellectuk.org/content/view/5088/86/
Summary
The Intellect CE Council fundamentally supports the vision of project Canvas with regard to enabling consumers to access broadband content on their TV. There is already evidence of the public demand for services such as BBC iPlayer to be accessed through the TV and we firmly believe that the global market for internet‐connected television devices will grow. We therefore continue to support the aim of developing an open standard that would enable broadband content and services to be accessed by digital TV equipment.
We welcome the publication of this further information and the increased efforts that the Canvas team have made to engage with Intellect and our CE manufacturer members since the last consultation in April. We remain committed to working constructively with the BBC going forward.
In our first response we called for the BBC to immediately start working through the DTG to develop the technical specification thereby ensuring an industry wide open approach. A meeting has now been scheduled by the DTG for late September which we understand will mark the point when work on developing the Canvas specification will begin and all the work to date on Canvas will be shared with the wider industry. We welcome this extremely positive step. It is imperative that the development of the entire Canvas specification is conducted within the existing DTG processes. Moreover, these negotiations must be conducted in a fair and open manner. Providing this happens, manufacturers can
1
have the confidence that many of the technical questions raised in this document will be appropriately addressed.
Whilst the additional information supplied by the BBC contains some answers and clarifications, many very important questions and concerns, technical and otherwise, have not been addressed. We hope that the DTG meeting in September plus undertakings made by the BBC to provide more information will address these questions, but as they are currently outstanding we must raise them in this document. Furthermore, whilst these questions and concerns remain unaddressed we are unable to support the Canvas project as outlined.
The following list summarises the main areas of concern:
• The process and criteria for selecting the “innovation partners” • The exclusion of any manufacturer representation on the Canvas Joint Venture (JV) • The increased risk that manufacturers would have to take on as a result of the structure and governance of the JV • Lack of detail on how Canvas has worked and will work with other European/International standard setting organisations • Proposed management by the JV of the Canvas User Interface (UI) and User Experience (UX) and the impact the proposals will have on manufacturers and consumers • Lack of technical detail and concern that this has not yet been released to the DTG for work to begin on D‐Book 7 (although we understand that this will happen on 24th September) • The lack of clarity about what will go through the DTG process and what will not (although we hope this will also be explained on the 24th September)
We have explained our concerns below and have listed further questions for the BBC Trust and Executive to consider.
1. Joint Venture (JV) proposal
The Canvas Joint Venture (JV) as currently proposed will only contain PSBs and ISPs. It is not clear why other content aggregators and manufacturers are excluded from membership. We do not know if individual manufacturers would seek to join the JV if they were able to do so, but the reasons for their exclusion have not been explained, nor have any alternatives been explored. Manufacturer involvement is important because it is currently proposed that:
• the JV will be making decisions on strategic roadmap development. Although the documentation states this would be done through engagement with manufacturers this is the fundamental element of their business planning and therefore direct involvement is vital.
2
• the JV will be making decisions on the UI and UX where manufacturers have decades of experience. • the JV will be making decisions on device compliance • the JV will be operating a “front‐line customer service call centre” which will require detailed input from manufacturers on device‐related issues
The BBC has already argued that manufacturers are not on the respective boards of Freeview and Freesat and that Canvas is following a similar model. However, there are three fundamental differences.
1. Freeview & Freesat have been open platforms from the outset and established trust within the manufacturing community at the earliest possible stage. This is partly due to their working through the DTG from day one. 2. There are no potential manufacturing competitors on either board. ISPs however are clearly in a position to develop and manufacture Canvas enabled TV equipment and compete directly with other manufacturers. 3. In general Freeview does not make decisions that impact manufacturer’s strategic product roadmaps. Such decisions are made through the DTG, where manufacturers have voting rights in both the DTG council and technical council.
Furthermore the exclusion does not seem to be consistent with other statements in the additional information. Section 3.8 says “industries likely to be involved in any successful deployment of a broadband connected TV proposition; the consumer electronics industry, the networks (ISPs and others) and the content, service and application development communities.” We agree with this statement and therefore believe it is important for each of these industries to be represented on the JV in some form.
We therefore propose that The BBC consider allowing non‐executive representation on the JV from appropriate representative bodies from the currently excluded industries. For example, Intellect would be in a position to represent manufacturers in the same way that we do on the Board of Digital UK.
The JV decision‐making process is also a cause for concern. With a 66.7% PSB shareholding and 33.3% shareholding by ISPs this means that Broadcasters will effectively control the platform based on 51% majority voting. We believe the BBC trust must consider how the JV can fairly represent all the stakeholders in the value‐chain given its importance to the future of the DTV market. Manufacturers must therefore be given a voting role in the key decisions on technical specifications related to Canvas.
Based on the above, questions on the proposals are:
Q: Why are manufacturers not able to join the JV?
3
Q: Have other options been considered to allow manufacturers direct representation within the Canvas JV?
Q: Under the proposed JV structures how will the input of the manufacturing sector be sought and heard at the earliest possible stage?
Q: How will disagreements between broadcasters and manufacturers be resolved without manufacturer representation in the JV?
Q: How will the JV manage the evolution of the platform over time ensuring that industry is consulted and product/service roadmaps are respected?
2. EPG and enabling access for content and service providers
In our first submission we said the following:
“Canvas is seeking to specify the User Interface (UI). The design of Electronic programme Guides (EPGs) has been a competitive feature for many years in the TV market and these requirements would deprive UK consumers of the benefits of industry innovation in this field.”
The additional information tries to answer these concerns, stating that only a ‘thin core’ of the UI is to be managed by the Canvas JV, allowing for manufacturers and content providers to develop sub sections of that UI. To some extent the BBC has also reacted to our comments by confirming that use of the JV specified UI is optional. However if manufacturers were to develop their own UI they would not be allowed to use the Canvas brand. At this stage with the information we have available it is certainly possible that some manufacturers would choose to do this. This has the potential to lead to consumer confusion caused by two sets of devices able to access Canvas services, some with the Canvas trademark and others without.
The proposals are likely to have a detrimental effect on those manufacturers developing products for the pan‐European market. This is particularly true for integrated digital TV manufacturers as opposed to set top box manufacturers who are able to take a more flexible approach to specific national requirements. The effect on members businesses would be considerable. The economics of integrated digital TV development and manufacturing require that products address at least the whole European market. In Europe today, manufacturers design and implement their own UI. Substantial money and time has been invested in the design and implementation of these over many years. These UIs are integrated designs covering all aspects of the user interaction with the TV set.
For UK integrated TV manufacturers, a situation in which part of their products design is managed by the Canvas JV while other parts remain in the original European form would be:
4
a) Expensive to implement, and; b) Confusing for the end‐user
Furthermore the additional information also suggests that Canvas will have the potential to remotely adjust, update and control the UX. Patching software programs remotely is a notoriously difficult thing to do successfully and has the ability to inadvertently break other features. Given the sheer number of hardware permutations when attempting to patch and update the resident UX on multiple devices, the controlled UX as currently prescribed is potentially worrying and could lead to increased costs for manufacturers. This includes both upfront costs to ensure that remotely adjusting the UX is possible and, continuing costs for testing and validation of updates. The latter is a particular concern as retail business models do not include a revenue flow able to cope with such a proposition.
Some members also believe that the BBC approach to the UI could be deemed as anti‐competitive i.e. forcing manufacturers to point consumers to a mandatory embedded portal.
Put simply the proposed nature of the JV looks like it will act in a similar fashion to a pay‐TV operator by developing and managing the UI/UX. However unlike a pay‐TV operator, all the risk, both technical and commercial, rests with the manufacturer.
For all these reasons we believe that Canvas must allow manufacturers to develop and manage their own EPG and still use the Canvas trademark. Manufacturers own EPG design should follow best practice guidelines as per the D‐Book. A standard EPG could still be developed for use by those manufacturers that choose to do so.
Based on the above, questions on the proposals are:
Q: In practice how will the JV maintain and update all devices UX, independent of the original manufacturer?
Q: What checks have the BBC conducted to establish that their approach to the UI (mandating for a platform) will not breach EU competition law?
Q: What will the BBCs approach be to addressing the potential consumer confusion outlined above?
Q: What research has the BBC conducted to establish that the current Canvas proposals are the best way to handle UX updates?
Q: As manufacturers have no way to vet the actual software stack potentially used within their hardware, will liability and responsibility for handling any legal action over patent and copyright infringement related to the UX code rest with the Canvas JV?
5
Q: Will adequate assurance be given to manufacturers that they will not be held responsible for any damage caused to products by remote updates form the JV?
3. The agreement of the Canvas Specification and industry engagement a. Industry engagement
The further information states the BBCs ambition for Canvas “would serve to protect the open, horizontal nature of the UK’s free‐to‐air platforms”, ie. one in which a level‐playing field of competition between different device manufacturers drives innovation and consumer choice..”
In this context the process by which the BBC has chosen to work with some manufacturers and not others still requires clarification. This is important for manufacturers not just within the Canvas project but because we believe it could set an important precedent for future technology developments led by the BBC. It must be noted that the BBC have undertaken to provide detailed information on how, when and with whom early discussions on canvas with manufacturers took place. The context of these meetings is also important i.e. did manufacturers realise they were part of a selection process for the innovation partners? We welcome the undertaking of the BBC to provide this information, and hope that once it has been received these questions can be answered.
While the further information states that “It is anticipated that innovation partners will not own project IPR as a result of work undertaken with the BBC”, our members still believe that these innovation partners will benefit significantly by being party to the development of Canvas at an early stage.
In our first response we called for the BBC to immediately start working through the DTG to develop the technical specification thereby ensuring an industry wide open approach. We are extremely encouraged by the announcement that the DTG will hold a Canvas ‘kick ‐off’ meeting in September to begin the profiling and development of a Canvas technical specification for D‐Book 7. We welcome this extremely positive step. It is imperative that the development of the entire Canvas specification is conducted within the existing DTG processes, in a fair and open manner. In addition it is important that the Canvas JV joins the DTG as a full member. Providing this happens, manufacturers can have the confidence that many of the technical questions raised in this document will be adequately addressed.
In our first response we raised concerns over the lack of engagement with existing European/International standards work in this area and the potential for creating a UK technological island. We remain concerned that whilst becoming members of some of these organisations there is no further detail on what work is actually being done by the BBC to align Canvas with existing work. The BBC has undertaken to provide more information on how they are engaging with other organisations and how this will evolve in the future.
6
Based on the above, questions on the proposals are:
Q: How was the innovation partner selection process managed and when? Which companies were invited to participate? (Anticipate BBC feedback)
Q: Will current DTG processes be adopted for canvas?
Q: If the BBC have completed due diligence on what European/International organisations are doing, on what basis did the BBC decide to develop their own approach?
Q: Exactly what is the BBC contribution to existing European/international standards work? b. Technical specification
The DTG ‘kick off’ meeting on September 24th intends to cover the following: Canvas Proposition, Trade Mark and Relationship with Freeview and Freesat; agreed principles of engagement with the DTG; approach to standards adoption and standardisation; user experience; DTG project scope and structure, CA, DRM, EPG; test and conformance; and the project plan, key dependencies and milestones. We anticipate that many of our technical questions will be addressed, but nonetheless feel it is important to highlight our main issues in this document ahead of the meeting.
It is not clear how far D‐Book 7 will incorporate canvas device technical specifications as part of the DTGs work. In section 3.8 iii, the BBC state that the venture partners recognise that ‘a number of Canvas objectives may dictate functional requirements that go beyond the remit of the D Book’. More detail is needed regarding those requirements existing outside of D‐Book 7, to ensure that these system specifications do not have a direct impact on the Canvas receiver device. Further clarification is also desired on the limits of the DTGs ability to review and modify the canvas technical specifications.
Our members also remain nervous regarding the integration of Canvas and product roadmap plans for Freeview and Freesat. Manufacturers also require further guidance on the DRM strategy formulation. Since it is technical specifications that underpin the type of DRM or CA solution utilised, it is not possible for Intellect to respond on this issue without the provision of further detailed information.
The additional information mentions ‘mandatory storage requirements’. There is a danger that this will disadvantage IDTV manufacturers. Mandating storage levels on IDTVs will inevitably increase servicing costs, or reduce reliability with the inclusion of hard/solid state drives which have limited lifespan. Assurance is required that these requirements will not effectively exclude IDTVs from supporting Canvas.
Based on the above and other input, questions on the proposals are:
7
Q: Will a Canvas chapter in D‐Book 7 capture the entire canvas device technical specification?
Q: What limits, if any, will be placed on the DTGs ability to review and modify canvas technical specifications?
Q: How are portable devices being factored into future platform development plans?
Q: Is the expected date for DTG D‐Book 7 of March 2010 on target to include Canvas requirements and what conformance testing regime will be in place?
Q: Will the DTG be able to create a separate specification for those manufacturers wishing to gain access to Canvas services without utilising the canvas UI?
Q: Will there be any content discovery tools and a viewing preference engine?
Q: Does Canvas contain open and full access to the internet or rather access to a limited number of services as defined by the Canvas JV?
Q: The additional information does not address the original concerns outlined regarding rumoured inclusion of Adobe Flash. Will decisions regarding user interface technologies be taken as part of the DTG process?
Q: Manufacturers require further information on the DRM and CA strategy formulation, in addition to the technical specification underpinning these requirements. Does the JV control the selection and operation of DRM and CA solutions, and what are they?
Q: What engagement is planned with the DTG and other stakeholders in deciding a suitable DRM standard? This should include DRM standards for mobile devices such as PMPs and Mobile Phones.
8
Annex 1
Daewoo Electronics Sales UK Ltd Digital Vision Products Ltd Harvard International plc Hitachi Europe Ltd JVC Europe Ltd LG Electronics UK Ltd Pace Plc Panasonic UK Ltd Philips Electronics UK Ltd Pixan Digital Software Ltd Sagem Communication UK Ltd Samsung Electronics UKs Ltd Sanyo Europe Ltd Sharp Electronics UK Ltd Sony UK Ltd TechniSat Digital UK Ltd Toshiba Information Systems UK Ltd TW Electronics Ltd
9
Canvas Consultation BBC Trust 35 Marylebone High Street London W1U 4AA
1 September 2009
Dear Sirs
RESPONSE TO CONSULTATION BY THE BBC TRUST RE. “PROJECT CANVAS”, FOLLOWING PUBLICATION OF ADDITIONAL INFORMATION ON 24 JULY 2009
1. SUMMARY
We write to formally comment on the additional information from the BBC Executive that was published by the BBC Trust in respect of the Project Canvas consultation on 24 July 2009. We understand that this document may be published. We would be grateful if you would acknowledge receipt of all documents by return.
We have reviewed the additional information with great interest. Unfortunately, it is clear that much detail is lacking. For instance:
• Competition law analysis carried out by the BBC Executive has been withheld • Incorporation documents and draft shareholder terms have been withheld • No functional or technical specifications have been provided • No details on licensing fees have been provided • All forecasts including unit sales forecasts and price points have been withheld
This is despite specific requests for the above information from the Trust. As such, we do not agree with the Executive’s assertion, as stated in the Executive Summary, that the information provided is “as complete and direct as possible”.
Moreover, it is clear from the additional information that the scope of Project Canvas is far greater than intimated in the original application, extending to the creation of a branded platform (with a mandated EPG/UI) rather than merely a definition of standards. We do not agree that the project, as now set out, is correctly classified as a Non Service Activity for the purposes of the BBC Charter and Agreement. As a Service, the project would required a license and would be subject to a separate Market Impact Assessment by Ofcom and we believe this to be appropriate in these circumstances
1
As noted in our response to the original consultation, IP Vision is supportive of the continued development of the UK’s free-to-air digital television platforms (and Freeview in particular), working with established standards bodies, such as the Digital Television Group, in conjunction with other industry participants. IP Vision’s corporate mission is still to contribute to this evolution through the development, operation and management of IP-connected, free-to-air digital television services.
The additional information provided by the Executive has not addressed the issues with Project Canvas arising from the proposed approach and venture structure, as documented in our response to the original consultation. As such our conclusions in respect of the original consultation are little changed. We remain concerned that the project conflicts with existing initiatives and standards, which enjoy widespread industry support. If Canvas was to proceed as planned, we still believe that it would adversely impact both licence fee payers and existing industry participants, without advancing the BBC’s Public Purposes. In addition, we confirm that, in our view, of the proposed joint venture partners, the BBC would be exposed particularly across a range of areas, including breach of competition law.
2. UPDATE OF RESPONSE TO ORIGINAL CONSULTATION
We have attached a copy of our original response with detailed annotation (shown in red italics) in Appendix A. This provides an updated and consolidated view, covering:
1. public value and value for money; 2. the interests of the license fee payer; 3. market impact; and 4. risks and compliance with the law and BBC and Trust policies.
We have also noted in the Appendix the findings of the Fair Trading Complaints Panel in respect of our complaint regarding on demand content syndication by the BBC (which was partially upheld), and the substance of our subsequent appeal to the Trust (which is in progress). We believe this to be directly relevant to Project Canvas, since the ease with which BBC content, including the BBC iPlayer, can be syndicated by third parties is a key consideration in evaluating the potential negative market impact of the project.
3. COMMENTS BASED ON OTHER STAKEHOLDER RESPONSES TO THE CONSULATION
We have also reviewed the responses of other stakeholders in relation to the original consultation and have noted that many others raised points similar to those in our own response. In addition to providing an update of our previous response, we felt that it would be useful to provide a more general overview based on some of the key areas identified by stakeholders.
2
Standards
It is difficult to comment fully here since no functional or technical specifications have been provided by the BBC Executive in response to the Trust's request for the same. There are several issues that are clear from the documentation though: a. There will be only one DRM provisioned (and as yet unnamed). This presents significant issues (as raised by a number of stakeholders) and we are surprised to see such a restriction. b. Unspecified licence fees will be applied to manufacturers both by third party technology providers (including DRM providers) and, possibly by the BBC itself. This is likely to exacerbate competition issues.
The lack of any technical detail on the platform at this late stage is a major issue and we do not see how any effective consultation can be undertaken while this remains outstanding. By definition, if the consultation proceeds to conclusion prior to the publication of these standards and the process by which such standards will be developed and agreed in the future is unclear, then the project is far removed from an open standards approach.
Scope of the Project
We are in no doubt now that Canvas is in fact a distinct platform and not merely a definition of standards. This is clear from the documentation provided by the Executive. Given the depth of the BBC's involvement in the development, operation and management of the platform, it is difficult to Non Service Activity. While it would be possible for other manufacturers to employ the proposed Canvas technology, the Canvas trademark would be withheld unless the Canvas core UI (including the EPG) was adopted as the default UI. In our view, this is anti- competitive, given the control and influence that would be exerted by the PSBs, through the proposed venture structure, over this user interface.
Control of the EPG
We believe that the fundamental (and mandated) structure of the UI (and EPG therein) will, indeed, act as a competitive bottleneck. The growth in internet video viewing on TV is fundamentally linked to the design of the EPG and UI, which includes navigation and search.
The BBC Executive’s additional information, including "UX" mock-ups, envisages effective separation between broadcast channels and on-demand content providers. This is a restrictive approach which does not reflect the way in which online content is consumed alongside broadcast content (even today). We believe that, in fact, it reflects the thinking of the PSBs at the expense of wider market innovation. In reality, there are many UI options; content aired in the past as well as the future could be presented seamlessly on the EPG and broadcast and non-linear content could be viewed together, by genre, and not simply by channel provider . We do not believe
3
that the Canvas venture should be allowed to dominate this critical element, in effect restricting content providers to a silo which is an adjunct of the core EPG. As proposed, Canvas would certainly stifle key innovation in this area.
Content
There is to be a provision for a "minimum quality threshold" for third party content/content services in addition to other contractual requirements. This is not defined or explained in any detail. We believe a separate body with independent governance and funding should be responsible for content admissions to overcome the risk of PSBs favouring their own and/or certain services.
Venture Structure
The proposed structure is not neutral and participation is not equitable. The proposed structure heavily favours PSBs and largely vests control of the venture's activities in them. There is no mechanism for third parties (other than ISP's, whose influence would, nevertheless, be restricted) to participate in the venture or the development of standards. Indeed, it could be argued that the proposed shareholding structure would constitute a merger in competition law terms. The project brings large organisations together to carry out an activity jointly that could otherwise have been done separately. Based on the shareholding structure and voting rights proposed, it implies that some activities of the companies would cease to be distinct. At some stage, therefore, we believe that Ofcom and/or the OFT will need to examine the venture to assess the degree of risk to future competition. We believe that, because the existing shareholders are very large and powerful organisations, it is vital that independent bodies take a close look at the ways in which their combination might restrict or impede new entrants and smaller companies as well as stifle future innovation
More generally we are concerned that Canvas would be used by PSBs as a means of furthering their own interests and agendas and so maintaining the status quo. Disruptive services that seek to offer new means for consumers to search for, navigate and consume content would be stifled.
We believe that should Canvas be approved, the business should be run independently of the existing shareholders, with technical decisions being taken by a more representative and more broadly-based body, such as the DTG. Entry to the venture is too restrictive and there are no evident minority protection rights. We also believe that an independent body should determine what services can be shown on Canvas boxes.
Pre-Approval Expenditure and the “Innovation Partners”
We understand that expenditure to date on Canvas has exceeded £3.5 million. This is a significant proportion of the overall budget for the Project and, of course, the consultation is still in its early stages. Transparency is required in terms of the basis on which these monies have been expended at such an early stage in the consultation process. This contrasts starkly with the minimal budget allocated by the BBC to making the iPlayer available on a wider set of connected TV devices to date.
4
We are also concerned that the "innovation partners" have been favoured hugely, given the potential ‘time to market’ lead that they have in the development of Canvas boxes, in the absence of any publication of standards.
4. QUESTIONS FOR THE BBC TRUST AND EXECUTIVE
Finally, we would like to pose some questions to the Trust (and the Executive) based on the latest additional information. We would like responses to be placed before all stakeholders prior to the next stage of the consultation.
General
• What is the detailed objective justification for the decision to classify the project as a Non Service Activity? • Why does the Executive consider that continued innovation and development in the market (even since the start of the consultation) in respect of hybrid TV services supports Canvas rather than calling the project into question? • What is the nature of the “deadlock at DSLTV” and in what way is this stifling the development of innovative new DTT/IP hybrid services in the UK? • When will the Executive publish information that has been withheld, redacted or is claimed to be unavailable, including but not limited to: o Competition law analysis carried out by the BBC o Incorporation documents and draft shareholder terms o Functional and technical specifications o Schedule of manufacturer licensing fees o All forecasts including unit sales forecasts, price points and marketing spend • Will the consultation approval process continue in the absence of the published documentation listed above?
The Venture
• What justification is there for the dominance of the PSBs in respect of the ownership and control of the venture and in what way can the venture reasonably be described as “neutral”? • How will the venture’s governance prevent PSBs from using market power through undue dominance to stifle competition? • What minority interest protections will be put in place? • How will the venture ensure that membership is widely available on a non- discriminatory basis?
5
Standards and Development
• Which DRM will be used and what is the objective justification for its selection and the decision to restrict integration of other DRMs? • Is it realistic to suggest that all specification will be released in March 2010 in final form (having passed through the DTG consultation process) and that this allows sufficient lead time for development, testing, manufacture and shipping ahead of the Christmas 2010 season? • Why must the Canvas core UI be the default UI as a condition of trademark licensing? • What justification is there to remove the DTG from the standards setting and approval process on the basis of an arbitrary deadline given that no reasonable alternative has been detailed (i.e. a mechanism through which interested parties’ rights are protected)?
Content on the Platform
• What are the detailed contractual requirements and minimum quality criteria that will apply to content providers? • How will the venture ensure that PSBs are not favoured in term of the position and prominence of both broadcast and on demand content? • What steps will be taken by the Trust and Executive in order to ensure fair and non-discriminatory syndication of BBC content, including iPlayer, in a reasonable timeframe? • How will the venture ensure that consumers will not be faced with a multitude of registration, log on and payment mechanisms for different on demand content providers, given the proposed architecture of the service? • In what way is D-Book 6 restrictive in terms of the access to and presentation and playback of PSB content (such as iPlayer), when used with, and linked from existing “red button” interactive services and to what extent has the Executive considered practical and cost effective means to deal with any shortcomings within the existing D-Book 6 standard • When will the BBC make iPlayer available on Freeview HD and Freesat?
Pre-Approval Expenditure and the Innovation Partners
• How much has been spent and/or committed by (i) the BBC and (ii) the venture partners in total to date on activities connected with Project Canvas? • On what objective basis were the innovation partners selected so as to ensure compliance with the Fair Trading Guidelines? • Who are the Innovation Partners? • How much money has been paid and/or committed to the innovation partners by (i) the BBC and (iii) the venture partners in total to date? • How will the venture ensure that those innovation partners that manufacture hardware will not enjoy a “time to market” advantage should the project be approved?
6
Market Impact Assessment
• How will the Trust carry out a meaningful MIA in the absence of any up to date supporting data from the Executive in terms of standards, technology, forecast activity, costs (including costs displaced through third parties such as ISPs and manufacturers), marketing plans etc? • Will the Trust carry out a review of alternative services deployed or in development, which enable access to both free to air broadcast and on demand services without subscription and consider the competitive impact of Canvas on those related service providers? • How will the Trust verify the extent to which licence fee payers will be negatively impacted due to overlap and confusion as between the Freeview HD and Canvas propositions in the absence of any meaningful information from the Executive regarding plans to avoid such negative impacts?
Yours faithfully,
For and on behalf of IP Vision (UK) Ltd
Eddie Abrams CEO
Enc
7 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
Canvas Consultation BBC Trust 35 Marylebone High Street London W1U 4AA
17th April 2009
Dear Sirs
RESPONSE TO CONSULTATION BY THE BBC TRUST RE. “PROJECT CANVAS”
We write to formally respond to the above consultation, and confirm we understand that this document may be published. We would be grateful if you would acknowledge receipt of all documents by return. We have summarised our response in Section 1; our detailed response is set out in Sections 2 through 6.
IP Vision is supportive of the continued development of the UK’s free-to-air digital television platforms (and Freeview in particular), working with established standards bodies, such as the Digital Television Group, in conjunction with other industry participants. Indeed, IP Vision’s corporate mission is to contribute to this evolution through the development, operation and management of IP-connected, free-to-air digital television services. Our issues with Project Canvas arise from the proposed approach and venture structure. We are concerned that the project conflicts with existing initiatives and standards, which enjoy widespread industry support. If Canvas was to proceed as planned, we believe that it would adversely impact both licence fee payers and existing industry participants, without advancing the BBC’s Public Purposes. In addition, we believe that, of the proposed joint venture partners, the BBC would be exposed particularly across a range of areas, including breach of competition law.
1. SUMMARY
Background
IP Vision’s primary product is an HD-ready hybrid set top box platform that operates as a direct to consumer service or a white label platform offering third parties a fully managed service solution. The Company is in advanced negotiations with a number of national retailers, platform operators and broadband service providers with a view to substantial deployment in 2009.
1 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
In conjunction with the BBC, the Company has developed a fully operating implementation of iPlayer. The service has not yet been released, pending ongoing discussions with the BBC Executive. An official complaint has been lodged by the Company with the BBC Fair Trade Controller in respect of the extended delay in making this service available.
IP Vision launched the FetchTV SmartBox 8000 in July 2009, enabling viewers to watch BBC iPlayer content directly from a Freeview+ set top box for the first time, as well as enabling access to a wide range of other video on demand and catch up content. The product is available online and through John Lewis stores nationwide. Further retail distribution will be announced shortly and we expect the product to be available in over 150 outlets nationwide in the run up to Christmas.
Public Value and Value for Money
We welcome the development of ‘connected home’ services as part of FTA digital TV services. Our concerns regarding public value and value for money in relation to the Canvas project arise given that the project conflicts with existing ratified, open standards, published by the Digital Television Group, for the extension of Freeview to include internet-based on demand content in the UK. These standards, known as “D- Book 6”, will have effect within the same time frame proposed for the launch of Canvas, and, in our view, negate the requirement for the BBC to commit licence funds to a separate project.
In our view, creating an additional on-demand capable FTA standard will only serve to generate confusion amongst licence fee payers and will both damage prospects for adoption of on demand services and increase costs to the consumer.
IP Vision is the first value-added hybrid DTT service to launch, fully supporting DTG standards. The commercial availability of this system since November 2008 is further evidence that there are no reasonable grounds for the BBC to engage in the development of additional standards for such systems.
BBC programmes and services can be delivered effectively to FTA digital TV viewers based on the D-Book 6 specification alone. Accordingly, Project Canvas does not deliver any incremental contribution to the delivery of the sixth Public Purpose “Helping to deliver digital Britain” by means of delivering BBC programmes and services to different devices.
The additional information provided does little to address these points. As the Executive point out in their Executive Summary, the market is already addressing the supposed gap in the delivery of on demand services through free to air digital platforms. FetchTV is Freeview+ accredited and provides access to BBC iPlayer on TV. FetchTV already fulfils most of the other functions attributed to Canvas, and the service is available for integration by other hardware vendors. Freesat has also announced plans both to deliver iPlayer and other video on demand services, independently of Canvas. We also note the launch of the pan-European “Hybrid
2 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
Broadcast Broadband TV” body, aimed at harmonising broadcast and broadband content delivery to the television. We disagree with the Executive that these and other developments underline the timeliness of the Canvas proposals. Rather this suggests to us that the Canvas proposals are increasingly irrelevant. We would suggest that the market will have addressed the need for on demand content access through free- to-air digital TV well before the launch of Canvas, provided that Canvas does not act to stifle innovation from existing market participants and new entrants in the meantime.
Interests of the Licence Fee Payer
We believe that the interests of the licence fee payer are best served by the BBC through the BBC’s full support for the evolution of Freeview through support for D- Book 6 and not by attempting to create additional standards. Further, the BBC should avoid distorting the market unnecessarily so as to allow commercial enterprises, including IP Vision, to innovate and develop added value premium services (such as access to pay per view on demand programming) which provide choice in the market, while supporting DTG/Freeview standards.
In order to enable access to BBC on demand services, such as BBC iPlayer, through Freeview HD, the BBC should extend the existing BBCi Freeview red button service (developed to date using MHEG-5, as specified by the D-Book), enabling seamless access from all BBC broadcast channels on Freeview.
The Executive has made representations in Section 5, para. 5.3 to the effect that D- Book 6.0 would not provide all of the benefits of Canvas. It notes that:
• An Ethernet connection, backed by bespoke MHEG applications, does not create a low barrier to entry for content and service providers. Each content and service provider is required to create bespoke services authored in broadcast standard technologies, rather than the commonly used web authoring tools enabled by Canvas. This will reduce the range of content and, in particular, innovative and public service content from parties (smaller companies, not-for-profits) that would benefit most from access to the TV platform. • • The lack of a common ‘platform’ will not allow a seamless front-end user experience to allow audiences to find and discover content and services. Instead they will be reliant on navigating in and out of silo services each requiring the ‘learning’ of different navigational environments • The lack of a common platform will mean that content and service providers will not be able to link between broadcast and broadband services or create user journeys. For example, from a channel listing on the linear EPG into an on demand player or related content.
We consider the Executive’s representation of the capabilities afforded by the implementation of DVB-T2/D-Book 6 to be misleading. The basic provisions of D- Book 6 are, we believe, sufficient for BBC iPlayer and, in fact, an iPlayer implementation is underway for Freesat which uses similar technology. It is quite
3 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
possible for a “seamless experience” through D-Book 6 – for instance iPlayer could be directly accessed from the existing BBCi red button services on Freeview. In fact, this was exactly the approach used by the BBC in its TV Open Archive VOD trial in 2007. We partnered with the BBC for this trial and confirm that the service was developed in MHEG-5 and accessed from the red button using the IP Vision extended MHEG engine (which is similar to that proposed by D-Book 6).
In addition, it is clear from Section 2 that under Canvas there would be no standardisation for on demand services in terms of user registration, authentication, transaction management or billing and so the experience is unlikely to facilitate “simple” or “seamless” access to broadcast and on demand service as claimed (see Section 2, Appendix, table entry 5.11). As such, we do not believe that the lack of a “common platform” would provide for any less of a seamless experience that that which would be provided under Canvas.
Market Impact
We have reviewed the preliminary market impact assessment prepared by the BBC Executive. We believe that the assumptions applied therein are flawed, and, as a consequence, many of the conclusions reached are not correct.
In our view, Canvas will not provide a boost for Freeview or DTT within the proposed time frames given other dynamics in the market. We believe that, in fact, it would likely prove detrimental to growth. We also challenge the assertion that Canvas would promote a “more open” DTT platform as compared to the ratified DTG standards for Freeview HD. These standards are much less prescriptive than those proposed in Project Canvas. On the basis that hybrid DTT devices will be a reality regardless, we do not expect Canvas to grow VOD consumption and, further, we expect that many manufacturers will regard Canvas as a backward step and contrary to their interests in the maturing “connected home” space. Finally, we do not see any particular drive in terms of increased broadband penetration through Canvas – given that the hybrid device market is expected to grow broadly in line with the Executive’s estimates regardless.
To the extent that Canvas unnecessarily confuses the market and damages the interests of the commercial sector, this is likely to have a negative impact on us. From IP Vision’s perspective, we see no practical difference between directly developing new standards and technologies and mandating certain third party proprietary standards and technologies, in preference to other equally capable third party alternatives, as part of a single technology chain which forms part of a specification. As such, we encourage the BBC not to take either route.
Reference is made by the BBC Executive in Section 1, para. 1.1 to the “current deadlock at DSLTV”(i.e. the Freeview corporate entity). The nature of this alleged deadlock is neither characterised nor detailed – in our view there is scope for substantial development of enhanced, on demand capable free-to-air services within the existing Freeview structure with substantially fewer competitive barriers than
4 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
those that would arise under Canvas. FetchTV is an example of such innovation. We do not understand the deadlock issue and would like clarification.
The additional information clarifies the full extent of the potential negative market impact of Project Canvas. In particular: • The venture structure is heavily weighted in favour of public service broadcasters and entry requirements are restrictive • The scope of the project is much wider than previously indicated, extending to the creation of a branded platform (with a mandated EPG/UI) rather than merely a definition of standards • Only one DRM solution will be allowed for • There will be a significant cost impact for participating manufacturers including the payment of technology licensing fees both to third party providers (such as DRM technology providers) and to the BBC
Risks and Compliance with the Law and BBC and Trust Policies
We believe that the primary risks to the BBC arising from Project Canvas relate to potential breaches of policy and law in respect of:
• Royal Charter and Framework Agreement • Competitive Impact Principle, Framework and associated Trust Statement of Policy • Fair Trading Guidelines • UK/EU Competition Law • Fiduciary Duties
We have detailed our concerns in respect of the above and related risks in Section 6.
Having reviewed the additional documentation provided, we believe these risks are likely to crystallise and there will be a significant resulting impact on the BBC should the relevant concerns not be addressed.
5 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
2. BACKGROUND
About IP Vision (“the Company”)
IP Vision was formed in 2007. Shareholders include Netgem S.A, a listed French company and funds managed by F&C Reit, a major fund management company with total assets under management of circa £8.5 billion. IP Vision’s primary product is an HD-ready hybrid set top box platform that operates as a direct to consumer service or a white label platform offering third parties a fully managed service solution.
The Company is engaged in the business of providing this white-label “over the top” hybrid broadcast/DTT service to trade customers, including retailers, TV platform operators and broadcast service providers. The IP Vision Smart Box combines a Video-on-Demand (VOD) service, Freeview tuner and Personal Video Recorder (PVR). The system works with any broadband service and is the first truly subscription-free, VOD-capable TV service available in the UK. As such, the system provides the capabilities today that are envisaged by Project Canvas.
The first branded consumer service launch, FetchTV, took place in November 2008, featuring more than 1,400 hours of VOD from Paramount, ITV, Turner Broadcasting, Eagle Vision, Freemantle, National Geographic and many others. Further global and specialist entertainment providers are expected to join in the coming months. The service is subscription-free with on-demand content available on a ‘pay-as-you-go’ basis.
IP Vision is able to deliver a white label solution that can be suitably branded for partners quickly and cost effectively as a bespoke solution, providing an economically viable model for brands to enter the digital TV market. The Company is in advanced negotiations with a number of national retailers, platform operators and broadband service providers with a view to substantial deployment in 2009.
IP Vision launched the FetchTV SmartBox 8000 in July 2009, enabling viewers to watch BBC iPlayer content directly from a Freeview+ set top box for the first time, as well as enabling access to a wide range of other video on demand and catch up content. The product is available online and through John Lewis stores nationwide. Further retail distribution will be announced shortly and we expect the product to be available in over 150 outlets nationwide in the run up to Christmas. The company is engaged in discussions with a number of partners in relation to “white label” deployments.
IP Vision and BBC On Demand Content
The Company is preparing to launch its next generation Smart Box in the next three months, in conjunction with selected distribution partners. The service will include Freeview Plus functionality (and the Company is a Freeview licensee for this purpose), an enhanced VOD service and catch up services from selected broadcasters.
6 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
In conjunction with the BBC, the Company has developed a fully operating implementation of iPlayer, in accordance with the latest BBC UX&D design guidelines, linking to BBC XML/RSS feeds and associated assets. The iPlayer service has not yet been released, pending ongoing discussions with the BBC Executive. An official complaint has been lodged by the Company with the BBC Fair Trade Controller on 13 February 2009 in respect of both the extended delay in making this service available and related issues regarding the on demand content syndication process, copied to the Trust that day.
The BBC’s Executive Fair Trading Complaints Panel has since opined on this complaint and the following extract from the BBC’ quarterly Fair Trading Bulletin to June 2009, confirms the Panel’s findings:
“IP Vision and Syndication of On-Demand Content
On 13 February 2009, IP Vision wrote to the Controller, Fair Trading to complain about the BBC’s withdrawal of support for IP Vision’s implementation of iPlayer.
IP Vision, formed in 2007, has developed and launched a fully integrated television entertainment platform. Its primary product is an HD-ready hybrid set top box that operates as a direct to consumer service, or a white label platform offering third parties a fully managed service solution. The company is in advanced negotiations with a number of national retailers, platform operators and broadband service providers with a view to substantial deployment in 2009. The complainant alleges that the commercial launch of its next generation SmartBox will be materially compromised should the BBC continue to withhold the iPlayer functionality and has raised a number of concerns in relation to the BBC’s behaviour.
The complainant raised a number of Fair Trading concerns, which may be broadly summarised as follows:
Competitive Impact Principle: The complainant alleges that by not supporting the launch of IP Vision’s service, whilst preferring other platforms (including, but not limited to Virgin Media, Tiscali TV, BT Vision, Nintendo Wii and Sony PS3), the BBC has materially compromised the complainant’s planned commercial launch of its next generation SmartBox.
UK/EU Competition Law: The complainant alleges a possible infringement of:
• Chapter 1 of the Competition Act 1998 and/or Article 81 of the EC Treaty in that the BBC has placed restrictions on the complainant’s behaviour that could affect competition in the market place; and
• Chapter II of the Act and/or Article 82 of the EC Treaty, (abuse of dominant position) in that the BBC has applied discriminatory terms and conditions between comparable categories of customers without an objective and proportionate reason.
7 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
The complainant further alleges that the BBC’s actions are contrary to the BBC Trust’s conclusions in its Public Value Test for on-demand services and to the BBC’s Syndication Policy.
Following an investigation the Chairman of the Fair Trading Complaints Panel wrote to the complainant on 15 May 2009 to communicate the following findings:
• On the basis of the evidence reviewed, including details of the conversations with the complainant, the Panel concludes that the relationship and contacts with the complainant regarding on-demand syndication should have been better handled. The Panel believes there is some merit in the complainant’s concerns about the BBC’s “seemingly arbitrary changes in policy, attitude and long periods of non-responsiveness”.
• As such the Panel has recommended that the Director responsible should ensure that the BBC maintains a clear, agreed approach on its on-demand syndication strategy as technology develops and that this approach should be communicated clearly to potential partners. The BBC should establish a single body with responsibility for ensuring a common and consistent approach across the BBC in relation to on-demand syndication, including appropriate training for relevant staff. The Director is required to report to the next EFTC meeting with an update on progress.
• The Panel requires the BBC team responsible to maintain open channels of communication with the complainant in relation to its plans for the iPlayer trial and the launch of its HTML/Java version of the iPlayer interface and ensure that the complainant is treated fairly.
• On the basis of its review of the available evidence, the Panel concludes that the BBC’s approach is consistent with the terms of the specific service licence criteria for iPlayer, in terms of reach and value for money, and is also consistent with its Syndication Policy and On-Demand Syndication Guidelines. • • The Panel concludes that the Competitive Impact Principle has been properly applied in this instance. The BBC, in using its best efforts to build a product that will eventually be accessible by all, is seeking to support competition in the market whilst at the same time ensuring that it meets its Public Purpose objectives, by fulfilling the RQIV service licence requirements for iPlayer. The allegation that the BBC has acted outwith its competitive impact framework should therefore not be upheld.
For the same reasons, the investigation concludes that the BBC is objectively justified in not agreeing to the complainant’s current request in relation to iPlayer. As the BBC has objective justification for the position it has taken, the issue of whether the BBC is dominant in a specific market is not relevant on this occasion. In summary and on the balance of the evidence considered the investigation concludes that:
8 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
• The BBC has complied with its Syndication Policy and Syndication Guidelines. • There has been no breach of the Fair Trading Guidelines, the Charter or Agreement. • There has been no breach of UK/EU competition law.
The complainant has indicated that it is considering lodging an appeal with the Trust, particularly in the light of what it believes to be continued lack of progress in its discussions with the Executive. The complainant has stated that it is also considering referring the matter to Ofcom.”
We are gratified that the complaint was upheld in part by the Panel. Having reviewed the Panel’s detailed findings though, we are concerned that the recommendations were impacted significantly by a critical error of fact on the Panel’s part. We have appealed to the Trust citing this and other points, including the Executive’s failure to comply with those requirements laid down by the Panel in their findings, with a view to the Trust reviewing:
• the decision by the Panel not to uphold elements of the complaint; • the finding of the Panel that the Executive adhered to the on Demand Content Syndication Policy and Guidelines; • the BBC Executive’s conduct of the “Generic HTML JavaScript iPlayer” project; • the Panel’s assertions regarding the BBC’s compliance with the Competitive Impact Principle and competition law generally; and • the ongoing compliance of the Executive with the Panel’s requirements as set out above.
A summary of the appeal is shown in Appendix 1.
3. PUBLIC VALUE AND VALUE FOR MONEY
The Company does not dispute the value of enabling delivery of on demand content via the Internet through “free to air” (“FTA”) digital TV platforms. Freeview is the one significant such FTA platform in the UK, with 9.3 million DTT-only homes as at 30 September 2008 (Freesat cumulative unit sales to 30 September: 0.1 million). We note that the BBC would intend to incur an estimated £6 million over five years (net of undisclosed cost recovery through EPG listing fees and other measures).
Our concerns regarding public value and value for money in relation to the Canvas project arise given the existence of ratified, open standards, published by the Digital Television Group (“DTG”), for the extension of Freeview to include internet-based on demand content in the UK. These standards will have effect within the same time frame proposed for the launch of Canvas, and, in our view, negate the requirement for the BBC to commit licence funds to a separate project.
In fact, we believe that Project Canvas would have a negative public value impact given that these DTG open standards will be mandatory for all Freeview HD devices.
9 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
In our view, creating an additional on-demand capable FTA standard will only serve to generate confusion amongst licence fee payers and will both damage prospects for adoption of on demand services and increase costs to the consumer.
Further, we expect that licence fee payers would bear a substantial opportunity cost in terms of the reduced choice of added value services that are likely to emerge from the commercial sector should Canvas be established as an additional standard for hybrid DTT/IP devices alongside Freeview HD in the DTT market. IP Vision is the first such service to emerge. IP Vision’s development of a fully operational standards- based hybrid IP/DTT platform, which fully supports DTG standards, is further evidence that there are no reasonable grounds for the BBC to engage in the development of additional standards for such systems.
The additional information provided does little to address these points. As the Executive point out in their Executive Summary, the market is already addressing the supposed gap in the delivery of on demand services through free to air digital platforms. FetchTV is Freeview+ accredited and provides access to BBC iPlayer on TV. FetchTV already fulfils most of the other functions attributed to Canvas, and the service is available for integration by other hardware vendors. Freesat has also announced plans both to deliver iPlayer and other video on demand services, independently of Canvas. We also note the launch of the pan-European “Hybrid Broadcast Broadband TV” body, aimed at harmonising broadcast and broadband content delivery to the television. We disagree with the Executive that this underlines the timeliness of the Canvas proposals. Rather this suggests to us that the Canvas proposals are increasingly irrelevant. We would suggest that the market will have addressed the need for on demand content access through free-to-air digital TV well before the launch of Canvas, provided that the Canvas venture does not act to stifle innovation from existing market participants and new entrants.
D-Book 6.0
We would like to draw the Trust’s attention to the introduction of D-Book 6.0 by the Digital Television Group (“DTG”) in March 2009. The DTG is the industry association for digital television in the UK and is both independent and platform neutral. For many years, the DTG has set out the detailed technical standards for digital terrestrial TV in the UK. Its members include government agencies, manufacturers, platform operators and broadcasters , e.g. DCMS, Alba, BT, Channel 4, Arqiva, Channel 5, BBC, NEC, Freesat, ITV, JVC, Ofcom, Fujitsu, LG, Pace, Panasonic, Philips, Hitachi, Sky, Sony, Toshiba, ST Microelectronics, Virgin Media, Disney, Samsung, Sanyo, Thomson and many others.
All products bearing the Freeview name under licence from DTV Services Ltd (the Freeview corporate entity), must undergo comprehensive testing by the DTG to ensure compliance with the provisions of the D-Book as applicable.
D-Book 6 contains important new developments in respect of both HD broadcast and on demand services. In particular, it requires that all Freeview HD receivers
10 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
(including those which provide Freeview Plus recording facilities) support the MHEG-5 Interaction Channel, requiring:
• inclusion of a broadband network interface; • support for all existing broadband routers/broadband service providers; • the ability to deliver high bit-rate streaming video over IP using industry standard video compression (MPEG4/H.264); • access to video, text and graphics securely over the Internet; and • the ability to develop user interfaces to support services such as BBC iPlayer using the established MHEG-5 interactive TV standard (as deployed on both Freeview and Freesat).
Since all Canvas boxes would, by definition, be “HD-ready” devices with local storage, to the extent that such boxes bear the Freeview brand (as intended by the Executive for DTT), the units will have to be D-Book 6 compliant and will, therefore, support on demand services regardless of the Canvas accreditation. We would certainly expect the BBC to make their on demand content available through Freeview HD on this basis. As such, BBC iPlayer and similar services would be available on all Freeview HD devices regardless of Canvas certification.
The Executive has made representations in Section 5 para. 5.3 to the effect that D- Book 6.0 would not provide all of the benefits of Canvas. It notes that:
• An Ethernet connection, backed by bespoke MHEG applications, does not create a low barrier to entry for content and service providers. Each content and service provider is required to create bespoke services authored in broadcast standard technologies, rather than the commonly used web authoring tools enabled by Canvas. This will reduce the range of content and, in particular, innovative and public service content from parties (smaller companies, not-for-profits) that would benefit most from access to the TV platform. • The lack of a common ‘platform’ will not allow a seamless front-end user experience to allow audiences to find and discover content and services. Instead they will be reliant on navigating in and out of silo services each requiring the ‘learning’ of different navigational environments • The lack of a common platform will mean that content and service providers will not be able to link between broadcast and broadband services or create user journeys. For example, from a channel listing on the linear EPG into an on demand player or related content.
We consider the Executive’s representation of the capabilities afforded by the implementation of DVB-T2/D-Book 6 to be misleading. The basic provisions of D- Book 6 are, we believe, sufficient for BBC iPlayer and, in fact, an iPlayer implementation is underway for Freesat which uses similar technology. It is quite possible for a “seamless experience” through D-Book 6 – for instance iPlayer could be directly accessed from the existing BBCi red button services on Freeview. In fact, this was exactly the approach used by the BBC in its TV Open Archive VOD trial in 2007. We partnered with the BBC for this trial and confirm that the service was
11 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
developed in MHEG-5 and accessed from the red button using the IP Vision extended MHEG engine (which is similar to that proposed by D-Book 6).
In addition, it is clear from Section 2 that under Canvas there would be no standardisation for on demand services in terms of user registration, authentication, transaction management or billing and so the experience is unlikely to facilitate “simple” or “seamless” access to broadcast and on demand service as claimed (see Section 2, Appendix, table entry 5.11). As such, we do not believe that the lack of a “common platform” would provide for any less of a seamless experience that that which would be provided under Canvas.
Value for Money
We do not understand how Project Canvas can be considered value for money, since it would amount to duplication of effort for the same results (at least on the part of the BBC), given the capabilities that all Freeview HD boxes will have in respect of on demand content. We do not believe that Project Canvas applied to Freesat alone would represent value for money, particularly since Freesat already utilises MHEG-5 and the relevant elements of D Book-6 could be extended to cover Freesat at a significantly lower cost.
From a public value perspective, we rebut the various assertions made in the Consultation, and in the BBC Executive’s Approval document, that FTA platforms (Freeview in particular) will be “left behind” in the absence of Project Canvas, e.g.
• “without the creation of and promotion of the Canvas standards, those licence fee payers who are unable or unwilling to pay for subscription television services would have a limited choice of…services and would not be able to access BBC content ‘on-demand’” (Consultation, Trust, Par. 2.13.2) • “with no ‘connected’ strategy for the free to air platforms, services like BBC iPlayer will not be made available” (Approval, Executive, Section 1,page 3)
In our view, these assertions are simply incorrect. There is no case to be made in favour of the BBC engaging in the development of additional standards on the basis that, by not doing so, licence fee payers will not be able to access BBC content on demand. To the extent that there is a market for services that provide further IP-based functionality, IP Vision has shown that the commercial sector is more than capable of developing and launching standards-based solutions for this purpose (which are also supportive of the Freeview brand and the ratified open standards as developed by the DTG).
Similar assertions are made in the additional information. For instance in the Executive Summary, the Executive states that Canvas “is essential for UK consumers, UK PSBs, the wider creative industries, the horizontal market for consumer electronics equipment and the future growth of broadband in the UK”. We disagree with this assessment. The market continues to address the needs of consumers and businesses throughout the value chain continue to innovate. For example, even since the first consultation we have seen
12 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
• Video on demand services launched or announced on the web from Arqiva, Hulu and Microsoft • Retail launch of FetchTV, with access to BBC iPlayer • Planned launch of Sky Player on Xbox 360 this year • Development of BBC iPlayer access on Freesat
The market will continue to address this area and effective competition will drive value added services in the free to air space while the existing development path for Freeview and Freesat provides for a de facto minimum level of on demand service – including access to PSB content.
Public Value
From a public value perspective, we think Project Canvas will have an adverse impact, if it were to progress in the proposed form. To the extent that the Project Canvas standards differ from D-Book 6, manufacturers and content providers will be faced with managing two sets of costs. A Canvas box would, necessarily have to include support for both D-Book 6 and Canvas standards, unless Canvas boxes were not to be branded as Freeview. In this latter case, we would expect a great deal of confusion on the part of licence fee payers and an undesirable standards battle.
We would argue that the DTG is the only entity that has the essential characteristics that are necessary to support true open standards development in the UK for digital TV: • Inclusiveness: All interested partes are able to become members and the standards-setting process is reasonably open to all such interested parties (and not selected partners as proposed for Canvas) • Balance: The process of standards ratification ensures than no one party can dominate • Due Process: Consideration of and response to comments by interested parties • Intellectual Property Rights (“IPR): Related IPR is licensed on a non- discrimanatory basis either for free or under reasonable terms • Detail: There is sufficient detail in the standard to allow for the development of competing implementations • Publicly available: Implementation is relatively easy and and reasonably cost- effective • Support: Standard is maintained and supported over time
The DTG’s commitment to continue the ongoing development of established digital television standards, including support for streaming video over IP, indicates that there is no need for the BBC to intervene in this process in order to support the Public Purposes (and indeed, suggests that such intervention would be undesirable). It is, in our view, impossible to make a public value case for the BBC to have a role in creating a digital TV standard when, in parallel, a best-practise open standards approach is being applied through an established standards body with wide industry
13 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
support. A “standard based, open environment” is, after all, not the same as an open standard, not being subject to the checks and balances noted above.
The Executive notes in Section 3, para 3.8 (ii) that its preferred course is to work with the DTG to create a “D-Book 7” by March 2010 to agree and document a portion of the Canvas specification. In the event that the March 2010 deadline cannot be met, the BBC Executive state that DTG will be bypassed and Canvas partner would instead seek to meet directly with all parts of the Canvas value chain (including DTG members) through “a clear and transparent Canvas engagement programme, as resources allow”.
The timing is, in our view, unworkable but the involvement of DTG remains critical. There is no mechanism for the Canvas venture partners to support the essential principles of open standards development (as noted above) in the absence of the DTG.
We believe that timelines need to be based on what is reasonable for CE manufacturers, ensures an open standards approach, and maintains a level playing field. This will not be achieved through an arbitrary BBC Executive deadline. In our view, the DTG should be charged with ongoing development of the standards from the outset and should determine the appropriate timescales in consultation with its members.
Even if ALL specifications were set down in final form by March 2010, we do not believe that this would provide sufficient time for manufacturers to develop, manufacture and ship product for retail in September/October 2010 (other than, possibly those manufacturers selected by the BBC Executive as “innovation partners”).
From our own discussions, we do not believe that the constituent members or the bodies themselves (including DTG and Intellect) are “reassured”, as claimed by the BBC Executive. It is our understanding, that the majority of such members do not see the latest BBC Executive information as particularly progressive and that the consensus view on Canvas has not changed as a consequence of this information.
In paricular, we note that the Executive has failed to provide any detailed functional or technical specifications – a key requirement based on feedback from stakeholders from the original consultation. The Trust specifically requested that a technical specification be provided as part of the additional information (see Section 3, table enty 5.2). The Executive failed to provide this information , merely stating that the “overall intention is to make the specification available to all manufacturers”.
BBC programmes and services can be delivered effectively to FTA digital TV viewers based on the D-Book 6 specification alone. Indeed, we worked with the BBC in 2007 to successfully enable access to over 1,000 hours of on-demand archive BBC content direct to TV over the internet using MHEG-5 through the IP Vision Smart Box. as part of the BBC’s successful Open Archive trial.
14 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
Accordingly, Project Canvas does not deliver any incremental contribution to the delivery of the sixth Public Purpose “Helping to deliver digital Britain” by means of delivering BBC programmes and services to different devices.
Moreover, we believe that Canvas would actively stifle innovation, reducing the impact of value added hybrid DTT/broadcast services developed by commercial organisations such as ourselves, that both embrace Freeview standards, including D- Book 6, and provide additional features such as premium on demand services.
The Freeview brand will continue to be the standard bearer for free-to-air services, guaranteeing universal access to BBC iPlayer and similar FTA on demand services through the evolution of the existing DTG standards. We expect a vibrant market for additional value added on demand services to emerge, whereby the commercial sector delivers unique added-value services that build on this enhanced FTA provision. IP Vision has already launched such a hybrid IPTV/DTT consumer service (“FetchTV”), as a Freeview Plus service (the first of its type in the UK). We expect to partner with a wide range of providers to deliver branded services with partners, including retailers and network operators. We are sure that other providers will emerge just as a market has developed for other extended Freeview services (e.g. Top Up TV, BT Vision).
Reference is made by the BBC Executive in Section 1, para. 1.1 to the “current deadlock at DSLTV” i.e. (the Freeview corporate entity). The nature of this alleged deadlock is neither characterised nor detailed – in our view there is scope for substantial development of enhanced, on demand capable free-to-air services within the existing Freeview structure with substantially fewer competitive barriers than those that would arise under Canvas. FetchTV is an example of such innovation. We do not understand the deadlock issue and would like clarification.
4. INTERESTS OF THE LICENCE FEE PAYER
We believe that the interests of the licence fee payer are best served by the BBC as follows:
• ensuring that the success of the Freeview brand in creating a horizontal market for FTA TV is not diluted after the introduction of HD broadcasting by supporting unequivocally the D-Book 6 standard and not attempting to create an additional standard; and • allowing commercial enterprises to innovate and develop added value premium services (such as pay per view on demand) which provide choice in the market and, to the extent that such services are Freeview branded, build on top of the existing D-Book 6 standard, thus ensuring access to all associated FTA services (such as BBC iPlayer).
Viewers would be able to access BBC iPlayer and similar services through an option on the existing BBCi Freeview red button service (developed to date using MHEG-5, as specified by the D-Book) on Freeview HD.
15 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
We note that Trust requested information in Section 5, Table entry 6.10 asking:
- How will the JV market and promote Canvas and ensure alignment with DSO and T2 deployment? - Will the Executive ensure that the JV's promotion of Canvas complies with the Fair Trading Guidelines?
The Executive provides no substantive detail or explanation in relation to either question, stating it will be “a matter for any new venture”. In the absence of any substantive information, our view is unchanged from that above.
16 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
5. MARKET IMPACT
We have reviewed the preliminary market impact assessment prepared by the BBC Executive. While we appreciate that the Trust intends to carry out its own review, we feel that it is important to provide feedback on the existing materials.
Model assumptions
We believe that the model assumptions are flawed in the following respects: • no account is taken of the impact of D-Book 6 for all Freeview HD devices; • the model indicates incorrectly that there are no alternatives with equivalent features already in the market; • it is assumed that existing pay TV platform operators would not choose to enter directly into the market for Canvas-type services, either on their own account or with partners • it is assumed that CE manufacturers and/or broadband service providers do not/will not have interests in delivering end-to-end connected TV/DTT services in the Canvas mould
We believe these to be material errors. Many of the conclusions that have been drawn on the basis of these erroneous assumptions are, in our view, also incorrect.
These shortcomings have been largely confirmed subsequent to the original application: - in Section 5 para. 5.3 of the additional information the Executive confirms that there are plans to launch iPlayer on both Freeview and Freesat - IP Vision has launched the latest iteration of FetchTV, offering the same features proposed by Canvas - Sky has announced plans to launch Sky Player on Xbox 360 and will likely look to develop a similar model in the DTT space - Negative responses to the original consultation from Intellect and many manufacturers confirm that Canvas is unattractive to them under current proposals
In particular, we would point out that:
1. D-Book 6 will create a platform for FTA hybrid DTT/IPTV services, which will fully support PSB services, including BBC iPlayer for all Freeview HD devices, regardless of Canvas and in the same proposed time frame. 2. IP Vision’s service is available now as a white-label product, enabling retailers, platform operators, CE manufacturers and ISP’s to deliver Freeview Plus, IP connected services on a subscription-free basis. 3. We believe, based on our direct experience in this market over the last two years, that existing TV, platform operators CE manufacturers and broadband service providers understand the benefits of a connected Freeview service and are interested in ways in which they can generate value from these services through both their own service innovation and through effective partnering (see recent “connected home” announcements from Sony and others).
17 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
The Counterfactual
The BBC Executive has presented a “counterfactual”scenario (“the Counterfactual”) which seeks to examine the consequences within the market up to 2017 in the event that the Canvas project does not proceed. Amongst the consequences identified, we would highlight the following:
• fragmentation of DTT due to impact of pay-DTT, including the launch of Sky’s Picnic service • negative impact on DTT, on the basis that Sky would drive households to pay satellite through the Picnic service
IP Vision comment: We would point out that, in our view, the introduction of D-Book 6 as a widely ratified and mandated standard will counter the threat of DTT fragmentation more effectively than Canvas. In fact, the introduction of Canvas in spite of D-Book 6 would likely cause significant fragmentation.
In addition, we note the findings of recent analysis by Enders Analysis, which considers the likely impact of PVR and IP access on the TV market. This research indicates that unique DTT households would increase to 11.2 million homes by 2012 and 11.5 million homes by 2017 of which 2.9 million homes and 6 million homes respectively will be using hybrid connected DTT devices. This is based on a “non- Canvas” world.
The Executive has estimated a low case of 3.3 million Canvas devices by 2012 and 7.2 million by 2017, assuming competitive response (which, in the light of our comments on the underlying model assumptions, as outlined above, we believe will almost certainly arise).
On this basis, there is little argument for the BBC to develop Canvas as, allowing for margin of error in forecasting, the need for connected DTT devices, supported by FTA standards, will be addressed by the market without intervention by the BBC.
Alternate launch scenarios
In addition, the Executive has presented several variant scenarios based on Canvas proceeding as planned, reviewed their forecast outcomes for each scenario and compared those outcomes to the Counterfactual scenario. These are summarised below with our comments.
Canvas launches, is well taken up and there is no competitive response
Summary of Executive conclusions: In this case, DTT as a whole grows more quickly than in the Counterfactual and Canvas standards are adopted by other DTT value added operators (e.g. Top Up, BT Vision, Sky). This growth would be at the expense of pay satellite and cable services. The impact on broadband service providers is considered unclear (except for non-LLU operators, on the basis of increased costs)
18 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
and the scenario would be deemed positive for manufacturers due to increased box churn.
IP Vision comment: This would only hold true in the absence of an established IP connectivity standard for Freeview HD boxes. As things stand, we expect that Canvas would damage DTT growth prospects due to widespread confusion in the market. We do not believe that operators of broadband enabled DTT services will take up Canvas with other options available in the market which allow them to both support FTA on demand offerings on Freeview and also develop incremental value added, branded services of their own without imposed UI and other restrictions. In our view, this is positive for the market and supports PSB FTA services (which would be enabled through the underlying D-Book 6 support within all Freeview HD devices). For ISP’s, this may help to build new content-derived earnings streams to compensate for increased traffic costs – we believe that it is naïve to expect broadband subscribers to accept the pass-through of these costs in the face of cheaper alternatives. Similarly, we expect manufacturers to diversify revenue streams by investing in end-to-end connected services to the TV. Churn in the market is not good for manufacturers if it comes at the expense of monetising connected services in order to compete on unit price at retail with full service providers.
Canvas launches, is well taken up and there is a competitive response from pay satellite
Summary of Executive conclusions: DTT penetration would be somewhat lower than the Counterfactual. Pay satellite penetration would be higher at the expense of DTT, free satellite and cable.
IP Vision comment: In the first instance, we would expect existing platform operators to compete with Canvas through a range of means rather than just through their existing satellite service provision. In fact, we believe that Freeview and Freeview HD provide an excellent base for any operator to extend their reach in the market, As such, we expect that, regardless of Canvas, a number of hybrid DTT models will come to market over this time frame as forecast by independent market analysis.
Canvas launches, is well taken up and there is a competitive response from pay DTT
Summary of Executive conclusions: DTT penetration would be higher than Counterfactual although fragmentation would increase.
IP Vision comment: For the reasons stated above, we expect the DTT market to develop regardless. Canvas will hinder this unnecessarily since Freeview has a clear evolution path to support on demand delivery of PSB services over IP. Canvas would, in fact, create fragmentation.
Canvas launches and fares less well in the face of a strong pay DTT response
Summary of Executive conclusions: No material changes from Counterfactual scenario outcomes.
19 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
IP Vision comment: We do not believe that the absence or failure of Canvas will materially impact the market for connected hybrid DTT devices that support FTA on demand services (see IP Vision comments on Counterfactual above), contrary to the conclusions reached by the BBC Executive.
Canvas launches and is unsuccessful despite a weak pay DTT response
Summary of Executive conclusions: No material changes from Counterfactual scenario outcomes.
IP Vision comment: We do not believe that the absence or failure of Canvas will materially impact the market for connected hybrid DTT devices that support FTA on demand services (see IP Vision comments on Counterfactual above), contrary to the conclusions reached by the BBC Executive.
Summary of Executive Conclusions
The summary Executive conclusion states that Canvas would:
• be positive for DTT penetration (and so growth of PSB consumption); • create a more open DTT platform; • increase VOD consumption; • benefit manufacturers; and • increase broadband penetration.
The key negative impact is stated as being higher costs to non-LLU providers.
IP Vision Comment: In our view, Canvas does not provide a boost for Freeview or DTT within these time frames given other dynamics in the market. We believe that it would likely prove detrimental to growth.
We also believe that developing a “standards-based” platform over which the proposed joint venture would exert significant control, both in the choice of constituent proprietary standards and in terms of the user experience will do nothing to promote a “more open” DTT platform. The Freeview platform is evolving through the continued development of well-established standards set through the DTG with wide industry support. These standards are much less prescriptive than those proposed in Project Canvas.
On the basis that hybrid DTT devices will be a reality regardless, we do not expect Canvas to grow VOD consumption and, further, we expect that many manufacturers will regard Canvas as a backward step and contrary to their interests in the maturing “connected home” space. Finally, we do not see any particular drive in terms of increased broadband penetration through Canvas – given that the hybrid device market is expected to grow broadly in line with the Executive’s estimates regardless. In fact, unless broadband providers were compensated for the impact on their traffic costs by the Canvas JV (which is not allowed for in the Canvas budget), and in the
20 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
absence of any means to monetise Canvas services on their own account, there is a significant chance that average broadband retail costs will increase to the detriment of take-up.
It is difficult to comment further based on the minimal additional information provided by the BBC Executive subsequent to the original consultation. The Trust requested that the Executive provide the current and, where possible, future business plans (for the next five years) of the JV partners in terms of proposed deployment of boxes or other devices, including unit sales, price points and subsidy level (see Section 3 of the additional information, table entry 5.5 b). The Executive responded that this information was to be withheld in its entirety as it was “company confidential information”. In our view, this is an untenable position given that equivalent information (albeit higher level) has already been published in the original application. In addition, the BBC Executive insists on equivalent information from third parties in assessing whether there is a requirement for it to syndicate content - a clear imbalance
In addition, the Trust requests from the BBC Executive that it discloses the basis of payment for any fees or licences relating to the technical specification and what role Canvas will have in coordinating these payments (see Section 3 of the additional information, table entry 5.4). The Executive fails to deliver any substantive information in this regard.
Finally, the Trust has requests detailed information on costs from the BBC Executive as documented in Section 6 of the additional information. These requests include: - confirmation of forecast costs - a breakdown of costs between technology, STB specification/development, software integration, marketing and content distribution - confirmation that all relevant costs have been allocated - costs of re-versioning content - a detailed analysis of forecast costs for 5 years - a sensitivity analysis - risk factors and weightings
The Executive’s responses are cursory at best and, in essence, amount to an admission that there are no up-to-date budgets, forecasts, sensitivity analyses or risk assessments.
Taking all of the above into account, we do not understand how the Trust can develop a meaningful market impact assessment model given the lack of any substantive information from the BBC Executive. If such information is to be provided by the Executive, we would like confirmation that it will be made available to stakeholders.
Impact on IP Vision
IP Vision is the only existing single provider of a complete end-to-end solution in the UK, enabling rapid deployment of a Freeview Plus compliant hybrid service providing digital TV, PVR, on demand, catch up and media sharing functions. The
21 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
platform is live and is showcased by the FetchTV service (www.fechtv.co.uk), enabling licence fee payers to take advantage of these services on a subscription-free basis now, using any broadband connection.
We continue to innovate in the space, with updated devices, features and expanded content. Currently we offer a wide range of movies, television and music on demand and expect to deliver catch up services shortly.
IP Vision is committed to industry standards as a member of both DTG and ATVOD. We will continue to support open standards, including D-Book 6, as we develop our product range. Our service already provides for upscaling of existing Freeview standard definition content to HD as well as providing access to both SD and native HD on demand content. We expect to launch a D-Book 6 compliant version of the service on or before the launch of Freeview HD broadcasts in 2010.
In so far as Canvas is concerned, we are aware that BBC and other prospective joint venture partners have engaged with a range of technology providers, including device manufacturers (a number of whom we have also had discussions with). We have not had sight of any detail regarding the proposed Canvas standard to date and so it is difficult to make specific comment on the technical requirements (although we would expect to be able to support any reasonable functional requirements through our existing, wide support for generally accepted technologies and standards).
To the extent that Canvas unnecessarily confuses the market and damages the interests of the commercial sector, this is likely to have a negative impact on us. We are seeing some early evidence of this now, based on widespread confusion in the industry as to what Canvas represents in reality. This, coupled with the issues that we continue to experience in terms of the syndication of BBC on demand content, have, in some cases, muddied the picture with partners and affiliate distributors. The introduction of D-Book 6 has helped in this regard.
The situation has been exacerbated by mixed messages from the BBC Executive and its prospective JV partners. Richard Halton has made comments in recent weeks that have been widely reported, to the effect that Canvas is, in fact, not an attempt at creating a new standard. This is quite contrary to the BBC Executive documents in the public domain as referred in the Trust Consultation. In fact the Trust Consultation document itself makes references to “”the development and promotion of…standards”, seeking to “define… a standards based open environment”, the setting of technical standards, “minimum technical specification”, and “certification for Canvas devices”.
From IP Vision’s perspective, we see no practical difference between:
(i) directly developing new standards and technologies; and (ii) mandating certain third party proprietary standards and technologies, in preference to other equally capable third party alternatives, as part of a single technology chain which forms part of a specification.
22 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
As such, we encourage the BBC not to take either route and instead to endorse the independent standards-setting process that has underwritten the success of the DTT platform for many years. This can be achieved by developing on demand services for the D-Book 6 specified platform rather than embarking on an isolated development process, with two JV partners. We do not believe that the latter is in the interests of licence fee payers or market participants.
Market Impact Assessment Update
The position for IP Vision, or any other entrant into the market, is little clearer on the basis of the additional information from the BBC Executive. As stated elsewhere, there is a dearth of information in respect of technical specifications, licensing costs, forecasts or timelines.
Impact of Technology and Trademark Restrictions
It is clear that there are some restrictions which could impact existing hybrid DTT/IPTV vendors, preventing them from participating, such as the DRM restrictions (see Section 6 below).
There are some additional specific disclosures, which we believe to be anti- competitive. In response to the Trust’s question as to whether Canvas would prescribe the look, feel and branding of the EPG, the Executive responds that “The Canvas JV will determine the look and feel of the core UI [including the EPG]” – see Section 2, Appendix, table entry “Access”, point (c).
In addition, the Executive clearly states that the Canvas trademark will only be available to device manufacturers who implement the core UI as the default UI, notwithstanding their right to also develop an alternative UI (Section 2, Appendix, table entry 2.4b). We believe this to be fundamentally anti-competitive.
Impact on Consumers
We see some obvious shortcoming of the platform in terms of its utility to consumers, which would potentially render adoption unattractive to hybrid DTT/IPTV vendors. It is clear from Section 2 that there will be no standardisation for on demand services in terms of user registration, authentication, transaction management or billing and so the experience is unlikely to facilitate “simple” or “seamless” access to broadcast and on demand service, as claimed (see Section 2, Appendix, table entry 5.11). This means that viewers are likely to have to register repeatedly and log on for different on demand services separately. The “unified” element of the platform as proposed is somewhat superficial.
Content Restrictions
On demand content owners are restricted to their “silo” within the service, which is subordinated to broadcast programming due to the construction of the UI. Content owners will also be required to meet contractual requirements for carriage and
23 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
minimum quality thresholds, neither of which are addressed by the Executive in any detail (see Section 2, Appendix, table entries 3.2 and 3.1a respectively).
Competition Issues
We have particular concerns in relation to: - Stifling of innovation - Crowding out of other players - Undue prominence to the PSBs
Stifling innovation: The additional information lays out a scheme where broadcast and on demand content are separated through the UI. The requirement for all Canvas trademarked boxes to carry the Canvas Core UI as the default user interface (including the EPG) stifles creative freedom in a way that the current Freeview arrangement does not. We do not believe it is good for consumers for one venture to dictate the user experience for hybrid DTT/IPTV. A huge amount of creative thinking and innovation on the part of manufacturers and content providers could be extinguished by Canvas.
Crowding out of other players: If Canvas becomes a de facto standard, there is a risk that other players, including ourselves, could be squeezed out. Even large platform operators could be negatively impacted in attempting to enter the market in the future.
Undue prominence to the PSBs: If Canvas dominates the market, then the PSBs (by virtue of their controlling block in the Canvas venture) may use this market power to attempt to maintain their existing dominance in TV content and the prominence of their broadcast channels and on demand offerings. This could be achieved through a number of means including exercising control over the design, layout and channel allocation of the EPG and/or control over integration of on demand and streaming internet content within the EPG
6. RISK AND COMPLIANCE WITH THE LAW AND BBC AND TRUST POLICIES
We believe that the primary risks to the BBC arising from Project Canvas relate to potential breaches of policy and law in respect of:
• Royal Charter and Framework Agreement • Competitive Impact Principle, Framework and associated Trust Statement of Policy • Fair Trading Guidelines • UK/EU Competition Law • Fiduciary Duties
Legislative Framework
24 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
• The Framework Agreement requires the BBC to adopt and publish both a statement of policy on fair trading and a statement of its policy on the competitive impact of the BBC’s activities on the wider market with due regard for competition codes issued by Ofcom and competition law generally. • The Framework Agreement has specific arrangements for dealing with “non- service activities”, being activities not in the nature of a service, which, for instance, may not require a full public value test (“PVT”) in relation to the market impact of a new or amended non-service activity where such a PVT would otherwise be required for a service.
Risks There is a risk that the Trust has inappropriately classified Project Canvas as a non- service activity when in fact, it is, in substance, a service. We believe this may be the case since paragraph 8.3 of the Executive’s non-service approval document makes it clear that the BBC will be solely responsible for distribution of on demand content in connection with Canvas. The BBC, in conjunction with its proposed joint venture partners, would also control the EPG (including control of navigation and access in relation to on demand content). We would argue that managing the user experience and access point to content (alone or in concert with other parties), providing content distribution services, developing and operating related infrastructure and content management/ingest for the lifetime of the Canvas platform clearly constitutes a service activity. In contrast, the BBC’s involvement in DTV Services Ltd does not involve any material operational element in respect of the Freeview service, for which transmission infrastructure is primarily managed and operated by Arqiva.
The impact of such a risk, if a third party were to challenge successfully the Trust’s determination, would be legal, financial and reputational. We believe that, had Project Canvas not been classed as a non-service activity, it would be subject to a full PVT, including a Market Impact Assessment by Ofcom.
In the Executive Summary of the additional information, the Executive states that “The further clarification does not, in our view, reflect any change to the vision and strategy as set out in the initial application”. We disagree; the scope is significantly wider than that previously understood. It is now clear that it is envisaged that there will be a branded platform with a mandatory UI/EPG, closely controlled by PSBs, with the BBC at the heart of decision-making and platform development. This is far removed from the mere definition of a “standards-based open environment” as originally proposed and, on this basis we believe that this should have been a Service Application from the outset and subject to a full PVT.
Competitive Impact Principle, Framework and associated Trust Statement of Policy
• The Competitive Impact Principle requires the BBC to minimise negative competitive impacts on the wider market by taking appropriate steps in any given circumstances in order to achieve this outcome. • The Competitive Impact Framework sets out requirements in terms of both the operational conduct of the BBC and enforcement and accountability
25 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
provisions (including Trust investigations, complaints and appeals and sanctions) all as detailed in the Fair Trading Guidelines. • The BBC must use its best endeavours to ensure that joint ventures such as Project Canvas comply with the Fair Trading Policy.
Risks It is unclear how the BBC will ensure that all procurement and other activities that are carried out in relation to Project Canvas by the joint venture entity will be completed in accordance with the Fair Trading Policy. For instance, under paragraph 11 of the Fair Trading Policy, all procurements by the BBC are subject to the EC public procurement regime which means that supply contracts above a certain value must be put out to tender. It is our understanding that the BBC and/or the prospective joint venture partners are already actively engaged with prospective technology product and service providers with a view to selecting partners for Project Canvas. We are not aware of any OJEC entries regarding tenders for such services. There is a legal, financial and reputational risk in the event that the BBC and/or its joint venture partners fail to comply with the Fair Trading Policy including the requirement to comply with the EC public procurement regime.
We understand that over £3.5 million has been expended to date on Project Canvas – a substantial portion of the total forecast costs for the project. We would like to see full transparency on the basis of selection, costs expended to date and measures to ensure that no competitive advantage is afforded to “innovation partners”.
Fair Trading Guidelines (“the Guidelines”)
• Chapter 1 of the Guidelines provides specific guidance on how the Trust’s Statement of Policy on Competitive Impact applies to the BBC’s activities. In particular, para. 1.7 of the Guidelines states that concerns would arise where “the BBC’s actions result in different organisations being treated differently without objective justification” and such behaviour “would materially affect an organisation’s ability to compete in the marketplace”. The example of allowing one platform operator to host the BBC’s on-demand service while refusing to deal with another such operator is specifically cited. • Further, para. 1.8 of the Guidelines specifically identifies the act of treating organisations differently in otherwise comparable situations as a clear indicator of potential competitive impact.
Risks The extent to which BBC content would be syndicated in a timely fashion to non- Canvas platforms needs to be clarified. Our experience over the last two years is that the On Demand Content Syndication Guidelines do not, in practice, ensure fair, reasonable and non-discriminatory access to BBC on demand content (despite the fact that these guidelines and the related policy arose directly out of a full PVT carried out in 2007, regarding on demand service provision). We have cited this failure as part of a complaint to the BBC Fair Trade Controller, dated 13 February 2009. In addition, we note that the EPG would be extended to include on demand content and that its
26 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
format and content would be controlled by the joint venture (which would also be able to charge for listings on the EPG). The basis of such control and the associated costs need to be clarified. Without transparency in these matters, we would argue that the Fair Trading Guidelines would not be effective for Canvas.
We believe that this information provided by the BBC Executive regarding content syndication in Section 5, para 5.3 (3) is misleading. This section states:
“The BBC’s commitment to syndication is well documented in both the BBC Trust’s On Demand syndication policy and the BBC Executive’s On Demand Syndication Guidelines. The BBC is currently re-visiting the governance of this policy to ensure that, as the number of platforms and device manufacturers seeking access to BBC on demand services increases, the BBC deals fairly with all requests. In any event, we should be explicit that the arrival of Canvas should not reduce the BBC’s willingness or capability to syndicate its content or change its existing commitments to service arrangements already in place. In fact, if Canvas succeeds in broadening the appeal of connected devices, it should have the effect of increasing the availability of content and services tailored for the TV set. The BBC already makes BBC iPlayer available via Virgin Media’s TV services, a range of internet connected devices including games consoles and has plans for versions for Freesat and Freeview.”
We believe that the Executive is “revisiting” the governance of the syndication policy only due to our complaint to the BBC Fair Trading Controller in this regard, which was largely upheld. As noted in Section 2, we are appealing to the Trust in respect of those elements of the Complaint that were not upheld. Our own experience in enabling BBC iPlayer on the platform has been instructive and, even following the publication of the findings of the Fair Trading Complaints Panel, this has proved to be difficult. We remain convinced that the syndication process is at best ineffective and FM&T is obstructive in its approach. We also believe that the investment in enabling widespread syndication by the Executive (outside of Project Canvas) represents a very small fraction of the cost incurred in Project Canvas to date and that this disparity is unreasonable.
UK/EU Competition Law
• The Guidelines acknowledge the BBC’s obligation to act at all times within the terms of applicable Competition Law. Possible Competition Law infringements include placing restrictions on the behaviour of customers and partners which could affect competition in the marketplace and application of discriminatory terms and conditions as between comparable categories of customers without an objective and proportionate reason, together with potential abuse of a dominant position. • European state aid law is contained in Articles 87- 89 of the EC Treaty which prohibits any aid granted through State resources in any form whatsoever where such aid distorts competition by favouring certain firms or the production of certain goods. In the case of the BBC, we understand that the licence fee, and assets acquired or developed using the licence fee, are considered to be State resources.
27 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
• The Office of Fair Trading and Ofcom have concurrent powers in terms of their ability to enforce competition rules in the UK within the sector.
Risks The consequences of any breach of law on State Aid are severe, since they include: • the immediate full repayment of the aid by the recipients to the public body; • damage to the BBC’s reputation; and • substantial costs and disruption associated with regulatory investigation.
In the case of Project Canvas, we are extremely uncomfortable with the statements made by the Executive, in reference to device and technology partners, that “pragmatic decisions will need to be made…explicitly, the BBC may need to work with a smaller number of manufacturers in the run up to launch” and that “the Canvas team has already met with a number of companies” (para. 7.2). This indicates that the BBC intends to favour certain firms in terms of early access to Canvas standards in anticipation of launch (and indeed as a necessary precursor to launch). In our view, this constitutes state aid in terms of manufacture of units since early entrants will have had the opportunity to develop compliant units well ahead of the wider market (most likely the preferred parties would be those same companies that would in fact be licensing the associated standards-based technologies mandated by Canvas).
Having reviewed the description of the “innovation partners” arrangement in para 3.4 of Section 3 of the additional information, we are extremely concerned, particularly given the tight timelines that the Executive seeks to place on the DTG for release of specifications. The rationale laid out in the additional information has changed from that set out in the original application (which was concerned with time to market).The Executive confirms that amongst these partners are three hardware vendors and notes that “the relationship is with BBC R&D”. We do not understand the relevance of this qualification; this raises key questions:
- How much has been spent to date and how many FTE’s employed? - How will these partners not be at an advantage versus other manufacturers (at least in terms of time to market)? - How does the cost incurred with these partners and on Canvas to date (through BBC R&D and as a whole) compare with the projected costs per the original financial model? - Who are these partners and on what basis were they selected?
Given that the BBC will be involved in financing a venture that must select and license mutually exclusive technologies from different commercial vendors in order to “create a new technical specification” (Approval Document, Section 3, page 10), there will be inevitable cases where certain firms are favoured, in relation to the development of the standard itself. This too may constitute state aid. Should the preliminary findings of the Trust not adequately address these matters, then we would expect that the matter would be referred to Ofcom and/or the Office of Fair Trading. We understand that there are some similarities here to development of Freesat, but in our view, the materiality of the DTT market, given its size relative to the FTA satellite
28 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
market, is such that this approach would be deemed unacceptable in the case of Project Canvas.
In Section 5, the Executive responds to the question from the Trust (table entry 5.7e), “Will Canvas allow different DRMs to interoperate. It is confirmed by the Executive that only one such technology would be included at launch with no firm commitment to subsequently introduce further such technologies. We believe that this may constitute State Aid in respect of the selected DRM vendor as noted above.
We further consider that the appropriate market to consider in competition-law terms is the UK domestic market. Within this market, the BBC could be considered to have a dominant position, particular when the impact and widespread use of iPlayer is taken into account. We would submit that whether or not the development of a commercially restricted service and the leveraging of the BBC’s current position in such development could be considered an abuse of a dominant position is a matter which should be seriously reviewed.
The additional information provides substantial detail on the intended structure of the venture (although much information requested by the Trust has been withheld). We note that the Executive claims in the Executive Summary that Canvas would be a “neutral venture”. This is clearly not the case; control of the venture is substantially held by member public service broadcasters, including the BBC and there are both minimal minority interest protections and restrictive entry criteria for other parties. Reference is also made within the Executive Summary to criteria for membership for parties including “TV platform providers” but it is clear from the more detailed documentation that there is no clarity on membership rights for any party other than ISPs and PSBs.
The proposed shareholding structure as set out in Section 1, para. 1.3 of the additional information, would, in our view, constitute a merger in competition law terms. The project brings big organisations together to carry out an activity jointly that could have been done separately. Based on the shareholding structure and voting rights, it implies that some activities of the three companies would cease to be distinct. At some stage, therefore, we believe that Ofcom and/or the OFT will need to examine this venture to assess the degree of risk to future competition. We believe that, because the existing shareholders are very large and powerful organisations, the regulators will need to take a close look at the ways in which their combination might restrict or impede new entrants and smaller companies as well as damp down future innovation.
The majority voting rules in combination with the PSB majority ownership means there would be little minority interest protection and PSBs would have undue influence on the platform. In conjunction with the requirement for the core UI to be enabled by default by all manufacturers, in order for the Canvas trademark to be licensed and referenced in product packaging, this would act to restrict the market, controlling the enhanced free-to-air TV experience, which could be determined solely in accordance with the PSBs interests. The EPG would continue to favour the PSBs, who would effectively control channel listing order and designation. On demand
29 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
content would be siloed outside of the broadcast EPG space (as further detailed in Section 2 of the additional information). We do not believe that the market, if left open, would necessarily come to the same conclusions in terms of the UI format and construction and so the consumer’s choice would be further curtailed.
In addition, where membership is allowed to the venture subsequently, it is clear that the terms of such participation will differ for each entrant and we believe that there would be scope for further discrimination on this basis.
Finally, we note that the Trust requested further information on both competitive impact and compliance with competition law and state aid law together with incorporation documents for the venture and draft shareholder agreement terms (all of which has been withheld from the public domain (see Section 1 of the additional information).
Fiduciary Duties
Company directors bear certain fiduciary duties including a duty to act in the best interests of the Company and to avoid conflicts of interest.
Risks DTV Services Ltd is financed entirely by its shareholders. To the extent that Canvas is seen to be detrimental to, or to conflict with the business of DTV Services Ltd, which operates the Freeview platform for the benefit of the public for and on behalf of its shareholders, it is difficult to see how the BBC or ITV could continue to be represented on the board of that company, should Canvas proceed as planned (particularly on the basis that licensing for the Freeview brand was sought in connection with the Canvas standard). In this latter case, the Freeview brand would be licensed for the purposes of building a distinct Canvas service through the migration of Freeview households, who could otherwise reasonably be expected to upgrade to Freeview HD in due course (both to take advantage of HD broadcasts and to utilise IP-based on demand services). Instead, Freeview viewers would be encouraged to switch to an alternate dedicated IP-connected FTA platform, presenting a clear conflict in terms of BBC and ITV nominated directors.
This is not addressed directly in the additional information and, given the public (negative) stance adopted by Sky to Canvas, this remains a risk.
30 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
Yours faithfully,
For and on behalf of IP Vision (UK) Ltd
Eddie Abrams CEO
31 APPENDIX A – ANNOTATED COPY OF RESPONSE TO ORIGINAL CONSULTATION
[NOT PUBLIC DOMAIN]
32
Canvas Consultation BBC Trust 35 Marylebone High Street London W1U 4AA
1 September 2009
Dear Sirs
RESPONSE TO THE BBC TRUST RE. “PROJECT CANVAS”, FOLLOWING PUBLICATION OF ADDITIONAL REVISED GOVERANANCE AND COST INFORMATION ON 4 NOVEMBER 2009
1. OVERVIEW
We write to formally comment on the additional information from the BBC Executive that was published by the BBC Trust in respect of the Project Canvas consultation on 4 November 2009. We understand that this document may be published. We would be grateful if you would acknowledge receipt of all documents by return.
We have reviewed the new materials in Sections 2 and 3. In addition, a number of events have occurred subsequent to the submission of our response to the second consultation on 1 September 2009 which are pertinent to the consultation. We have highlighted these in Section 4. Our concluding comments are laid out in Section 5.
2. GOVERNANCE MODEL AND SHAREHOLDER AGREEMENT
Section 2 of the Governance Model document lays out stakeholder concerns and stakeholder support regarding proposals made by stakeholders in relation to the second consultation. We believe this to be somewhat misleading, implying that the Executive has reviewed stakeholder responses in relation to the second consultation. Clearly, this should have not have been the case since these documents have not been published by the Trust. It may be that the Executive is referring to those submissions that have been made public by individual stakeholders (or otherwise communicated to the Executive by those stakeholders). This should be clarified so as to state that the comments in Section 2 do not, in fact, represent the views of stakeholders generally. Certainly, we don’t feel that the Executive’s summation in Section 2 represents the views that we expressed in our response to the second consultation accurately.
1
Generally, we believe that the revisions proposed in the governance model and shareholder agreement documents are too limited to address the issues that we and others have expressed previously in relation to the venture structure:
Governance model
• There is no detail as to how initial subscribing shareholders would be admitted or selected (other than those prospective shareholders who have already been declared). It is inappropriate for those existing declared prospective shareholders to be responsible directly for clearing the admission of other prospective shareholders. When coupled with the vague admission criteria (e.g.”demonstrates an ability to fulfil the commercial objects of the JV”), this is open to abuse and it is likely that, in practice, the venture would continue to be closely held by the PSBs. As noted previously, when coupled with majority voting this creates clear competition issues. • We assume that shareholders would be expected to subscribe to shares at par value and the shareholder agreement would require a loan to be made as indicated to the venture company. The terms of such loans are unclear but we expect that the loan would, in substance, be in the nature of equity investments (being irredeemable). This needs to be clarified as it has implications for all prospective shareholders. The effective entry valuation applying for those shareholders who subscribe following the formation of the entity is not considered at all (despite this being mentioned in the Executive’s previous published materials).
Shareholder agreement
• There are a number of key shareholder agreement terms which are referred to but are unspecified, including provisions for member expulsion and bad leaver provisions. These are critical and need to be published for debate. • The draft commercial objects clause refers to the DTG and express acknowledgment by the members of the venture as to the role of the DTG in developing and maintaining standards. This is ambiguous, particularly when set against the Executive’s previous statement regarding the time limits it sought to apply for standards publication as a condition of vesting standards development with the DTG. It is essential that this matter is clarified. • Clause 1.2 of the draft commercial objects specifically refers to the development of a “new hybrid platform”. This is at the heart of many of our concerns in relation to Project Canvas, which, supposedly, was simply about a standards-based approach and not the development of a platform. As previously stated, we believe that the venture stakeholders are indeed seeking to create a platform and this wording further reinforces that view.
Significantly, the proposed venture structure alterations do nothing to address the competition issues that we have previously raised. It is likely that the venture would
2
continue to be dominated by PSBs as noted above. As we have noted previously, this is particularly concerning given the continued focus on dictating the structure and presentation of the core UI, including the EPG, and the linking of these requirements to the terms of the proposed Canvas trademark.
In summary, we do not believe that the revisions proposed address meaningfully the issues raised in our submission of 1st November.
3. REVISED COSTS
We have reviewed the short note on revised costs that has been published. Again, we consider the presentation to be misleading. We would have expected the figures to have been presented on a comparable basis to that information published previously and a variance analysis presented accordingly. We consider this to be generally accepted practice. In this case, we can see that:
• A material cost centre included in prior cost estimates have been excluded • The period of forecasting is not consistent • Shareholder cost allocation is not presented on a like for like basis • Variance analysis has not been presented on a like for like basis (i.e. for the venture as a whole)
Costs The Executive states in the note that “In the original application, the BBC also modelled the potential further efficiency of including Freesat within the Canvas JV, subject to further regulatory approval. For clarity, this efficiency is not reflected within these revised numbers”. If the object was clarity, then it would have made more sense to include these ‘efficiencies’, which represent significant incremental cost, to enable a like-for-like comparison. Alternatively, the original cost forecasts could have been restated to exclude Freesat.
In the original application the Executive noted that “Based on sharing the venture costs equally between 4 partners, the BBC would incur additional costs of £6m over the five years…Once the planned investment in Freesat is included the total cost of the new venture to the BBC is £16.6m over five years. This equates to an additional ongoing cost of £1.2m from 2012/13”. This was based on four equal venture partners.
This implies an incremental cost in association with Freesat of £10.6 million over five years. With regard to the revised forecasts , the correct costs for comparison purposes in relation to the BBC’s share of the project’s costs over five years, is, therefore, £6 million and not £16.6 million.
The implied total projected costs of the venture over five years, as stated in the original application, excluding Freesat, would have been £24 million (based on the assumption of four venture partners).
3
Period of forecasting The cost projections in the original application were over five years; those presented in the latest note are for four years but include a setup period. It is possible, therefore that the costs in the latest note are understated, in terms of a direct comparison versus those in the original application although there is insufficient information to confirm this.
Shareholder cost allocation We believe it is appropriate to maintain the same assumption in regards to the number of partners in the venture, in the absence of any objective justification to the contrary. As such, we believe the correct comparison, in terms of the variance in cost projections for the BBC, should be based on four partners and not six. Hence the correct cost in the revised forecast for comparison is £24.7 million and not £16.4 million.
Variance analysis A limited amount of cost analysis has been shown in the note for the four year projection. Unfortunately, even this level of detail is not shown in the original application, precluding variance analysis by cost category and/or year to year. We believe that much more information should have been provided both in respect of the latest forecasts and the original forecasts.
Even on an aggregated basis, though, no analysis has been provided. For the record, projected costs (even disregarding any disparity in terms of the period covered by each of the projections) have risen by over 400% from £24 million to £98.6 million (both figures bring stated net of ‘cost recovery’). For the BBC, projected costs have risen from £6million to £24.7million when stated on a like for like basis.
The statement in the note that the “total cost to the BBC over this period is projected at £16.4m compared with £16.6m in the previous model” is, in our view, deliberately misleading and represents a clumsy attempt to divert stakeholders attention from the true picture. The fact that cost estimates have risen so dramatically, suggest that little confidence can be attached to these latest estimates and that costs are likely to escalate further. In addition, the ongoing cost to the BBC beyond the forecast period (stated in the original application as £1.2 million, excluding Freesat) is likely to be significantly understated.
More generally the level of analysis of costs is extremely limited and falls well short of that requested of the Executive by the Trust, which included the following:
• confirmation of forecast costs • a breakdown of costs between technology, STB specification/development, software integration, marketing and content distribution • confirmation that all relevant costs have been allocated • costs of re-versioning content • a detailed analysis of forecast costs for 5 years • a sensitivity analysis
4
• risk factors and weightings
This detail should have been provided both in respect of the original forecasts as shown in the original application and the revised forecasts. Even from the limited analysis, it is clear that the anticipated marketing spend is a high proportion of total cost and greatly exceeds that expended by, for example, Freesat. This confirms our concern as to the essentially anti-competitive nature of the venture, given its consistent loss making profile over the forecast period (and presumably beyond).
Finally, we note the disclosure of certain costs incurred by the Executive for the period to August 2009. We would have expected this disclosure to include September and October. We would also like to confirm that all relevant costs have been included in accordance with generally accepted accounting practice in the UK, including capital costs. We would also request that the costs incurred by BBC R&D in its ongoing research and development work to inform specification development are stated for the same period. This will allow stakeholders, particularly those who are also a part of the DTG’s “Connected TV” project, to assess the value of this work based on contribution by the BBC to date in relation to the DTG work.
4. EVENTS SINCE 1 SEPTEMBER
On Demand Content Syndication by the BBC
We are concerned as to the continued lack of progress in terms of the BBC’s obligations to syndicate on demand content (both through iPlayer and directly) in accordance with the On Demand Content Syndication and Guidelines established by the Trust in accordance with the related Public Value Test.
We have not seen any evidence that the BBC Executive has progressed in this regard. In it’s response to IP Vision’s complaint regarding on demand content syndication, the BBC’s Fair Trading Panel, in May of this year, directed the BBC Executive to take a number of steps, including the formation of a body with responsibility for ensuring a common and consistent approach across the BBC in relation to on-demand syndication. We call on the Trust to ensure that the Executive fulfils the requirement promptly and that the membership, terms of reference and constitution of this group is declared to stakeholders.
In addition the Executive was directed to “maintain a clear, agreed approach on its on- demand syndication strategy… and that this approach should be communicated clearly to potential partners”. We note with interest the recent publication by the Executive of “clarification” on the syndication of the BBC iPlayer on the BBC website and on blogs authored by BBC Future Media & Technology staff. See:
• http://www.bbc.co.uk/info/policies/syndication.shtml;
• http://www.bbc.co.uk/blogs/bbcinternet/2009/10/where_next_for_the_bbc _iplayer.html (note the correction in reference to the clarification re
5
iPlayer syndication, originally referred as "new guidelines", as can be seen in the strikeout); and • http://www.bbc.co.uk/blogs/bbcinternet/2009/11/bbc_iplayer_standard_pr oducts.html.
We find it odd that the BBC Executive should use blogs to disseminate BBC policy in this way. This seems inappropriate - these blogs are not a replacement for formal announcement of policy and we have not seen these matters documented elsewhere.
We believe the "clarification" regarding iPlayer syndication amounts to an unauthorised amendment of the On Demand Syndication Policies and Guidelines, unreasonably equating installed base with effective reach as a proxy for "value for money".
The clarification also seeks to further establish (erroneously) that on demand video syndication and iPlayer syndication are synonymous. We note that the Trust made it clear in its Final Conclusions in relation to the PVT that BBC iPlayer was “not a shorthand for the on-demand offerings considered in this PVT. They are not one and the same”. The Trust also stated that BBC iPlayer was not a service in its own right but rather it is “a user interface with an associated download and branding.”
In our view, any amendment to the On Demand Content Syndication and Guidelines of the type laid out in the BBC Executive’s clarification is an extension of the establishing PVT process. The BBC Executive is not authorised to make such amendments without reference to the Trust /Ofcom.
We believe that the on demand content syndication process needs to brought into line with policy as a pre-requisite for any move to progress Project Canvas, given the dominant influence of BBC on demand content in the market and the threat to competition from Canvas.
Development of BBC iPlayer for MHEG-5
We note that a beta of BBC iPlayer on Freesat using MHEG-5 technology has recently been announced. This confirms our assertion that there are no fundamental restrictions on the BBC in making BBC iPlayer available on D-Book 6 compliant Freeview HD devices, irrespective of Project Canvas.
DTG Connected TV Project
We are an active participant in this project and note that it is intended to address the move towards connected free-to-air TV devices generally in conjunction with its stakeholders (of which Canvas is one only). As such, it is expected that a connected TV specification will emerge from this work irrespective of Project Canvas.
6
5. CONCLUSIONS
In the light of the revised forecasts and continued rapid development in the market, we would ask the Trust to seriously consider the value represented by its continued involvement in this project. On the basis of the revised forecasts, the cost to the BBC alone over the next five years of Project Canvas would exceed the original forecast costs for the entire project. We do not think that this is a justifiable use of the licence fee, given the following:
• There is no evidence of market failure, as noted in our previous submission..
• The beta of BBC iPlayer on Freesat shows that the BBC is not restricted in enabling access to its content on free to air devices. We do not believe that there would be substantial incremental effort or cost to replicate this on Freeview HD, thus ensuring access to BBC content through free to air digital terrestrial TV.
• The work of the DTG on Connected TV will ensure that increasingly sophisticated free-to-air connected digital TV services will emerge, spurred on by effective competition in the market. We understand that the Connected TV specification will embrace and extend D-Book 6.1, ensuring that BBC content can be made available universally from next year, as the Connected TV specification emerges and evolves.
In summary, we believe that there is every reason to believe that the BBC’s vision (regarding access to its content by licence fee payers through a horizontal base of free to air digital TV services) will be realised in the absence of Project Canvas at far lower cost and with less confusion on the part of licence fee payers.
For completeness, we have reproduced in the Appendix the questions that we posed to the Trust (and the Executive) in the conclusion of our submission in respect of the second consultation. We have made some additional annotations in red italics based on the revised governance and cost information and the other matters reviewed in this response. We would still like to see responses to all these questions to be placed before stakeholders prior to the next stage of the consultation. We do not wish to amend our response to the second consultation in the light of the revised costs and governance information and that submission should be considered in full, alongside, this response.
Finally, we wanted to make an observation regarding the consultation process. We believe that this has become fragmented and that the continued piecemeal publication of information from the BBC Executive is damaging to the integrity of the process. Stakeholders have been presented with three sets of information (with numerous inconsistencies and contradictions). We recognise that the BBC Trust must stand apart from the Executive and has published this information when received. We would point out, though, that much of the information that the Trust requested of the
7
BBC following the original consultation has still not been provided or published many months later.
Yours faithfully,
For and on behalf of IP Vision (UK) Ltd
Eddie Abrams CEO
8
APPENDIX
General
• What is the detailed objective justification for the decision to classify the project as a Non Service Activity? • Why does the Executive consider that continued innovation and development in the market (even since the start of the consultation) in respect of hybrid TV services supports Canvas rather than calling the project into question? • What is the nature of the “deadlock at DSLTV” and in what way is this stifling the development of innovative new DTT/IP hybrid services in the UK? • When will the Executive publish information that has been withheld, redacted or is claimed to be unavailable, including but not limited to: o Competition law analysis carried out by the BBC o Incorporation documents and draft shareholder terms o Functional and technical specifications o Schedule of manufacturer licensing fees o All forecasts including unit sales forecasts, price points and marketing spend limited marketing spend information provided • Will the consultation approval process continue in the absence of the published documentation listed above?
The Venture
• What justification is there for the dominance of the PSBs in respect of the ownership and control of the venture and in what way can the venture reasonably be described as “neutral”? • How will the venture’s governance prevent PSBs from using market power through undue dominance to stifle competition? • What minority interest protections will be put in place? • How will the venture ensure that membership is widely available on a non- discriminatory basis?
Superficially, the amendments proposed address these issues to some extent. For the reasons we have stated, however, we do not believe that these amendments would be effective in this regard. We believe that the Executive’s failure to present an objectively justifiable structure demonstrate that the venture, as envisaged, is fundamentally flawed.
Standards and Development
• Which DRM will be used and what is the objective justification for its selection and the decision to restrict integration of other DRMs? • Is it realistic to suggest that all specification will be released in March 2010 in final form (having passed through the DTG consultation process) and that this
9
allows sufficient lead time for development, testing, manufacture and shipping ahead of the Christmas 2010 season? • Why must the Canvas core UI be the default UI as a condition of trademark licensing? • What justification is there to remove the DTG from the standards setting and approval process on the basis of an arbitrary deadline given that no reasonable alternative has been detailed (i.e. a mechanism through which interested parties’ rights are protected)? Do references to the DTG in the commercial object draft represent a change in this position?
Content on the Platform
• What are the detailed contractual requirements and minimum quality criteria that will apply to content providers? • How will the venture ensure that PSBs are not favoured in term of the position and prominence of both broadcast and on demand content? • What steps will be taken by the Trust and Executive in order to ensure fair and non-discriminatory syndication of BBC content, including iPlayer, in a reasonable timeframe? As noted above, we believe that the position regarding on-demand syndication of BBC content is, in fact, regressing further • How will the venture ensure that consumers will not be faced with a multitude of registration, log on and payment mechanisms for different on demand content providers, given the proposed architecture of the service? • In what way is D-Book 6 restrictive in terms of the access to and presentation and playback of PSB content (such as iPlayer), when used with, and linked from existing “red button” interactive services and to what extent has the Executive considered practical and cost effective means to deal with any shortcomings within the existing D-Book 6 standard • When will the BBC make iPlayer available on Freeview HD and Freesat?
As noted, a beta of BBC iPlayer on Freesat using MHEG-5 technology has recently been announced. This confirms that there are no fundamental restrictions on the BBC in making BBC iPlayer available on D-Book 6 compliant Freeview devices in the manner described above. We would like confirmation that BBC iPlayer will be made available on other suitable MHEG-5 platforms, including Freeview HD, on this basis.
Pre-Approval Expenditure and the Innovation Partners
• How much has been spent and/or committed by (i) the BBC partially disclosed but excluding associated R&D costs (and possibly other costs) and (ii) the venture partners in total to date on activities connected with Project Canvas? • On what objective basis were the innovation partners selected so as to ensure compliance with the Fair Trading Guidelines? • Who are the Innovation Partners? • How much money has been paid and/or committed to the innovation partners by (i) the BBC and (iii) the venture partners in total to date?
10
• How will the venture ensure that those innovation partners that manufacture hardware will not enjoy a “time to market” advantage should the project be approved?
Market Impact Assessment
• How will the Trust carry out a meaningful MIA in the absence of any up to date supporting data from the Executive in terms of standards, technology, forecast activity, costs (including costs displaced through third parties such as ISPs and manufacturers) the cost information disclosed is extremely sparse as noted marketing plans etc? • Will the Trust carry out a review of alternative services deployed or in development, which enable access to both free to air broadcast and on demand services without subscription and consider the competitive impact of Canvas on those related service providers? • How will the Trust verify the extent to which licence fee payers will be negatively impacted due to overlap and confusion as between the Freeview HD and Canvas propositions in the absence of any meaningful information from the Executive regarding plans to avoid such negative impacts?
11
Mo McRoberts
Dear Sir,
This is a formal response to the extended Project Canvas consultation, following the BBC Executive’s release of further information regarding the project. This response may be reproduced freely in whole or part, assuming proper attribution is given. It has been published on the Web at http://nevali.net/post/148419293/formal-response-to-the-revised-project-canvas
====
The revised consultation documents published today by the BBC Trust provide a much clearer picture of the BBC Executive’s intentions with respect to Project Canvas than the original consultation document. Essentially, the joint venture will have four primary areas of responsibility:
• Devising a set of technical standards which govern the project • Developing a software platform for the project • Managing and maintaining licensing of the Canvas brand • Acting as gatekeeper for providers wishing to deliver content across the platform
With other broadcast media, there have traditionally been three primary aspects to consider: the technical standards which govern the format broadcasts must take and the means for broadcasting them, and responsibility for actually carrying the broadcasts (either directly, or through an intermediary), and regulatory compliance. In general, these three areas of broadcasting are (with some exceptions) distinct from one another—technical standards are devised by independent bodies, though with representation and input from industry; broadcasters enter into (either directly or otherwise) commercial agreements with those who own the broadcast infrastructure, and a regulatory regime governs the legal compliance processes.
This broad separation of responsibility has ensured that both competition and interoperability are not compromised. Where joint ventures and consortia have been entered into, it is typically due to high costs of implementation which must be shared between broadcasters in order to be cost-effective. For example, the costs of maintaining a terrestrial broadcasting system are high enough that one broadcaster cannot, in general, undertake the necessary financial commitments alone. In contrast, the costs of delivering content via the Internet are rarely prohibitive, even for a smaller business or sole trader. The primary purpose of an Internet operator is to make it possible for peers to exchange traffic with one another as cost-effectively as possible without compromising infrastructure.
It is not clear from the proposals why the BBC and its Project Canvas partners view it necessary to comingle these areas of responsibility with one another, and indeed doing so ultimately raises more questions than it answers.
Typically, in the contexts of standards processes relating to both the Internet and to broadcasting, technical standards are devised and maintained by broadly independent not-for-profit bodies, drawing from the experience of experts in the field. Creating these standards is not in itself a costly exercise—especially in terms of the standards which govern the Internet and many of the protocols which operate upon
1
it, where experts’ time and resources are often freely donated thanks to a shared desire to advance the state of the art. Indeed, the original Project Canvas proposal document indicated the desire to draw upon existing standards where possible. As effective delivery of multimedia is an area of interest to a great many parties, various working groups have been formed and standards developed over the course of the past decade or so. The standards process insofar as Project Canvas is concerned, therefore, is not one of developing standards so much as agreeing upon which are suitable for the stated purpose, although it is true that where specifications relating to user experience are concerned (for the purposes of licensing the Canvas brand mark), these would need to be developed by the project itself. It should be noted that two partners in Project Canvas—the BBC and BT—are by no means strangers to the various standards processes which relate to their work.
Once a set of standards have been agreed upon, and they are agreed to be fit for purpose, then from a consumer protection and confidence perspective it does indeed make a good deal of sense to create a recognisable brand which can be used to refer to products and services which adhere to the standards. By way of a straightforward licensing process, existing trademark law makes ample provision for such an exercise—and provides adequate protection in the case of misuse—and the results tend to be good. Again, this operation is not one which is costly in and of itself (except perhaps temporarily, where legal action must be taken).
For the absence of doubt, it should be noted that the partners involved in Project Canvas quite clearly have a vested interest in seeing widespread adoption of a universal Internet-based delivery platform for both linear and on-demand content within the UK consumer marketplace, and yet what is not explained by the proposal and supporting documents is why these two—comparatively low-cost—areas of responsibility are not sufficient for the project.
For example, were the standards and licensing agreements to detail how a content provider must publish Electronic Programme Guide information, what format media streams should take, how they are transported, and so on, and also specify how compliant equipment must present its interface to the user, again which formats and publishing mechanisms are supported, and so forth, there is no obvious answer as to why this would be insufficient as a platform in and of itself: broadcasters (and would-be broadcasters) adhere to one part of the standards, and equipment manufacturers adhere to the other; service providers wishing to act as both parties can implement both parts as appropriate. This is the means by which the standard protocols of the Internet were developed and implemented, and is proven.
Initial consultation responses indicated concern with the level of control that the joint venture itself would exert over content and programme guide information. Given the updated information, the question is not whether the control exerted by the joint venture would be open-ended enough to allay concerns from competitors, but why such control is necessary at all—the presence of a gatekeeper in this context is indicative of an intention to develop a set of standards which run counter to established practice in both of the industries that Canvas seeks to marry to one another.
The documents make it clear that membership of the joint venture would, subject to financial constraints, be a broadly open-ended
2
affair, and this is laudable; it is obvious (and, indeed, stated) that the financial constraints have been put in place to ensure effective cost-recovery. However, the costs of operation would be significantly lower if the venture did not have such ambitious and unnecessary goals to begin with. Similarly, the documents state that Canvas would require a license under the terms of the Broadcasting Act for its provision of EPG data to devices: yet, if devices were communicating with broadcasters directly, without the aid of Canvas acting as a gatekeeper, none of this would be necessary.
If the BBC and its partners wish to develop a system for broadcasting content across the Internet, then it is—of course—welcome to do so; if it wishes to engage with device manufacturers to ensure interoperability, it is welcome to do so; if it wishes to operate an Electronic Programme Guide service for its programming, it may do so. In the context of the Project Canvas proposal detail, it is evident that the Canvas partners do indeed wish to do so, and would stand to benefit from this. The question which remains is why these things are directly contingent upon one another and why the result—with its significant financial constraints—are being termed an open platform, when it is clear that its intention is to broadly maintain the status quo in terms of linear broadcasting, whereupon the barrier to entry is one of financial resource rather than talent and creativity.
Indeed, the notion that the project should be developing a software platform itself—where the primary benefactors, despite the indications to the contrary, are obviously the initial Project Canvas partners, not least thanks to its two-tier arrangement of linear and on-demand services—and then impose conditions upon further prospective partners in order to recuperate the costs in doing this is an affront to the competitive landscape the proposals ostensibly seek to create.
The proposals are, in short, deeply disappointing. By shunning the basic principles of both broadcasting and Internet architecture, Project Canvas seeks to ensure that rather than creating a true platform for innovation as would be fitting for both the BBC and BT, given their histories for doing so, that the barriers to entry afforded by physical limitations (such as spectrum allocation, laying cables, and satellite provisioning) are replaced by an artificial limitation and needless control.
Put simply, Project Canvas should concern itself with technical standards and branding, as many inferred from the original proposals; allow the national regulatory regime to deal with the legal aspects of linear broadcasting and electronic programme guide provision; and specify a user experience which allows for consumer choice. Failure to do this is likely to achieve the reverse of the stated aims, and, rather than creating a platform open to all those who adhere to the standards, instead create one which nobody wishes to take part in.
-- mo mcroberts http://nevali.net iChat: [email protected] Jabber/GTalk: [email protected]
3
Response to BBC’s additional information on ‘Project Canvas’
September 2009
Response to additional info on ‘Project Canvas’
Introduction
1) Pact is the trade association that represents the commercial interests of the independent production sector. We have more than 600 member companies across the entire UK, involved in creating and distributing television, film and interactive content.
2) The independent production sector creates around half of all new UK television programmes each year across the BBC, ITV1, Channel 4 and Five,1 as well as acclaimed UK films such as the Academy Award-winning Slumdog Millionaire. It also makes cutting edge new media content for commercial and public sector services.
3) The sector has a turnover of more than £2 billion per year2 and employs 20,950 people – more than the terrestrial broadcasting and the cable and satellite sectors respectively.3
4) Since the Codes of Practice/Terms of Trade between producers and broadcasters were introduced in the 2003 Communications Act, the independent sector has been able to retain and exploit IP rights. Since 2003, UK TV exports have risen by 39%, and independents have developed innovative on-demand services.
5) The independent sector re-invests revenues resulting from this exploitation into the creation of UK content. The sector currently raises around up to £190m per year for the development and production of television programming4 - more than the annual profits returned to the BBC by BBC Worldwide, or Five’s total annual investment in new UK programmes.
6) For further information, please contact Adam Minns at [email protected] (020 7380 8232).
1 Ofcom, communications market report, 2008. 2 Independent production census 2007/08, Digital-i for Pact. 3 Employment Census 2006, Skillset. 4 Oliver & Ohlbaum Associates survey for Pact 2009. 2
Response to additional info on ‘Project Canvas’
Executive summary
1) Pact broadly supports the proposals for Canvas, subject to further information in certain areas. While the latest information provided by the BBC management answers several of our concerns, we raise the following outstanding issues in this submission:
i. We ask for further details as to any outstanding payments that will be required by third party content providers, such as carriage and/or contributions to Canvas overheads and costs.
ii. We request clarification as to the precise standards that will be imposed in terms of editorial guidelines and editorial control.
iii. We ask the BBC Trust to ask BBC management to consider the effect of Canvas on the secondary linear TV market and its policy on holdbacks under the Competitive Impact Principle, or to clarify why it does not intend to do this.
iv. We raise concerns that the new information does not contain details of the terms by which third-party content and service providers might become joint venture partners of Canvas post launch.
3
Response to additional info on ‘Project Canvas’
Response to BBC’s further information on Project Canvas
1) Pact has broadly supported proposals for Canvas during this consultation process, subject to further information in certain areas. While the latest information provided by the BBC management answers several of our concerns, we would like to raise a number of outstanding issues.
Openness to third-party content and services
2) We welcome the further information about the range of options for third-party content providers to present and monetise their content. As outlined, Project Canvas enables non BBC content and service providers to offer content to the public through a wide variety of ways. In our view, the platform thereby has the potential to foster innovation and competition in on-demand services. We also welcome the flexibility in payment models, such as micro-payments.
3) We remain concerned in one area related to third parties’ access to the platform, however. The new information provided by BBC management states that re-versioning of content for TV will be paid for by content providers, while Canvas will bear some of the platform costs, such as data management. We would welcome further details as to any outstanding payments that will be required by third party content providers, such as carriage and/or contributions to Canvas overheads and costs.
Minimum editorial guidelines
4) We would welcome clarification as to the minimum standards that will be imposed in terms of editorial guidelines and editorial control. We understand that these will be in line with existing UK and European laws, a level which we would support, but note that the BBC has not yet confirmed details. Imposing a higher threshold than accepted UK and European minimums would risk restricting the range of content and services on offer, and call into question whether Canvas is genuinely a platform rather than a service.
Impact on secondary television market
4
Response to additional info on ‘Project Canvas’
5) As noted in our previous submission, the BBC in our view should consider further its impact on the secondary television market. Canvas could potentially accelerate the decline of the secondary linear television market by increasing the availability of on-demand services via the television set rather than a PC. This could have a negative impact on the independent production sector, which generates around £146m per year from secondary linear sales in the UK market (approx 7% of total sector turnover).5 Any decline in the secondary linear sales market is unlikely to be offset in the short to medium term by Canvas’ potential to increase competition in the on-demand market, which is currently worth just £4m a year to the independent sector – less than 3% of the secondary linear market.
6) The BBC, and other Public Service Broadcasters, can mitigate against this by simultaneously reducing or removing “holdback” periods on both secondary television and on-demand content under the Terms of Trade, so that content can be made available to the public more quickly after initial broadcast transmission, potentially increasing its value in the secondary market (and increasing consumer choice by making content available more readily). This is particularly important for independent companies during a period of economic recession, when income from primary commissions across the sector is continuing to fall significantly.
7) While the role of holdbacks may be outside the remit of this particular review, the BBC Trust has the power to require BBC management to consider the impact on the secondary linear broadcast market in a broader sense. As the Trust is aware, the BBC Trust’s Statement of Policy on Fair Trading requires the BBC not just to be mindful of the strict letter of competition law, but also to minimize its negative impact of Canvas on the wider market in more general terms under the Competitive Impact Principle, which states that competition law is merely a minimum threshold.6 As defined in the Trust’s Statement of Policy on Fair Trading, the Competitive Impact Principle applies to all Public Service Activities, including services and non-service activities.
8) A revision of the BBC’s policy on holdbacks would in Pact’s view also fulfil the BBC’s Public Purpose under the Charter to stimulate the UK creative
5 Independent Production Census, Pact, 2007/08. 6 Statement of Policy on Fair Trading, BBC Trust, 12 (c) and 24. 5
Response to additional info on ‘Project Canvas’
industries.7 In addition, reducing or removing holdbacks would enable content providers to offer content to the licence fee payer more quickly following its first transmission, thereby fulfilling the BBC’s Public Purpose of helping the public benefit from new technologies.8
9) We therefore ask the BBC Trust to ask BBC management to consider the effect of Canvas on the secondary linear TV market and its policy on holdbacks under the Competitive Impact Principle, or to clarify why it does not intend to do this.
Governance
10) We are concerned that the new information does not contain details of the terms by which third-party content and service providers might become joint venture partners of Canvas post launch. The proposals as they are appear to restrict partnership to the dominant broadcasters and internet service providers, potentially excluding innovative services.
7 BBC Royal Charter, 4 (c). 8 Ibid, 4 (f). 6
COMMENTS ON PROJECT CANVAS
Rob Glidden, Esq. http://www.robglidden.com On Behalf of Self
September 1, 2009
TO: BBC Trust Project Canvas Consultation [email protected]
CONTENTS
EXECUTIVE SUMMARY ...... 2 DISCUSSION ...... 3 I. TO DATE THE PROJECT CANVAS CONSULTATION HAS NOT ADEQUATELY CONSIDERED KEY IPR BEST PRACTICES ...... 3 A. The Core Principle of “Standards-Based Open Environment” is Ill-Defined and Problematic ...... 5 B. The Needs of and Responsibilities to the Future of the Open Internet Are Not Sufficiently Considered ...... 6 II. THE LATEST BBC RESPONSE RAISES IPR PROCESS CONCERNS ...... 10 A. Proposed Framework Compounds Core Problems ...... 10 B. Preferred Partner DTG Does Not Adequately Address IPR Process ...... 10 III. PROJECT CANVAS SHOULD ADOPT AN IPR PROCESS BASED ON FACILITATION, EX ANTE, & PREFERENCE FOR ROYALTY FREE ...... 11 A. Facilitation ...... 11 B. Ex Ante ...... 12 C. Preference for Royalty-Free ...... 15 CONCLUSION ...... 16
1 EXECUTIVE SUMMARY
“This is the BBC.”
Perhaps no other single phrase has broadcast more meaning to more people in the great call to communicate that has gripped our species and planet in the last two centuries and fed waves of techno-political-industrial revolutions from telegraphs to telephones, radio to TV.
In the 1981 MacTaggart Lecture, long before the World Wide Web as we know it today, and 28 years before James Murdock reprised his father's 1989 role1 on the Edinburgh International Television Festival stage, Peter Jay painted the high-stakes vision of today's Project Canvas:
"Quite simply we are within less than two decades technologically of a world in which there will be no technically based grounds for government interference in electronic publishing. To put it technically, 'spectrum scarcity' is going to disappear. In simple terms this means that there will be as many channels as there are viewers. At that moment all the acrimonious and difficult debate about how many channels there should be, who should control them, have access to them and what should be shown on them can disappear. But it will only disappear if we all work, indeed fight, extremely hard.”2
And now the Open Internet, built on royalty-free standards, has instantiated the ensuing broadband revolution on which Project Canvas can now paint the reality of this vision.
So why shouldn't Project Canvas also be built on royalty-free standards, advancing rather than opposing the thrust of the Open Internet and World Wide Web that has enabled the Project Canvas opportunity in the first place? Is the BBC slipping unthinkingly into a common parlance of the day – seduced by the cynical allure of a semi-open “standards-based open environment” -- open enough to help me, closed enough to hurt my competitors, with vendor complicity bought by the potential competitive advantage of conveniently under-disclosed patent royalties or other control points?
This is an under-addressed question that the BBC Executive, BBC Trust and proposed joint venture have skirted so far in this consultation, and should be fully addressed before proceeding. A Free-To-View TV Internet is both a TV and a network stewardship.
1 “There is a land-grab, pure and simple, going on - and in the interests of a free society it should be sternly resisted. The land grab is spear-headed by the BBC. The scale and scope of its current activities and future ambitions is chilling. Being funded by a universal hypothecated tax, the BBC feels empowered and obliged to try and offer something for everyone, even in areas well served by the market.” “The Absence of Trust”, James Murdoch's MacTaggart Lecture at the Edinburgh TV Festival 2009 http://www.newscorp.com/news/news_426.html 2 Television Policy: The MacTaggart Lectures 84, Bob Franklin, Editor (2005, Edinburgh University Press)
2 DISCUSSION
I. TO DATE THE PROJECT CANVAS CONSULTATION HAS NOT ADEQUATELY CONSIDERED KEY IPR BEST PRACTICES
Stuart Ward, in a half-page plea, has stated the point directly:
"The Canvas standards must be based on Open standards, implementable by anyone without patent or royalty encumbrances."3
Indeed, the term “standard” is used 754 times in the 392 pages of the stakeholder responses released by the BBC Trust4. And the phrase "open standard[s]" is used 127 times, and over ten percent of those times with the added emphasis of “truly open standards[s]”.
One responder Avtrex, recognizes “that there are many “open” standards, and they include good standards and bad standards; the standards choice process should be open and non- discriminatory.”
So which standards methodology should be used? Simply put, the key is to look to the Intellectual Property Rights (IPR) process, for there lies the heart of policy and purpose of any standards endeavor.
Standards are ubiquitous5 and control of standards can be crucial to an industry,6 so the privatization of standards raises many policy concerns.7 Yet “everyone” is in favor of “open standards”,8 even though the subject of standards is complex and multifaceted9, the public role of
3Comment by Stuart Ward at 1. The Open Source Consortium has also raised the concern that the Canvas specification would be encumbered. 4BBC Trust, Canvas Non-service Assessment, Stakeholder Consultation Responses, June 2009 5 "The impact of standards on trade is so widespread that, on purely economic grounds, almost all sectors would justify attention; one estimate claims that up to 80% of trade (equivalent to around $4 trillion annually) is affected by standards or associated technical regulations." Organization for Economic Cooperation and Development (“OECD”), Working Party of the Trade Committee, Regulatory Reform and International Standardization, TD/TC/WP(98)36/FINAL, ¶ 3 (1999) available at http://www.oecd.org/dataoecd/33/19/1955309.pdf 6 “If you control an industry’s standards, you control that industry lock, stock, and ledger” W. Edwards Deming, Out of the Crisis 302 (2000) 7 “A recent trend that has prompted much discussion is the increasing privatization of standardization activities under various corporations, trade associations, and consortia. This trend is far removed from the traditional, and as claimed, more "open", democratic, and inclusive, practices of voluntary consensus committees. Because standards play a powerful role in shaping technologies and their diffusion into society, the trend raises significant public policy issues about how the public interest may be represented and served in today's digital information age that is increasingly dependendent on technical standards.” Timothy Schoechle, Standardization and Digital Enclosure: The Privatization of Standards, Knowledge, and Policy in the Age of Global Information Technology viii (2009). 8 “All actors seem to claim the high grounds of open standards and of acting in the public interest. These claims deserve critical examination and thought -- given the policy decisions that governments, standards organizations, and private parties are now being called upon to make in re-shaping and re-directing the course of national, regional, and global policies and institutions. Technical standards will continue to not only define and limit the future of technology -- but of society itself. They will determine what the technologies of the future are to be, and, in great part, who owns them, who gets to use them, and whose interest are served by them.” Id. At xi.
3 standards is under-studied,10 and there is a long historical record of government concern of episodic standards abuse11. In telecommunications, standards have gone hand-in-hand with network access12 and market liberalization.13
Indeed, the stakeholders have recognized, in many different ways and phrasings, that "reliance on uncritical, incomplete, inconsistent, and contradictory notions concerning the practice of standardization and its products constrains possible policy options".14 Or some might say even more bluntly that standards are political negotiations,15 hence they have been integral to broadband policies around the world16, and need to be integral to the consideration by BBC Trust and other policy and regulatory bodies of Project Canvas too.
9 "The purpose of this study is to establish an overall framework, that of Digital Enclosure--Enclosure in the Digital Age--a concept borrowed from legal, economic and public policy discourse for understanding important, contentious and interwoven issues in the current global standardization system. These issues include the rise of new standards- setting "consortia" and the challenge the pose to the traditional standardization process, intellectual property rights (IPRs), competition, anti-trust policy, business and commercial strategies, the Open Source movement, geopolitics, and technical innovation." Id. at 2. 10 "Despite the substantial literature on standardization, it is striking how relatively limited the writings about the public sector’s role has been." DeLacey, Brian J., Herman, Kerry, Kiron, David J., Lerner, Josh and Lo, Wai-Shun, Government Intervention in Standardization: The Case of WAPI 3 (September 2006). Available at SSRN: http://ssrn.com/abstract=930930 11 See for example, Standardization Across the Boundaries of the Bell System, 1920-1938, History of Technology Volume 28 (James Sumner and Graeme J N Gooday, eds. By Whose Standards? Standardization, stability and uniformity in the history of information and electrical technologies), 2008, 37-52.
Consider also the example of RCA, originally structured in 1921 as the patent pool for radio patents. After government proceedings in 1924 (FTC and “packaged licensing”) and 1930 (Department of Justice consent decree separating RCA from its owners), RCA entered into a consent decree in 1958 concerning color TV patents (for which RCA was then the key owner), described interestingly in Time magazine : “In a sweeping civil consent decree in one of the biggest Eisenhower Administration Sherman Act suits to date, RCA agreed to 1) put some 100 color TV patents into a royalty-free pool, 2) make available to all comers on a royalty-free basis at least 12,000 other existing radio-TV patents, 3) license all new patents during ‘the next ten years at a “reasonable” royalty rate.” Boost for Color TV, Time Magazine, November 10, 1958, http://www.time.com/time/magazine/article/0,9171,938051,00.html
“The 1958 consent decree [with RCA] was part of a drive by the Justice Department’s Antitrust division to open the new electronics-based industries to competition by making the patents of IBM, AT&T, and RCA available to all… [The consent decree] made licenses available to domestic companies without charge… Foreign buyers would continue to pay full freight. … RCA Labs, in order to maintain licensing income after the consent decree, began to concentrate on licensing to Europe’s Philips and Japan’s leading consumer electronics makers.” Alfred D. Chandler Jr., Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries (2001). 12 “ The regulator must also be concerned with the development of the incumbent network's technical standards. Traditionally, the network operator determined the standards, and during a period of monopoly, many governments did not find a need to make those standards public or allow other persons to comment on the setting of technical standards. The regulator must ensure that embedded standards are not employed as a vehicle for restricting access to the network." FCC, Connecting the Globe: A Regulator's Guide to Building a Global Information Community (1999) I-6, http://www.fcc.gov/connectglobe/ (last visited June 7, 2009).
The guide was announced as part of a "a new technical assistance initiative to assist developing countries in building independent regulatory regimes that will promote competition, liberalization and privatization." http://www.fcc.gov/Bureaus/Miscellaneous/News_Releases/1999/nrmc9038.html 13"When a telecommunications market becomes liberalized, technical standards become integral to the development of an efficient competitive network. First, it becomes vital that technical interconnection standards become public and freely available. Second, it becomes vital that all interested persons, including competitors, customers and
4 A. The Core Principle of “Standards-Based Open Environment” is Ill-Defined and Problematic
The gist of the BBC Executive proposed process of a “standards-based open environment” is described in the following passage:
“The Canvas ambition is to as far as possible make use of ‘open’ or common standards, or approaches that enable widespread adoption, using the following framework:
1. A clear set of functional requirements that if suitably implemented will deliver the objectives of the Canvas proposal
2. Where possible, to identify how they can be delivered via open standards
3. Where suitable open standards are not available, to refer to existing common or ‘de facto’ standards or technology, including open source software, based on objective criteria. standards.
4. Where necessary to develop areas of specification where there is no available common approach and seek to satisfy these in agreement with the relevant standard body.”17
Consider the carefully-chosen words above: “ambition”, “as far as possible”, “where possible”, “where suitable”, “where necessary”, “seek to satisfy”, and so on. This is not a commitment to standards, it is a commitment to use a language of prevarication while wearing a standards mantle. And where is the consideration of who will own the technology, how much will it cost, and when and how will this be determined?
suppliers of telecommunications and information equipment, have an opportunity to participate in the development of technical standards and an opportunity to comment on proposed standards before they are adopted.
The importance of technical standards to the development of effective competition necessitates that these processes be removed from the hands of the incumbent operator and placed in the hands of an independent, open standards- setting entity, preferably one organized by the private sector." FCC, Connecting the Globe, supra at I-5-6. 14 Schoechle, supra at 7. 15 "Standardization activities are political negotiations and not a forum for assessing which technologies excel over others." Hajime Yamada, International Standardization as a Strategic Tool, Standardization and patent pools: Using patent licensing to lead the market 115 (2006) http://www.iecchallenge.org/papers/pdf_iecchallenge/yamada.pdf 16 See, as just one example, the Korean IT839 Strategy, but there are numerous other examples. Cf. "[T]he GOJ will continue to promote R&D projects and standardization projects in a unified manner. In addition, the GOJ will strategically allocate research funds to the technical fields where Japanese industry is expected to expand through the acquisition of international standards." Intellectual Property Strategic Program 2007, May 31, 2007, Intellectual Property Strategy Headquarters, at 101 http://www.ipr.go.jp/e_materials.html 17 "Section 3: The agreement of the Canvas specification and industry engagement" at 4.
5 The proposed resolution appears to be an ad-hoc pick-and-choose, sometimes standardized sometimes not, informal dialog, a theme that recurs in such sections as:
“Delivering the specifications that meet the additional functional requirements needed for a full, rich Canvas offer in a March 2010 D Book 7 may therefore pose challenges to the DTG Executive. The venture partners would like to explore with DTG how such conflicts might be addressed – for example via a ‘Canvas chapter’, offered by the Canvas venture partners and potentially subject to the DTG compliance regime (though other options for ensuring compliance exist).”
Indeed, the BBC is right to be highly cautious, even deeply skeptical, about the potential and practice of certain standards initiatives to mask all sorts of agendas in the cloak of open standards terminology. This is a rampant, growing and under-addressed problem, and one that regulators, vendors, and citizens around the world are becoming increasingly aware of and concerned about. Self-protection alone is reason for concern. But the solution is not to engage in the same behavior, it is to fix and improve the standards process itself.
And the approach leads to fait-accompli reasoning, like the statement “Procuring a DRM solution is an important commercial decision which requires full due diligence.” Why a “DRM solution” and not an interoperable standard? Indeed, every component of the Project Canvas project has already been the subject of multiple standards and products, most if not all can and have be fully specified in royalty-free technology. What is missing is the political resolution to a standardized open, Internet-era worthy platform, not another debate of convenience about whose part of a network value chain is a “solution” and whose is a “standard”.
B. The Needs of and Responsibilities to the Future of the Open Internet Are Not Sufficiently Considered
Simply put, there have been two great information technology standards movements over the last two decades, on one side the royalty-free Internet and World Wide Web standards movement, and on the other the patent-based Digital TV standards movement. Each has its own ways, each claims success in reaching billions of consumers on our planet. But they are in fundamental business model conflict as to the ownership and control of their respective IPR processes. Project Canvas simply makes the unthinking assumption that the “Digital TV standards way” is right for Project Canvas.
But open standards, and particularly royalty-free standards, are the very foundation of the Open Internet as we know it18, and Internet leaders are vocal that open and royalty free standards
18 “The Internet is fundamentally based on the existence of open, non-proprietary standards” Vint Cerf, “the father of the Internet” cited in The Importance of Open Standards in Interoperability, OFE Onepage Brief No.1 (31.10.08.) Available at http://www.openforumeurope.org/library/onepage-briefs/ofe-open-standards-onepage-2008.pdf.
See also "It was the standardisation around HTML that allowed the web to take off. It was not only the fact that it is standard but the fact that it is open and royalty-free. If HTML had not been free, if it had been proprietary technology, then there would have been the business of actually selling HTML and the competing JTML, LTML, MTML products." Tim Berners-Lee, quoted in Standards and the Future of the Internet, Declaration 25th February 2008, at http://www.openforumeurope.org/press-room/press-releases/standards-and-the-future-of-the-internet/
6 are essential to its future19. A particularly complete consideration of the role royalty-free standards as a key enabler of the Open Internet can be found in reviewing the W3C patent policy,20 the business benefits of a rising tide that W3C proposes through its policy,21 and the reasoning behind the W3C policy.22
Some, inspired in large part by the history and practice of standards relating to the Open Internet23, have gone as far as to push for redefining the terms open24 and open standard as only including royalty-free technologies25, rather than covered by a patent-based license. This movement has drawn vocal opposition from organizations favoring inclusion of “reasonable and
19 "I think it very important that as we move on to new spaces [...] we must keep the same openness we had before. We must keep an open internet platform, keep the standards for the presentation languages common and royalty- free." Tim Berners-Lee, id.
See also “The lesson from the proliferation of new applications and services on top of the Web infrastructure is that innovation will happen provided it has a platform of open technical standards, a flexible, scalable architecture, and access to these standards on royalty-free ($0 fee patent licenses) terms. At the World Wide Web Consortium, we will only standardize technology if it can be implemented on a royalty free basis. So, all who contribute to the development of technical standards at the W3C are required to agree to provide royalty-free licenses to any patents they may hold if those patents would block compliance with the standard.” Testimony of Sir Timothy Berners-Lee CSAIL Decentralized Information Group Massachusetts Institute of Technology Before the United States House of Representatives Committee on Energy and Commerce Subcommittee on Telecommunications and the Internet Hearing on the "Digital Future of the United States: Part I -- The Future of the World Wide Web" http://archives.energycommerce.house.gov/cmte_mtgs/110-ti_hrg030107.Sir-Tim-Testimony.pdf 20 "In order to promote the widest adoption of Web standards, W3C seeks to issue Recommendations that can be implemented on a Royalty-Free (RF) basis. Subject to the conditions of this policy, W3C will not approve a Recommendation if it is aware that Essential Claims exist which are not available on Royalty-Free terms." W3C Patent Policy, February 5, 2004, http://www.w3.org/Consortium/Patent-Policy-20040205/ 21 "Wide deployment of new, unencumbered, standardized, capabilities in Web technology expands the market for applications which may also incorporate proprietary technology. So long as the proprietary features do not undermine interoperability, this is fine. Royalty-free standards can thus be a vehicle for companies to gain revenue from their technology investments...Royalty-Free access to patents...alows patent holders to protect intellectual property....[P]articipants benefit by working in an environment where intellectual property risks are known rather than hidden." Business Benefits of the W3C Patent Policy, http://www.w3.org/2004/03/pp-points-20040210.html 22 "W3C takes patent law where we find it: no position on software patents" in “Standards, Patents and the Dynamics of Innovation on the Web", Daniel J. Weitzner, Chair, W3C Patent Policy Working Group http://www.w3.org/2004/09/psi.pdf
"In the last few years several patents issued by the United States Patent and Trademark Office have stalled, or at least delayed, W3C technical work." Testimony of Daniel J. Weitzner, Technology and Society Domain Leader, World Wide Web Consortium, Joint Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy: Standards and Intellectual Property: Licensing Terms, 18 April 2002, http://www.ftc.gov/opp/intellect/020418weitzner.shtm 23 For a history of the World Wide Web Consortium's adoption of a royalty free policy, see Andrew L, Russell, The W3C and its Patent Policy Controversy: A Case Study of Authority and Legitimacy in Internet Governance, TPRC 2003 - 31st Research Conference on Communication, Information, and Internet Policy (September 19-21, 2003) (available at http://www.arussell.org/papers/alr-tprc2003.pdf). For a history of the IETF, including the issues of patents and IPR policy, see Tim Simcoe, Delays and de Jure Standards: What Caused the Slowdown in Internet Standards Development? (April 30, 2004) (available at http://www.rotman.utoronto.ca/strategy/research/working%20papers/Simcoe%20-%20Delays.pdf). See also [RFC3979] Bradner, S., "Intellectual Property Rights in IETF Technology", BCP 79, RFC 3979, March 2005. 24 "The term "open" is usually restricted to royalty-free technologies" http://en.wikipedia.org/wiki/Open_standard
7 nondiscriminatory” (RAND) policies of including licensed patents in standards26, and the entire topic inspires much discussion and controversy27.
Disputes between “royalty free” and RAND appear to actually impact a relatively small percentage of the overall standards universe of thousands of standards,28 but they are particularly important in the area of the Open Internet, broadband, and consumer electronics. Although the number of standards that are subject to potential patent licensing, at least as measured by the number that have official patent declarations, has been rising over the last decade and a half, the percentage appears to be under 7% at major standards groups (ITU-T, ISO, IEC, JTC, JISC).29 Although price is rarely disclosed, it appears most of these disclosures are not intended to be used for royalty licensing.30
25"Many definitions exist, notably the one contained in the European Interoperability Framework (EIF) (note 1) published by the IDABC unit of the European Commission. Most important are the key principles of an Open Standard: ... Royalty free. If a patent is present then this is irrevocably made available on a royalty free basis, and no royalty bearing licenses are required. This therefore specifically excludes RAND ( Reasonable and Non Discriminatory) licensing other than RF RAND (Royalty free version). The term RAND is highly contentious since to many it is exactly the opposite of that. How do you define reasonable when addressing a global market with substantial differences in local GDP? And it does discriminate against for example the FS/OSS licensing. The key requirement for this principal is that it must freely allow all business models." http://www.openforumeurope.org/what-is/open-standards/open-standards/ 26 See, for example Critical Issue Paper by ANSI: “The term “open standard” has been used recently to describe a standard that may be copied, used and distributed for no fee and/or whose embedded technology is irrevocably available on a royalty-free basis. This definition has created some confusion among standards developers and users generally because it is contrary to the process-based definition of open” and “openness” long held by the American National Standards Institute (ANSI) and any other recognized standards bodies who understand the term to describe a collaborative, balanced and consensus-based approval process for the promulgation of domestic or international standards. Current Attempts to Change Established Definition of “Open” Standards, Critical Issue Papers, May 2005. http://publicaa.ansi.org/sites/apdl/Documents/Standards%20Activities/Critical%20Issues%20Papers/Open- Stds.pdf 27 For a sampling, see the range of views aired at the IPR in ICT standardisation workshop held on November 19, 2009 at http://ec.europa.eu/enterprise/ict/policy/standards/ws08ipr_en.htm an in the Consultation on EIF v2.0 http://ec.europa.eu/idabc/en/document/7733 . See also Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, U.S. Department of Justice and the Federal Trade Commission, April 2007 http://www.usdoj.gov/atr/public/hearings/ip/222655.pdf 28 "There's only a small number [of IEEE standards] that have a significant amount of [patents] that need a pool— we're probably talking well under a dozen," Jason Johnson, vice president of marketing and business development at Via Licensing, quoted in Rick Merritt, IEEE joins move to patent pools: Pilot program for 2009 focuses on comms tech, EE TImes, December 8, 2008, http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=212202286 The IEEE Standards organization has an active portfolio of nearly 1,300 standards and projects under development. http://www.ieee.org/web/standards/home/index.html (last visited June 6, 2009).
See also "The reality is that an extremely large percentage of RAND based patent declarations to standards bodies do not result in the patent holder seeking to actually license those patents to implementers.” http://standardslaw.com/wordpress/?p=36#comments" 29 See Toshio Tatsuta, Standardization vs. Patents at slides 5-6, presentation dated December 16, 2008, http://www.itu.int/ITU-D/tech/network- infrastructure/Tokyo2008/Presentations/9%20Toshio%20Tatsuta%20Standards%20&%20Patents%20(with%20Ans wer).pdf 30 "In terms of pricing, only eight percent of the IPR disclosures gave specific terms. In almost every case, these disclosures indicated that the IPR would be freely available." at 3 (examining 1221 disclosures to nine standards organizations from 1981 to 2004) Simcoe, Tim S.,Explaining the Increase in Intellectual Property
8 A potential winner if disputes between the RAND and royalty free visions result in standards gridlock may be proprietary approaches that have been long-recognized as a potential derailer of the Open Internet.31 When standards stumble, proprietary replacements win32. Also, it is not inconceivable that certain industry groups presenting themselves as standards of broad benefit may be carefully and quietly crafted to benefit the few.
It is both ironic and telling that the RAND licensing practices that have developed through the DTV experience have done little to nothing to contribute video technologies or standards to broadband deployments, which today are essentially captured by proprietary solutions33. Audio standards and royalties have also brought obstacles to royalty-free standards for the Open Internet.34 Is this really an acceptable, necessary, or desirable outcome, or foundation for future innovation?
Why should the BBC, who has funded one of the few royalty-free video codecs with traction potential (Dirac), side against the crying need of Web browsers and choose a video codec that conveniently only works from a business model point of view for device and value- chain royalty markets? Even MPEG leaders question the wisdom of continuing with such an approach.35
For an example of the challenge of standards for broadband policy and the relevance to Project Canvas, one telling example is to look to the emerging yet struggling community of open video codecs for the Web to see the collateral impact current DTV licensing practices have had.36 Despite repeated efforts to create royalty free codecs for the Web, and the wide availability of royalty-free technologies at the IETF and elsewhere, and the preference for royalty-free
Disclosure(December 1, 2005). Available at SSRN: http://ssrn.com/abstract=1396332 31 See, for example: "There are many ways the Internet spiral could be derailed. Any of the underlying drivers of Internet growth could be undermined. Moving toward proprietary standards or closed networks would reduce the degree to which new services could leverage the existing infrastructure." Kevin Werbach, 29 Digital Tornado: The Internet and Telecommunications Policy 7 (FCC Office of Public Policy Working Paper, March 1997) http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp29.pdf 32 For example, Leonardo Chiarglione, the convenor of the MPEG committee, stated at the MPEG 20th Year Anniversary Commemoration in Tokyo in November 2008: “[T]he MPEG-4 Visual licensing killed half of the standard ... The “use fee” licensing model facilitated the widespread use of proprietary codecs". Leonardo Chiariglione MPEG: Vision and facts behind the name (November 8, 2008) (available at http://www.itscj.ipsj.or.jp/forum/forum2008MPEG20/03MPEG20_Leonardo.pdf 33 To quote the World Wide Web Consortium's Jan 22, 2008 working draft for HTML 5: "It would be helpful for interoperability if all browsers could support the same codecs. However, there are no known codecs that satisfy all the current players: we need a codec that is known to not require per-unit or per-distributor licensing, that is compatible with the open source development model, that is of sufficient quality as to be usable, and that is not an additional submarine patent risk for large companies. This is an ongoing issue and this section will be updated once more information is available.” http://www.w3.org/TR/2008/WD-html5-20080122/ A nascent “open video” movement, including Xiph, Dirac, and OMS Video is emerging that hopes to fill this need, but with little to no support from incumbent standards organizations that have historically developed video codecs. See http://spreadopenmedia.org/ and http://openvideoconference.org/. 34 See for example, Douglas Heingartner, Patent Fights Are a Legacy of MP3’s Tangled Origins, N.Y. Times, March 5, 2007, http://www.nytimes.com/2007/03/05/technology/05music.html?_r=1&oref=slogin 35 See comments by, Leonardo Chiariglione, "Father of MPEG" in "The missed award speech, May 2008." 36 For a discussion of how patent overcharging has made US digital television globally uncompetitive, see Reply comments of Rob Glidden, In the Matter of Petition For Rulemaking And Request For Declaratory Ruling Filed By The Coalition United To Terminate Financial Abuses Of The Television Transition, LLC (FCC MB Docket No. 09- 23), May 27, 2009.
9 technologies by such organizations as the World Wide Web, many standards groups appear steadfastly opposed or disinterested in solving or even considering this need.
A similar story could be told about IPTV, Interactive TV, “over-the-top” TV, “app stores”, and other new broadband services technologies -- “semi-openness” is becoming the norm37.
II. THE LATEST BBC RESPONSE RAISES IPR PROCESS CONCERNS
A. Proposed Framework Compounds Core Problems
The BBC Executive proposed framework quoted above, because it appears to attempt to take an ambivalent approach to what is and is not standardized, also seems to take a vague approach to who will own the IPR of the specification, how it will be licensed, and whether there will be any due diligence as to the inclusion of third party IPR and the impact such inclusion of such IPR might have on the industry, consumers, society, or regulatory policy.
“As stated above, the BBC’s preference is to use commonly used ‘open standards’ wherever appropriate. Should Canvas generate any intellectual property by BBC R&D or the Canvas JV this would be licensed as per standard BBC practice.”
Such a loose, not-my-problem approach to the consequences of potential IPR and royalties in DTV and other standards and specifications has been a central concern for years. It is mystifying that the BBC Executive would not have already considered this issue in much more depth, and it is hoped if it has not it will do so in earnest.
B. Preferred Partner DTG Does Not Adequately Address IPR Process
The BBC Executive response carefully and conveniently distinguishes the UK Digital Terrestrial Group (DTG) as not a standards organization but only a “standards profiler.”38 Indeed, the DTG seems to have an under-specified patent policy.39 37 Joel West, Expect Semi-Open Platforms to Remain the Norm for Tech, Seeking Alpha, June 3, 2009, http://seekingalpha.com/article/141116-expect-semi-open-platforms-to-remain-the-norm-for-tech 38 “[T]he BBC is a member of key standardisation organisations relevant to the digital content delivery landscape, including DVB, MPEG, IETF, OIPF, ETSI, ITU and as a profiler of standards, the UK’s DTG.” 39The latest IPR policy material for the DTG appears to be contained in the 2008/2009 "Joining the DTG: Membership Information" brochure at http://www.dtg.org.uk/publications/books/dtg_brochure_2009.pdf
The brochure contains the Articles of Association of the Digital TV Group, to which is attached the "Agreement for all Full Members, Affiliates, World Affiliates and New Entrants"
"11. Intellectual Property Rights. Members should declare any intellectual property rights associated with any proposal for inclusion in any standard or document being drawn up by the DTG at the time of the proposal and
10 But the MHEG40 interactivity specification and community that would provide the natural UK starting point for upgraded capabilities like EPG switching41, and for which the DTG and UK are known globally, makes much of its royalty free IPR status.42 This is no doubt a valuable and important achievement for interactive middleware, which has been plagued by patent disputes.
III. PROJECT CANVAS SHOULD ADOPT AN IPR PROCESS BASED ON FACILITATION, EX ANTE, & PREFERENCE FOR ROYALTY FREE
A. Facilitation
should confirm this in writing to the Technical Director of DTG within a reasonable period. Unless so declared, the DTG have the right to declare its own IPR on publications and standards produced by the DTG."
However, even this weak suggestion is not legally binding:
"13. This agreement shall be non-legally binding save for Annex 1 and Annex 2, which shall be legally binding with effect from date of signature of this document by a member."
Annex 1 states only:
"5. This agreement shall not operate to assign, license or otherwise grant any right, title or interest in or to any copyright, patent, design right (whether registered or otherwise), trade secret or trade mark or other intellectual property rights vested in the disclosing Party to the receiving Party without the disclosing Party’s express prior written consent." 40 MHEG is an acronym for the Multimedia and Hypermedia information coding Expert Group (MHEG). It was developed in the mid-1990s as part of the now-defunct DAVIC (Digital Audio Video Council) standardization effort to support interactivity and navigation of multimedia services on various small footprint devices. 41“MHEG-5 can be used, for example, to build an EPG application that has data efficiently delivered in the DSM-CC object carousel and presented using MHEG-5. These systems allow the user to tune to a chosen channel from the EPG and this provides the platform operator with the opportunity to provide a consistent EPG rather than rely on receiver manufacturer’s implementations.” How MHEG-5 Works and Applications, http://www.impala.org/what- mheg/how-mheg-5-works-and-applications 42"MHEG-5 is a public standard with no known essential intellectual property rights nor associated license fees for broadcasters." “What is MHEG” at http://www.impala.org/what-mheg
See also "MHEG has also avoided the lengthy political and IPR issues that undoubtedly slowed MHP." IMPALA answers back in interactive debate, July 4, 2008, http://www.impala.org/news/impala-answers-back-interactive- debate
11 The DVB in Europe, has long taken a proactive, multi-faceted role in patent pool facilitation activities,43 and in part at the encouragement of the European Commission recently looked to tighten and reinforce these activities.
B. Ex Ante
Building infrastructures on the uncertain sands of unknown ownership is problematic in the best of circumstances, and not necessary. There are multiple techniques already developed by existing royalty-free oriented standards groups and also other techniques are available such as Freedom to Operate analysis and defensive publishing44
Moreover, patent pools have long raised policy and competitive concerns45, and recent research shows that modern patent pools, in spite of assumptions and expectations to the contrary46, have had significant difficulty getting a significant percentage of essential patents into 43 "The DVB fosters by applying a number of tools to encourage patent holders to form patent pools promptly after standardisation. These tools include: - a mechanism for early confirmation by a technology contributor of its willingness to participate in a pooling effort; - information meetings of patent holders and other interested parties while the specification is under development; - a process for a “light-touch” essentiality review to determine eligibility for participation in initial meetings of a pooling effort; - provision of DVB technical expertise in helping to define the scope of a pooling effort and in “peer review”; - monitoring of the facilitation of the formation of a programme; and - a forum for exchange of views among DVB member on the terms offered by a licensing programme." http://www.dvb.org/membership/ipr_policy/ (last visited May 26, 2009) 44 "One way to secure FTO is to make an invention public, a practice known as “defensive publishing.”" Henkel, Joachim and Pangerl, Stefanie M.,Defensive Publishing - An Empirical Study (May 2008) 1. Available at SSRN: http://ssrn.com/abstract=981444 "We find that defensive publishing is widely practiced, with more than two thirds of the firms in our sample making use of it. The share of inventions that are defensively published varies strongly between firms, reaching 30% and more in some cases." id. at 2 (exploratory survey of mostly German firms) 45 An instructive thumbnail history of antitrust policy concerning patent pools is contained in Layne-Farrar, Anne and Lerner, Josh,To Join or Not to Join: Examining Patent Pool Participation and Rent Sharing Rules at 2 (January 7, 2008). Available at SSRN: http://ssrn.com/abstract=945189
"After an early phase of allowing a great deal of latitude for any combination of patents, antitrust authorities began to take a far more limited view of patent pools in 1912. Throughout the 1940s more pools were disbanded than were allowed, and in the ‘50s all of challenged patent pools were found anticompetitive (Gilbert, 2002). As a result, firms largely stopped attempting to form patent pools for a good many years. The trend finally reversed course in 1995, when the Department of Justice and the Federal Trade Commission issued new guidelines for intellectual property that recognized the pro-competitive aspects of patent pools. Then in 1997, a group of firms belonging to the Moving Picture Expert Group (MPEG) approached the DOJ for clearance to form a patent pool based on a subset of patents within the MPEG-2 standard for digital video."
See also See Richard J. Gilbert, Antitrust for Patent Pools: A Century of Policy Evolution, 2004 STAN. TECH. L. REV. 3, http://stlr.stanford.edu/STLR/Articles/04_STLR_3 46 “Much of the economic analysis of patent pools has focused on their role in competition policy. As such, the largely theoretical literature has generally overlooked the fact that joining a patent pool is voluntary, often assuming that all eligible firms will join (the one exception is Aoki and Nagaoka, 2004).” Layne-Farrar supra at 2.
12 the pool in the first place.47 Moreover, patent overcharging has been problematic for related standards in recent years, including MPEG-448 and MHP49.
In truth, price matters very much in DTV system consideration and adoption, and all the more so in these challenging economic times. And with numerous developing countries in the early phases of DTV deployment, they have as a whole been much less willing to accept open- the-checkbook, set-the-price-later attitudes that may have characterized earlier adoptions, and this has contributed to a changing global DTV landscape.
So actually, the differences in DTV licensing pricing is even more pronounced than may be apparent from simply examining given royalty prices at patent pool Web sites. Discounting beyond list appears to exist, and appears to be spreading50. Discounting has been acknowledged
47 "[A]s many as one half to two-thirds of the eligible firms choose not to join a patent pool". Layne-Farrar supra at 24.
This is far less than the critical mass the DVB has found necessary to support successful patent pool formation. "To satisfy DVB’s criteria, the pool must include “at least 70 percent of all Members or their affiliated companies holding [essential] IPRs”. This was intended to ensure that the patent pool had a “critical mass” of patents available for licensing, making the pool attractive as a “one-stop shop”" Eltzroth supra at 33.
In contrast, patent pools participants appear to have been effective in using patent prosecution techniques such as continuations, continuations-in-parts, and divisions: "The ratio of the patents which were obtained by using these practice amounts to 44% of the essential patents for MPEG2." Sadao Nagaoka, Tomoyuki Shimbo & Naotoshi Tsukada, The structure and the evolution of essential patents for standards: Lessons from three IT Standards (Sept. 2006), http://www.iir.hit-u.ac.jp/iir-w3/file/WP06-08nagaoka.pdf 48 MPEG-4 was plagued by licensing issues, leading Leonardo Chiariglione, the convenor of the MPEG committee, to state in a presentaton at the MPEG 20th Year Anniversary Commemoration in Tokyo in November 2008: “the MPEG-4 Visual licensing killed half of the standard....The “use fee” licensing model facilitated the widespread use of proprietary codecs" http://www.itscj.ipsj.or.jp/forum/forum2008MPEG20/03MPEG20_Leonardo.pdf
See also Gwendolyn Mariano, MPEG-4 rival raises antitrust specter, CNET News, April 9, 2002, http://news.cnet.com/MPEG-4-rival-raises-antitrust-specter/2100-1023_3-879392.html 49 See Junko Yoshida, Safety of patent pool imperiled: After interactive-TV spec fiasco, DVB members ponder fate of open process, EE Times, March 12, 2007:
"The patent holders got greedy to the point that they killed MHP," said Philip Laven, technical director of the European Broadcasting Union (EBU). Many broadcasters in Europe are now saying that they will "punish" MHP patent holders by not implementing it. The exception may be Italy, where the government has mandated MHP's use and the installed based of MHP set-tops already numbers in the millions. http://www.eetimes.com/showArticle.jhtml;jsessionid=NV0VZKF0XCC1WQSNDLQCKHSCJUNN2JVN?articleI D=197801654
The European Broadcasting Union withdrew its recommendation on MHP, reinstating it after the Via Licensing license administrator dropped license charges on free-to-air broadcasters. http://tech.ebu.ch/docs/r/r106v2-08.pdf 50 “In order to reach an agreement, Japan offered Brazil exemption from some of the royalty payments due for the application of its technology as well as the possibility of building a new semiconductor factory. In addition the transition from the existing TV standard PAL-M to SBTD-T will be financed by the Japanese JBIC and the Brazilian development bank BNDES." Brazil decides on a Digital Terrestrial TV system, Item added: 2nd July 2006, http://www.dvb.org/about_dvb/dvb_worldwide/brazil/ retrieved 05/21/09
13 in official Japanese government materials51, and in government-to-government MOUs. Discounting offers continue, and expressly acknowledge that lower DTV royalties lead to lower consumer prices52, and are sometimes expressed by government officials themselves53
A sampling of recent activities around the world where governments have had active involvement standardization and patent licensing process, include China (AVS54), the European Commission (MHP55), and Brazil (Java DTV56).
Given the above, Project Canvas should adopt an ex ante, before the fact, evaluation of the IPR costs of any specification or standard developed. In case there is objection that this
51 “Stakeholders in the Japanese private sector have expressed their intentions to support the introduction of digital TV systems by providing technical information, offering exemption from payment of royalties, etc.” Biweekly Newsletter of the Ministry of Internal Affairs and Communications (MIC), Japan Vol, 17, No. 9, August, 2006 http://www.soumu.go.jp/main_sosiki/joho_tsusin/eng/Releases/NewsLetter/Vol17/Vol17_09/Vol17_9.html (last visited May 26,2009) 52 See, for example the statement: “We hereby reinforce our commitment to exempt payments for industrial property rights regarding the patents of ISDB-T transmission technology for production of TV receivers in Chile. We believe this option to be the most effective contribution because it allows direct transfer of the benefit to a lower consumer price, a key requirement of the Chilean Government." Letter from Yasuo Takahashi, Chairperson, DiBEG – Digital Broadcasting Experts Group & ARIB – Association of Radio Industries and Businesses to Mr. René Cortázar, Ministro de Transporte y Telecomunicaciones República de Chile, April, 20th , 2007 http://www.subtel.cl/prontus_tvd/site/artic/20070315/asocfile/20070315175818/comments_chelean_govenment_dib erg_ver4_200407.pdf (last visited May 26, 2009)
“The Digital Broadcasting Experts Group (DiBEG) was founded in ARIB (ASSOCIATION OF RADIO INDUSTRIES AND BUSINESSES) to promote ISDB-T, the Japanese Digital Terrestrial Broadcasting System, in the world. ARIB is a legal entity of Japan established under the authority of the Ministry of Internal Affairs and Communications, to define, refine and maintain technical standards related to radio technologies based on the consensus among all concerned in government, academics, broadcast and telecommunication companies and manufacturers.” 53 "'We could provide financial or technical support. We’ve done this in Brazil,' Fuseda said." Darwin G. Amojelar, Japan offers aid for shift to digital TV, Manila Times, March 20, 2009 (quoting Hideo Fuseda, Japan’s Ministry of Internal Affairs and Communications director for digital broadcasting technology) http://www.manilatimes.net/national/2009/march/20/yehey/business/20090320bus4.html (last visited May 26, 2009)
See also "Supply of low-or super-low-interest funds by the Development Bank of Japan Support by the “Extraordinary Law for Measures to Promote the Construction of Advanced TV Broadcasting Facilities” etc....Financial support for the implementation of broadcasting stations in disadvantaged areas" Digital TV Broadcasting in Japan, Presentation by Akira OKUBO, Ministry of Internal Affairs and Communications Japan, 13th June –14th June, 2007, Bangkok, Thailand. http://www.soumu.go.jp/main_sosiki/joho_tsusin/eng/presentation/pdf/070613_1.pdf 54 "Development of AVS was initiated by the government of the People's Republic of China. Commercial success of the AVS standard would not only reduce China's royalty/licensing payments to foreign companies, it would presumably earn China's electronics industry recognition among the more established industries of the developed world, where China is still seen as an outlet for mass production with limited indigenous design capability....According to the state-run media, a key consideration of AVS was to reduce foreign dependence on core intellectual properties used in digital media technology". http://en.wikipedia.org/wiki/Audio_Video_Standard 55 "The review has also addressed questions directed to DVB by the European Commission on DVB’s IPR policy and the need for timely disclosure of licensing terms for essential intellectual property rights." http://www.dvb.org/news_events/news/mhp_patent_pool_experienc/index.xml (last visited May 26, 2009). See also http://www.osmosys.tv/documents/Osmosys_Open_Letter_onMHP_Licensing.pdf 56 See Rob Glidden, Royalty-Free Java DTV Specification Released for Brazil and the World, January 12,2009, http://www.robglidden.com/2009/01/royalty-free-java-dtv/
14 might be too open-ended or costly, consider the going rate for independent patent evaluation for inclusion in patent pools, which is below $10,000 per patent57,, and compare such costs to the numerous litigations underway around the world on DTV and other patented standards.
C. Preference for Royalty-Free
Much has been written about RAND standards, including potential antitrust issues in Europe58 and elsewhere. But a key value of royalty free standards is not just lower price, it is the underlying processes and policies used by royalty-free standards groups that make them and their standards overall more immune to capture, back-room dealings, and long delays in patent pool formation that have plagued many RAND standards59.
Standards organizations themselves are of little help in defining what RAND means. Most do do not define the term in any detail60, and the confrontational prospects of trying seem likely to make organizations reluctant to make the effort61. Moreover, since patent holders are also participants in the standards process, they have an obvious interest in encouraging standards to adopt technologies covered by their own patents62. And universities and academic institutions,
57 For example, in 2002, MPEG LA announced the evaluation fee per patent of $8500 for H.264 JVT/MPEG-4 AVC Patents ("to cover costs of the patent expert’s evaluation"), http://www.mpegla.com/news/n_02-09-11_jvt.html
This $8500 fee continued in 2003. "For each patent or patent application submitted, an evaluation fee of US $8,500.00 to cover the outside cost of the patent expert’s evaluation is paid to MPEG LA. Additional fees may be required to cover additional outside costs in the event of reevaluation by patent experts." http://www.mpegla.com/news/n_03-11-17_avc.html Via Licensing, a competing patent pool administrator company owned by Dolby, charges $8000 per patent to evaluate for essentiality for IEEE 802.16 (http://www.vialicensing.com/patent/IEEE80216_index.cfm), Digital Radio Mondiale Audio (http://www.vialicensing.com/patent/DRM_index.cfm), MPEG-4 Audio (http://www.vialicensing.com/patent/MPEG4_index.cfm), and as of 2002 charged $6,500 per Digital Radio Mondiale Audio patent evaluation (http://www.vialicensing.com/news/details.cfm?VIANEWS_ID=316) (sites last visited May 26, 2007). 58 "Once an IPR holder is found to hold a dominant position its licensing practices, fall under the scope of Article 82 EC. While a wide range of behavior can fall under Article 82 EC, it seems that two particular practices are likely to be subject to particular scrutiny with respect to IPR licensing: price discrimination between licensees and the imposition of exploitative prices." Geradin, Damien,Pricing Abuses by Essential Patent Holders in a Standard- Setting Context: A View from Europe 8-9 (July 2008). Available at SSRN: http://ssrn.com/abstract=1174922 59 See for example “Eleven Years is an Unreasonable Amount of Time to Establish the ATSC Patent Pool, and the Surrounding Circumstances Raise Concern” in Reply comments of Rob Glidden, In the Matter of Petition For Rulemaking And Request For Declaratory Ruling Filed By The Coalition United To Terminate Financial Abuses Of The Television Transition, LLC (FCC MB Docket No. 09-23), May 27, 2009. 60 "It seems clear that the licensing policy documents are of very limited help in the effort to define what RAND exactly means. Most organizations that require RAND or FRAND licensing terms do not define them in any detail." Valimaki, Mikko, A Flexible Approach to RAND Licensing 3 (March 31, 2008). Available at SSRN: http://ssrn.com/abstract=1261642 61 "Perhaps one reason why the organizations have been reluctant to define RAND with more details is that any proposal for a more precise definition could mean unfruitful and exhausting policy battle with unpredictable outcome. Often the particular issue has been royalties." Id. at 3. 62 "In principle, the goal of an SSO should be to specify the “best” standard, given technological constraints and cost. But the participants in the standard-setting process are not disinterested technocrats. Many of them are patentees and the standard is likely to take a path through a thicket that includes some of their patents. The SSO participants have an obvious interest in steering the standard through their own patents." Crane, Daniel A., Patent Pools, RAND Commitments, and the Problematics of Price Discrimination(April 1, 2008). Cardozo Legal Studies
15 once the major participants in such organizations as the IETF, are now increasingly influenced by the “lottery effect” of patent royalties.63
CONCLUSION
A principle of public accountability for public standards seems a natural starting point for Project Canvas, whether they are mandated, encouraged or subsidized, rather than a presumption of private gain at public expense64. In our globalized world, it is more important than ever to develop a sober, modern perspective on standardized systems for communication networks. A IPR fairness regime is needed, not only to overcome the potential for protectionism65 but to fulfill the promises of both Free-To-View television and the Open Internet.
Research Paper No. 232 at 6 Available at SSRN: http://ssrn.com/abstract=1120071 63 "The evidence is overwhelming. University tech transfer activities continue to be predominantly patent-centric and revenue driven with a single-minded focus on licensing income and reimbursement for legal expenses. University technology transfer activities do not extend far beyond this narrow focus and entrepreneurship and commercialization activities and/or transferring innovation through other means do not figure prominently." Kesan, Jay P.,Transferring Innovation(April 2, 2009). Fordham Law Review, Symposium Issue, Forthcoming; U Illinois Law & Economics Research Paper No. LE09-011; Illinois Public Law Research Paper No. 08-25 at 2207. Available at SSRN: http://ssrn.com/abstract=1371810
However, "[a]mong other obstacles, TTOs traditionally must overcome the difficulty of breaking even— typically, it takes between five and ten years for a TTO to break even, if it does at all." Id. at 2180. 64 See for example comments by Public Knowledge, Consumers Union, Free Press, Media Access Project, and New America Foundation in the CUT FATT proceeding: “The public interest requires that the scope and cost of any mandatory standards be clear to those who would adhere to them. When patent royalties can be openly investigated and compared against known benchmarks, manufacturers and consumers can be assured that licenses, and the costs that go with them, are reasonable and nondiscriminatory. Not only does disclosure prevent cost-raising abuses, but ensuring that essential patents are known and disclosed will prevent users of the DTV standard from being drawn into disputes over patent scope and validity. The time, uncertainty, and cost involved in navigating unanticipated patent disputes would also be minimized by further transparency and disclosure.”
Cited in Rob Glidden, Consumer Groups Request FCC Investigate DTV Patent Licensing, May 28, 2009, http://www.robglidden.com/2009/05/consumer-groups-request-fcc-investigate-dtv-patent-licensing/ 65 "In an era of increasing globalization, protectionism in the form of nationally-mandated technology standards is not the answer. To persuade countries to forego such measures, however, there must be fairness in the international system for the preparation, adoption and implementation of standards." Gibson, Christopher S.,Globalization and the Technology Standards Game: Balancing Concerns of Protectionism and Intellectual Property in International Standards. Berkeley Technology Law Journal, Vol. 22, p. 1401; Suffolk University Law School Legal Studies Research Paper No. 07-39, at 1-2. Available at SSRN: http://ssrn.com/abstract=1010125
16 Rovi Corporation
To the BBC Trust
Regarding Project Canvas
We have reviewed the second – more detailed – set of publications regarding Project Canvas.
As stated in our first submission to the BBC Trust we are in favor of a standard to bring broadband content (such as catch-up TV) to television devices.
Objection on the UI mandate
However, we object strongly to the EPG UI mandate that has been revealed in the second set of publications.
We respectfully disagree with the statement that a unified UI and feature set dictated by the Canvas JV is a benefit for the UK consumer. Free and open competition is necessary both for market success, customer satisfaction and innovation.
The UI mandate of the Canvas JV that creates a monopoly over the entire experience is dangerous in that it leaves the entire UK market and consumer base exclusively dependant on the JVs capability to innovate and deliver in an incredibly complex and constantly evolving field. If the goal is to create a scalable, long term solution, it is imperative that the system be set up in such a way that empowers innovation and customization.
The existing restrictive Freeview+ (Playback) infrastructure and charter show the danger of such an approach. While the feature set around recording is evolving in other countries, led by the innovation of hundreds of companies, the limitations of Freeview+ specification has not been evolving for more than two years and has fallen behind as it excludes numerous features that have become standard in other, more open, systems.
All product UI and feature decisions should remain with the manufacturer who can choose based on hardware capabilities, cost and time to market. By Canvas insisting on owning the overall UI in addition to the challenge of creating a comprehensive and scalable content delivery system, it is creating an unnecessary and dangerous obstacle for itself.
Objection on commercial interests
In addition to the UI mandate, we are very concerned by the conflict of interests between the current JV partner companies. After having met all of the JV partners individually, we are seeing that commercial broadcast interests and public broadcast interests are not aligned at this time.
For example, the following is from the second set of publications (Canvas Section 2 EPG.pdf, page 10):
Flexibility for device manufacturers Large parts of the Canvas technical specification will be available for use by manufacturers whether or not they deploy the Canvas UX (potentially as part of the DTG Book 7). This gives the manufacturer the choice to deploy the Canvas UX or not, while still benefiting from a standard based approach. Such devices would be ‘own branded’ and in these cases the manufacturer would liaise directly with content providers regarding the terms of prominence and delivery of their services to the device and any other commercial terms (in a similar manner to other TV platforms).
On the question if that means that manufacturer can access the content that is available in the Canvas specified format, regardless if they use the Canvas EPG or not, the BBC answers with YES and ITV answers with NO. This is again creating a disadvantage for a consumer that prefers to buy a product from a specific manufacturer, that for whatever reason is not using the Canvas EPG.
This is just one example of lack of alignment by the involved parties. In addition to the BBC Trust needing to make a determination on the specific issue of whether the broadcast fee paid by consumers is appropriately spent on commercial interests, more work is necessary overall to assure that the charter is clear.
Objection on execution
Our final concern is that it is still not clear how the Canvas EPG will be developed and ported to a CE device. This is a tremendously complex process that changes from device to device and from month to month as technologies change. It is nearly impossible to map out a single execution plan for multiple CE devices at any given time, much less one that is intended to be in place for a long period of time. Here are just some examples of the many open questions involved with execution:
- Is the JV providing code that can be embedded? - Or is it just a specification on paper? - Is the JV providing bitmaps? - Is the JV providing APIs? - Who is supposed to do the development and porting work? And to take on the engineering cost? - How is the EPG working if the device is not connected? - What about an integrated search – including a soundtrack for a movie? - What about pictures for programs, actors, CD cover art? - What about celebrity information? - What about recommendations from friends & families? - What about including partners? (note, Rovi’s partner in the UK is the Radio Times – a BBC subsidiary) - What about DLNA and personal content? - How about cross platform profile management (TV, PC, Mobile)? - What about remote recording? - …
Finally we want to repeat our proposal from the April submission that we are open to allocate resources to participate in Project Canvas and lend our expertise to its overall success. We are the leading EPG provider worldwide, and are confident our involvement could be tremendously valuable to Canvas’ success.
Rovi Corporation
September 1st 2009
Joining Broadcast and IP together - a fast and economical way to more TV
Television delivered over the Internet has attracted much attention and investment over the last decade or so. Starting with live pictures of the coffee machine in a Cambridge computer lab in 1991, the technology has evolved so that many broadcasters already use the internet as an additional delivery channel to their audience, providing both recently aired and archive programming on demand over an open internet connection. Whilst this has primarily focused on PC and mobile platforms, recent advances in technology now enable content to be delivered to the TV. This paper is a note on how to make this available to consumers on their TVs, what the key issues are and how to avoid getting overwhelmed by expensive technology in the process.
Internet and Broadcast Comparisons
The Internet is essentially a point-to-point communications medium connecting computers of all sizes and locations together across world, company, office or home spanning networks. Key applications for this communications network are e-mail, electronic banking, and publishing/transactions through the world-wide-web. This publishing can also include delivery of content, in particular A/V content, from servers that are run independently of that which publishes information; each of them making a connection with a client, typically a web- browser, running on a computer. Web browsers and web-servers have evolved over the last decade into complex software systems with substantial supporting infrastructure that provide a massive publishing and transaction machine. Most of the publishing and commercial systems on the web use display technologies like HTML (HyperText Markup Language), Javascript and Java to manage user interaction.
This open communication system of the web is not without its downsides. Various forms of malevolence lurk there, and tricksters and scammers aim to trap the unwary with email temptations.
Broadcasting rests, in contrast, on dealing with distribution of content ‘point to multipoint’. A single transmission can be received by millions of receivers within range of a transmitter. In parallel to the development of the Internet, broadcasting has undergone its own digitalisation change, but in a different way. Here the focus has been on compression, encoding and manipulation of audio and video into digital formats, and the transmission of that data efficiently in broadcast and cable networks. The rise of interactive television, alongside this explosion, has been relatively modest. There are three particular reasons for this. The first is that the market has seen the value of transmission capacity devoted to A/V at a premium to that devoted to other forms of data like text and still images. The second is that the user interaction for TV is radically different to that for a PC. The viewing distance is much longer and the tools for interaction, normally a remote control device, are much simpler than the PC’s keyboard and mouse. Thirdly, interactive systems for TV have largely, but not universally, been unidirectional, with data broadcast to a receiver or set-top-box in the transmission.
Over the Top Video
As the compression and delivery technology available has improved we have seen the Internet emerge first as a delivery method for audio and more recently for video content. This is manifested in three ways. Firstly, as User Generated Content, where A/V is provided by users, often as short clips. The success of these delivery platforms (such as YouTube) has enabled them to also offer video content originally produced for broadcast. A popular
1 video clip on YouTube is seen by maybe a million viewers. A wildly popular clip, driven by a broadcast airing, might be seen by many millions. Secondly, the communications medium of the Internet is used to deliver large A/V files, often movies, to end users. These systems often result in breach of copyright in that content. However, regularisation of these delivery mechanisms may be possible as further work is done. There are a large number of systems which use IP connections over closed networks rather than the Internet, for delivering TV. These IPTV systems are not the core concern of this note, but clearly many of the underlying issues apply to them also. Finally, we have the recently emerged phenomenon of use of the Internet for delivery of video content from broadcasters or others to the PCs of end users via the Internet, sometimes using the IP services provided by cable operators (Hence the term ‘Over the Top’ or OTT) .Catch-up TV is forming a very large proportion of content delivered in this way. A recent surveyi by FutureSource Consulting indicated that catchup viewing of popular, recent, broadcast shows was by far the most popular of content types consumed, followed by User Generated Content and trailers.
Industry Structures
The fundamental structures of the broadcast industry and internet industry are different in material ways. The supply chain for user equipment is dominated in the internet case by one supplier of silicon and one of software. The cost of the basic software in a PC is more than the total retail cost of a basic TV set top box. The specification of equipment is consistent worldwide, as might be expected in a global business. Hardware and software infrastructure for the internet is likewise fairly narrowly supplied. In broadcast, consumer equipment is supplied in low and high volume by a range of consumer electronics companies, based on silicon from half a dozen or more competing suppliers. Receiver specifications tend to be localised, often on a national basis, based on a number of key international standards. The local standards are typically set by broadcasters in response to local requirements and conditions.
Key amongst other structural market differences are the costs of manufacture and distribution, how they are shared between market actors and what the marginal costs of any activity are.
In broadcast, the end user (in a Free to Air (FTA) system) carries the cost of the home equipment (which may vary considerably between models), installation, and any licence fee or tax required. All other costs are carried by the broadcaster, directly or indirectly. These include content creation or licensing, advertising and promotion, play-out, distribution and transmission costs. These costs can be quite modest for a low cost satellite TV operation, but in general investment costs are high. For the established broadcaster, however, the incremental cost of the next user who adopts digital TV within a given broadcast transmission footprint, is zero. A broadcaster on an advertising supported channel, or a public broadcaster with obligations to reach the public, has incentives to encourage low cost receiver equipment which will achieve full market penetration and which will have long consumer life. Thus, in the case of digital TV, the industry seeks stable standards which can be maintained in the long run and where equipment typically has a long usable life. This works effectively in a competitive market for implementation and supply with suitable mechanisms in place for ensuring equipment interoperability.
In the Internet case, the costs and incentives are distributed differently. Most communications on the net are between PC devices, particularly those which involved presentation of video content. Consumer hardware costs are normally higher than in the TV case, since PCs are general purpose equipment, but lifetimes are lower and complexity and change higher. The consumer picks up some transmission costs through his ISP contract (or should do), and some of these will be carried by the broadcaster at his internet connection. The broadcaster has non-zero costs for serving and hosting transmission of OTT video content which increase with increased usage and, in particular, with anticipated peak usage. This cost profile is very different from that of a normal broadcast operation and applies whether video content is delivered to a PC or directly to a TV. To make OTT TV economical for the broadcaster he has to minimise his development and server costs and control the amount he spends on communications infrastructure. Note that, in 2009, delivery of TV
2 content for BBC iPlayer alone represents 5% of internet traffic in the UK and that, although staggeringly successful, adoption of iPlayer still has some way to go. For commercial broadcasters, who can gain advertising revenue by playing catchup TV to users who missed the original broadcast, cost control must also be strong to make distribution online a profitable exercise.
To deliver OTT video to the TV in the home requires either a connection from the TV to a PC or media centre or integration of streaming function into broadcast reception equipment – a TV or set top box. It is here that the integration of technologies takes place, and where the economics collide as well. We have to decide what path to take with respect to technology. Do we adapt PC technology to TV, bringing some of the economics of rapid change and high cost along with it, or do we extend the TV technology to accommodate Internet delivery of TV content? The Hybrid receiver, enabling both broadcast and IP delivered content, is now the subject of many design projects, including Project Canvas, and HBBTV that aim to build standards. These will compete with or complement the work already done by the UK DTG and which will be used in Freeview HD platform and is being deployed on Freesat..
Layers and Requirements
The internet is a communications medium, built in a classic set of layers from physical (wire, radio) through Internet Protocol upwards to the service layers. The IP infrastructure in the Internet carries a range of different services directed to client software appropriate to the task. For example, email, messaging and www services use different clients on almost all devices. The Internet is also ideal for delivery of interaction and video content to consumer devices, providing bandwidth is available.
There is no ‘given’ dependency of the use of HTML, Flash or Java user interface technology in IP connected networks. That is, delivery of “broadband” content via IP does not implicitly require web-based technologies such as HTML. There are very few examples of HTML technology being used successfully in broadcast CE devices over the past decade, despite many attempts to do so. If broadcasters wish to deliver “web-like” content and services on the TV, then consumers’ expectations will be driven by their experience in a desktop browser on a PC. However, the processing capabilities and extensibility of a PC will always be higher than that of a CE TV device. Trying to keep pace with the rapid developments in Web technologies using CE devices will generally result in a comparably disappointing experience for the consumer or higher cost for both broadcasters and manufacturers in keeping up to date with new releases of software for authoring and display.
An interactive TV system that works with broadcast also has to be integrated with the digital broadcast infrastructure as well as an IP network. The potential of the combination of broadcast and IP, known as Hybrid TV, will not be fulfilled until they are seamlessly integrated.
The general requirements for a Hybrid interactive TV system are thus along the following lines.
1)Some broadcasters need to offer consumers a suitable information service replacement for ‘teletext’ information publishing. This should be possible with or without Internet connection.
2)The system needs to provide additional content over broadband to connected households. This will include many services that rely on the connection to provide transactions and personalisation. In addition, TV content such as Catch-up TV with associated navigation and other meta-data must be delivered.
3)The system must provide services associated with TV like e-commerce and interactive advertising.
4) Information authoring and presentation costs must controlled, in particular to limit costs for repurposing content presentation from other sources.
3 5)Any deployed system should be standardised and interoperable. It should have a regime for managing conformance to the specifications. This is especially critical in order to achieve a large installed base of devices quickly.
6)Broadcasters should control delivery of their content to customers directly or through aggregation services as they choose.
7)Receivers should be deployable in a horizontal market, without proprietary elements that are not standardised and subject to licence on Fair,Reasonable and Non-Discriminatory terms.
7)Any deployed system should be low cost so as to be available across substantially the whole product range of consumer TV receiving equipment from low-end set-top boxes to high-end digital video recorders and integrated digital TVs.
8)Extension of the system to enable pay delivery of content should be possible, although not required in all deployments.
We believe that the MHEG-5 system specified in the UK, despite or perhaps because of the fact that it was originally specified more than a decade ago, provides a suitable technology that meets these requirements. It is widely supported in Consumer Electronics products in the UK and is being deployed in a range of countries worldwide, the most recent being Germany.
MHEG-5
MHEG-5 is an international standard for interactive TV that has been extended and adapted through operational experience to meet the needs of broadcasters and operators who wish to publish information through the TV. The basic ISO standard allows for profiles and extensions; the principal of which are the UK profiles and the ETSI profiles which are derived from them.
The system that MHEG implements includes a range of essential technical features needed for interactive TV. It is a programming language specifically designed for TV CE devices
• Processing of broadcast data files and indexes • Rendering of text and graphics on screen under program control • Managing user input to the program • Managing timer and broadcast stream events • Controlling presentation of audio, video and subtitles
Programmes can be created that run Program Guides, News and Sports information and interactive advertisements. The early profiles, targeted at CE devices with low processor power and memory capability, could only work with a limited range of colours and used bitmapped graphics. Modern profiles enable the display of high definition pictures and smoothly rendered text. Programs and data are delivered using a broadcast file system known as an Object Carousel. This enables individual files of content to be updated on each rotation of the file carousel, which can be held in memory in the receiver to enable rapid program access.
More than 40m devices containing MHEG technology have been shipped in the UK, and key services are provided using it by the BBC, Sky, Teletext and others. Because it has been used for more than a decade in the UK’s Freeview market, where virtually all receivers are equipped with the technology, MHEG-5 comes with a well-structured conformance regime. This
4 enables multiple suppliers to provide interoperable solutions to the market through different integrations with manufacturers and other suppliers. Thus some manufacturers make MHEG- 5 client software in-house and some outsource to one of the group of competing specialist suppliers. This industry structure has created effective competition in both price and quality, whilst maintaining the interoperability that is required for smooth operation. MHEG-5, as far as is known, is not subject to patent IPR and there is no established patent pool running a licensing regime. The 40 million or more units sold in the UK and elsewhere have been joined by systems that have been successfully established in New Zealand and Hong Kong and will start in the next year in Australia, Malaysia, India and South Africa. Significantly, a new system is now also being started in Germany, led by Technisat, the leading set-top-box supplier to the German market. This will provide for MHEG to be downloaded over air to many thousands of receivers in the German market.
As far as delivering interactivity in a broadcast environment, we have not found a real world application that cannot be successfully and economically delivered using MHEG-5. Because it is a lightweight and focussed language, programs delivered using it are small and are thus efficient to deliver in constrained bandwidth. Since there is no complex program infrastructure to load applications also start up quickly, so MHEG-5 can be used for applications, like EPGs, which need to start rapidly on user selection.
CI+
The DVB Common Interface provides for a standardised digital input connection to a TV set or a connection that enables a detachable conditional access system. It has recently been enhanced to provide both a secure interface for broadcast data to be delivered to the host TV and also a user interface system based on a subset of MHEG-5 and known as a CI+ browser. In this architecture an application is delivered from the CI module and runs on the TV set. The application can be used to control the module and communicate over IP with external servers. This is now being trialled in a number of cable operations to provide VOD services. We expect CI+ features to be included in a large proportion of HD iDTVs fielded in Europe from now onwards.
Broadband and MHEG-5
In order to address the limited capacity of the broadcast network to carry interactive content, receivers with suitable hardware can be connected to a broadband connection through the home network and with suitable extensions to the interactive software, interactive programmes and associate data can be accessed either via the broadcast Object Carousel or the IP connection.
Recent work in the UK has lead to the development of the MHEG-5 Interaction Channel (MHEG-IC) which enables such an extension of the broadcast interactive services to IP delivered content. The principle behind the MHEG-IC is to enable seamless integration of the broadcast delivered content with IP delivered content along with full editorial control of the user experience. The MHEG-IC gives access to A/V content in addition to traditional interactive content as well as the ability to support various transactions. All MHEG delivered services are conceived of as extensions of broadcasters’ existing offerings rather than
5 services that require further mediation through a portal or new EPG. The addition of a new navigation UI is not ruled out; but it is not required.
The widespread deployment of the MHEG-IC will be dependent upon not only the quality and scope of the services which can be delivered but also on the ease of installation. Most consumer devices are not professionally installed and the ease of connection to the broadband network is paramount in the success of any broadband content. For this reason, the MHEG-IC uses the same protocols used to deliver WWW (web content) to the PC such as TCP-IP, HTTP and HTTPS. This means that no special configuration of the home network is needed – if it is possible to browse the web, then the MHEG-IC will also work. One useful side effect of this is that the broadcaster can use the same web servers to serve MHEG-IC content and web content, simplifying the deployment of interactive content over different media.
Hybrid File System
The MHEG-IC can access content (programme instructions, text, graphics and streaming media) from either the broadcast carousel or the IP connection. However the MHEG-IC can also use a sophisticated enhancement known as the Hybrid File System, where by the content presented to the user can come from either the broadcast carousel and/or the IP delivered file system. This enables interactive applications authors to create content that can address IP connected and unconnected receivers simultaneously in a seamless and user- friendly way. Mechanisms exist to allow the application to determine whether or not an IP connection is possible (i.e. the receiver is equipped with the appropriate hardware and software) and whether or not it is actually available (i.e. has the user actually connected the receiver to the home network). Note that this facility really is seamless and doesn’t necessarily involve changing applications, only where the application gets data, depending on the receiver connection.
Streaming Media
MHEG-5 can access and control video and audio streams. These can be delivered either via the usual broadcast methods or via the IP connection. Video is delivered to the receiver using industry standard IP protocols and MPEG encoding identical to that used in the broadcast environment, ensuring that video can reach the receiver through any home network and can be readily decoded without the need for special decoders in the receiver. This approach simplifies the development of receivers and ensures a minimum cost solution to the end user. In addition, relying on standard protocols and encoding methods ensures that the technology will have a suitably long lifetime and will not be quickly replaced by new technology as so often happens in the PC environment. The core technology specified is H 264, encapsulated in a standard DVB Single Program Transport Stream, carried over HTTP.
The MHEG-5 application has full control over the presentation of any streaming media and can provide control of the video either via on-screen controls using the basic remote control or through the “play-back” keys on the remote control if they are present.
Although the specification is currently aimed at streaming solutions, the same technology could be used for downloaded content, with suitable content protection applied.
Security
The MHEG-IC employs a number of elements of security, currently relying on a “Broadcaster Trust” model. Certificates for secure HTTP connections are delivered over the broadcast carousel and can easily be updated by the broadcaster. Applications delivered via the IP connection must be digitally signed and checked with a certificate delivered over the air to the receiver, protecting users from inappropriate content in the event of the internet server being hi-jacked. In addition, an approved server list is provided in the broadcast carousel identifying which servers may be accessed by an MHEG application for either programme instructions or data.
In order to provide for DRM and other services, we expect work to continue on this subject.
6 Deployment Architecture
Like other programming languages, MHEG requires time to learn and skill to program. Complex applications, especially those involving complex displays and file management, take time and expertise to develop. S&T has a deployment architecture and application library that is available, with a range of other tools, to make application development and deployment reasonably easy.
The centre of this is MHEG Presenter, a generic MHEG application that is broadcast to and runs on the receiver and enables a range of application types, including teletext services, EPGs and Video on Demand services to be deployed using minimal MHEG skill using layout tools that utilise common templates and navigational options. The MHEG Presenter application can get data from either the broadcast carousel or the Interaction Channel. Data is optimised from transmission on either of these networks by an adaptation server process called the MHEG Mediator. Typically the input to this process is a structured data format like XML or a database query and the software can be hosted on webservers or at broadcast headends. In a VOD VOD system, this mediation Broadcast Metadata system adapts Carousel information from the operator’s VOD content and EPG databases to Mediator Receiver the optimal form needed for transmission and flows information, such as search requests from Internet the client system back Interactive to the VOD metadata System Content database. Data Delivery
A/V content is stored on a regular video server or in a Content Delivery Network as a Transport Stream file containing standard H264 compressed video. The MHEG application determines the location of this content from the metadata and user interaction and controls the stream playout.
MHEG Specifications and Implementations
The MHEG features that enable this system are specified in the latest UK D Book. (Version 6.1) and in the latest version of the ETSI MHEG Profile (ES 202184 v 2.1.1) which has recently been sent to ETSI for standards approval.
Both the Freesat and Freeview HD specifications are in line with these standards. In addition, a complete set of tests now exists to enable testing of receiver implementations at DTG Testing. This will allow a range of implementations to be built in competition without compromising quality and interoperability of applications on the platforms. Implementation is well advanced, and the recent announcements that major silicon vendors will deliver MHEG implementations for HD and Interaction Channel with their HD silicon during 2010, is a welcome vote of confidence in the future of the standard.
MHEG and Canvas
MHEG is an essential part of the Canvas specification, since it enables the reception of existing broadcast interactive services on Freesat and Freeview. It is also clear, from conversations rather than available specifications, that there are many technical elements in
7 common between the infrastructure and content delivery parts of the MHEG IC system and what is proposed for Canvas.
MHEG can provide a solution to the core requirements of a hybrid TV platform. The platforms already committed to implementing the MHEG specifications as they now stand will be able to provide these features at relatively low cost. With further work on DRM and pay elements a wider range of services could also be supported.
It is quite possible to conceive of the current specification as a ‘Canvas Lite’, available early, at low cost, and covering a high proportion of basic services required for Hybrid operation as an extension of each broadcaster’s offering. A fuller, more expensive and extensive platform could complement the initial offering and build on experience gained in deployment either to develop a more sophisticated system or to find that it is unnecessary.
Continued, active and public, commitment by the BBC to supporting deployment of I-Player and other services on the Freesat and Freeview HD platforms would enable services to be delivered early, in receivers of all types including iDTVs, and at reasonable cost.
DJC
September 2009
i Source: ‘Living With Digital’: Futuresource Consulting June 2009
8 TVonics Solutions Ltd nd 2 Response to BBC Trust “Project Canvas Consultation” Pencoed Technology Park Pencoed Contact:- [email protected] +44 (0) 7919174878 Mid Glam CF35 5HZ
TVonics Response to BBC Trust consultation based on the additional information provided about Project Canvas, 29th August 2009
Background TVonics are a leading UK based digital TV set top box company that exceeds in the design and development of award winning Freeview receivers and recorders. TVonics are part of the larger Contact Holdings Group that specialises in contract manufacturing, product packaging and supply chain management. The company has been consistently praised for producing products that are both, energy efficient and simple to use. TVonics are responding to the exciting opportunities presented by the UK Digital TV switchover and transition to Freeview HD in the UK.
While TVonics participates inside the Intellect forum, not all of the views of the CE Members reflect our position as a business; as such TVonics has chosen to directly respond to the BBC Trust on the issues raised. TVonics is a privately owned and funded British company that has an explicit interest in serving the Digital TV market within the UK.
Summary TVonics fundamentally supports the vision of project Canvas with regard to enabling consumers to access broadband content on their TV. There is already evidence of public demand for services such as BBC iPlayer to be accessed through the TV. We therefore continue to support the aim of developing an open standard that would enable broadband content and services to be accessed by digital TV equipment.
TVonics is supportive of the public value that the BBC brings to our market, and feels that a coherent broadcast and IP strategy from the PSB is essential in delivering the expected value for consumers. Equally, the proposed platform that Canvas offers has the potential to provide a plethora of content, from sources like user generated to other competing broadcasters.
TVonics at this stage is not concerned with the wider European or worldwide requirements. TVonics sees the facilitating infrastructure in the UK as significantly different enough to warrant an approach to the technology issues that are indeed unique to the UK. This does not detract from our businesses position supporting the need for open standards and the organisations that provide a tight regulatory conformance to those standards. TVonics fully endorses the DTG as the organisation that should lead the rigor of standards developed and deployed for the use with Canvas.
Page 1 of 4 TVonics Solutions Ltd. 1st September 2009 TVonics Solutions Ltd nd 2 Response to BBC Trust “Project Canvas Consultation” Pencoed Technology Park Pencoed Contact:- [email protected] +44 (0) 7919174878 Mid Glam CF35 5HZ
TVonics recognises the publication of the new material and the increased efforts that the Canvas team have made to engage with manufacturer like TVonics. We remain committed to working constructively with the BBC going forward. TVonics remains supportive of the BBC position, and encourages the BBC to provide our business with the timely access to materials, specifications and content, such that our business can remain competitive in the UK market.
TVonics seeks to position itself as a UK based innovation partner. TVonics sees the development of the Freeview and Freeview HD Brands as a central part of the services offered by the PSB as part of the Canvas proposition. TVonics feels that central threads of technology that underpin the Canvas proposition will facilitate a new era of UK broadcasting, leading the world in a new wave of content driven business models proving the consumers unparallel choice.
TVonics remains concerned about the disconnection between the verbal statements made, and the documented intentions around the user interface experience. Like other manufacturers TVonics feels that the UI remains a central part of the product manufacturer’s domain, and a mechanism to differentiate one brand from the next.
TVonics fully embraces the proposal to generate D-Book 7 through the DTG. However, the DTG process for D-Book 7 needs to be accelerated as quickly as possible if the Canvas team’s commercial timelines are to be realised. TVonics feels that this is the area that requires most attention as soon as the BBC Trust have completed their consultation. TVonics understands that this will not be possible to carry out this process meaningfully until the consultation is complete.
TVonics would like to place its own position on some of the issues raised by Intellect.
1. Joint Venture (JV) proposal TVonics understands the needs for the BBC to partner with a range of organisations to facilitate the full scope of benefits that Canvas can deliver. TVonics feel that it would make a suitable partner for the Joint Venture, without detracting from the organisations already engaged.
PSB’s and ISP’s form significant parts of the value chain within canvas environment, however, in the spirit that the BBC has adopted for the use of open standards, it would seem logical to include some lead manufacturers in this process.
Our colleagues at intellect have made much about the process of selecting joint venture partners for the Canvas proposal. While it’s clear that there has been some interpretation about what Canvas was and how it’s been formed, the BBC Trust has made it clear that no
Page 2 of 4 TVonics Solutions Ltd. 1st September 2009 TVonics Solutions Ltd nd 2 Response to BBC Trust “Project Canvas Consultation” Pencoed Technology Park Pencoed Contact:- [email protected] +44 (0) 7919174878 Mid Glam CF35 5HZ decisions on the implementation of the canvas project can be made until the consultation process has been completed. TVonics encourages the trust to complete the exercise in a timely manner, and to start a selection process that’s both fair and in the interest of the public value tests that the BBC should maintain.
Because the DTG are taking an active role in the creation of the D-Book 7 manufacturers should have forum, to view and voice concerns, ensuring that best practise is applied. This does and should not detract from the commercial timescales required to deliver the service that is proposed to be Canvas.
TVonics accepts that as manufacturers they do not sit as part of the Freeview and FreeSat brands. TVonics remains strongly committed to supporting products of a high quality that fulfil the brand values laid down in the associated trade mark license agreements.
TVonics feels that once the trust has concluded its consultation, and judged the project to be in the public interest, that the Canvas project will also enter into the process of establishing trust within the manufacturing community at the earliest possible stage.
TVonics urges the BBC Trust to conclude it’s consultation process at the earliest opportunity and facilitate the technical contributions to D-Book 7 as quickly as can be achieved. The BBC Trust would assist the industry on its educational journey about Canvas if it could make some clear statements publically about “Not providing ISP’s with a head start” and working with OEM manufacturers.
2. EPG and enabling access for content and service providers
TVonics is satisfied with the answer stating that only a ‘thin core’ of the UI is to be managed by the Canvas JV, allowing for manufacturers and content providers to develop sub sections of that UI.
What’s clear to TVonics is that the next generation of UI’s and their benefits to the end user are central to the Canvas/Product experience. TVonics is excited by the fact that the PSB has recognised this. TVonics would like to see a clear process for working with the Canvas team to ensure that the correct elements of the UI are considered through the product design process and maintenance, and that these elements, and the process yet to be defined will facilitate this high quality UI experience.
TVonics are not concerned that the proposals might have a detrimental effect on other manufacturers who are developing products for the pan-European market. TVonics remains
Page 3 of 4 TVonics Solutions Ltd. 1st September 2009 TVonics Solutions Ltd nd 2 Response to BBC Trust “Project Canvas Consultation” Pencoed Technology Park Pencoed Contact:- [email protected] +44 (0) 7919174878 Mid Glam CF35 5HZ convinced that the UK Public will be happy to see a service that provides them a seamless high value British experience, rather than a watered down European experience.
TVonics embraces the concept that the UI’s will be capable of being updated remotely. However, like open standards this mechanism and release procedure of the new UI, and its impact on the deployed product base needs to be carefully tested before its goes live through a “Test Zoo” concept. This test zoo requires adequate funding, resource and maintenance by an organisation with a track record of performing this type of service.
TVonics does agree with the following statement:- “Canvas must allow manufacturers to develop and manage their own EPG and still use the Canvas trademark”.
3. The agreement of the Canvas Specification and industry engagement
TVonics feels strongly that Canvas should “serve to protect the open, horizontal nature of the UK’s free-to-air platforms”. TVonics would like to see the BBC Trust ensure that Canvas follows the tradition that provided a level-playing field of competition between different device manufacturers and drives innovation and consumer choice..”
TVonics trusts that the BBC shall provide an open yet competitive process whereby all manufacturers had the opportunity to partner with the project in its development.
TVonics welcomes the step change in the collaboration and communication between the BBC and manufacturers, and recommends that this activity is intensified to achieve a result that the industry can be proud of.
TVonics feel that the BBC needs to select an affordable mechanism for protecting digital assets from its many content partners. This mechanism should be regulated under license, and a bar for potential manufacturers to climb over before the Canvas validation process can be completed.
Page 4 of 4 TVonics Solutions Ltd. 1st September 2009
UK Film Council Response to Second Consultation by the BBC Trust on an application from the BBC Executive to define and promote an IP television standard
(‘Project Canvas’)
September 2009
1. The UK Film Council is the Government-backed lead agency for film in the UK. Our goal is to help make the UK a global hub for film in the digital age, with the world’s most imaginative, diverse and vibrant film culture, underpinned by a flourishing, competitive film industry.
2. We have read the new documents in relation to Project Canvas from the BBC Executive, as published by the BBC Trust, with great interest.
3. In overall terms, we would reiterate the points made in our response to the first consultation by the Trust on the subject of Canvas and submitted in April.
4. As we stated in that response, the UK Film Council strongly welcomes the proposal to create Project Canvas. In particular, we believe that it potentially provides a platform for audiences to access innovative services offering access to film, cultural content and other forms of content in new ways.
5. By delivering a rich mix of video content to the living room, Canvas will help to encourage the creation of new legal services of all kinds offering audiences opportunities to engage with on-demand content in many new ways. This should help to drive take-up of broadband and build Digital Britain.
6. Also as previously stated, by encouraging take-up of such legal services, Canvas will help to stem online copyright theft and infringement which is currently widespread in relation to digital content, including films and other audiovisual material. We believe it will be necessary however to have rigorous technological measures in place to prevent people from accessing material which infringes copyright.
7. For this reason, we are pleased that the new documents illustrate in a more detailed way how Internet Service Providers (ISPs) will be able to participate as shareholders in the new venture. We believe that having a stake in a venture such as Canvas will give ISPs an additional incentive to address the issue of online copyright theft and infringement.
8. We would note that research which has become available to us since we submitted our response to the first consultation provides hard evidence that consumers also see the current lack of availability of internet functionality via the television as a significant barrier to taking up legal
2
online services.
9. A survey conducted by IPSOS MediaCT in May 2009 consisting of online interviews with 1006 people, who comprised a representative group aged 15-50, showed that 52% were interested in downloading a film from a legal service at the same time as it was available on DVD. However, among those not interested, 45% said that the principal barrier to entry was that their television was not connected to the internet. Therefore, the introduction of Canvas to the market and the ability of third-parties to access its services and, for example, to offer films legally for download is potentially a very significant step in addressing this barrier to take-up of online services.
Ends.
3
NON-CONFIDENTIAL VERSION
PROJECT CANVAS
RESPONSE OF VIRGIN MEDIA TO THE BBC EXECUTIVE'S ADDITIONAL DOCUMENTS PROVIDED ON 24 JULY 2009 IN RESPONSE TO THE BBC TRUST'S REQUEST FOR ADDITIONAL INFORMATION
11 SEPTEMBER 2009
NON-CONFIDENTIAL VERSION
1 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
CONTENTS
CLAUSE PAGE
1. EXECUTIVE SUMMARY...... 3 2. INTRODUCTION...... 5 3. VIRGIN MEDIA'S UNDERSTANDING OF CANVAS ...... 6 4. THE MARKET IMPACT...... 8 5. THE USER INTERFACE...... 13 6. THE STRUCTURE OF THE JV ...... 18 7. IP DISTRIBUTION ISSUES ...... 21
2 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
1. EXECUTIVE SUMMARY
1.1 In our May 2009 Submission, Virgin Media expressed concerns that the Executive's plans for Canvas might extend beyond the reasonably narrow objectives of setting a common technical standard for VOD over IPTV and, on a worst case scenario, extend to the creation of an entirely new TV service and platform.1 Virgin Media's fears have been realised. It is clear from the Executive's Further Information that, if Canvas is approved in its current form, the BBC and its JV partners will be involved in a range of activities that amount to the establishment and management of a fully-fledged new TV service and platform. In this regard, the Executive envisages that:
(a) Canvas will specify a set of common technical standards (although this specification is not "Canvas" in itself);
(b) Canvas will involve the creation and promotion of a standardised, mandated user experience (in the same manner as Freesat) and a single, proprietary central user interface (or EPG);
(c) in order to be able to use the Canvas brand, the standardised, Canvas user experience and central user interface must be adopted; and
(d) Canvas will be majority controlled by the incumbent PSBs, with a minority stake shared between ISPs.
1.2 [CONFIDENTIAL]:
(a) [CONFIDENTIAL];
(b) [CONFIDENTIAL];
(c) [CONFIDENTIAL];
(d) [CONFIDENTIAL].
1.3 Canvas will also have a broader negative market impact, to the ultimate detriment of consumers. First, the mandating of a user experience and user interface:
(a) will lead to less choice and innovation as regards the look, feel and operability of VOD services in the UK;
(b) may actually increase barriers to entry because services wishing to use other, incompatible user experiences or user interfaces could be excluded from both using the Canvas brand and from the market in general; and
(c) will enable the JV parties to manipulate the user experience and user interface to promote their own channels and content, disadvantaging other channel and content providers.
1.4 Second, the market dynamics will be distorted in favour of Canvas. This is because Canvas will enjoy rapid take-up by consumers and competitive responses will be limited, especially given the head-start that Canvas will have and the fact that there will be insufficient time for retailers to develop an alternative consumer proposition. This will be exacerbated by the fact that it is a requirement of Canvas that the JV parties cross- promote the Canvas brand, making it practically impossible for any other player to market its alternative offering sufficiently to overcome the marketing impact and spend that Canvas will enjoy. In this regard, the BBC's unique position (i.e. as the leading PSB in the UK, and with access to large public funds and extensive resources) will give the Canvas
1 May 2009 Submission, Section 2.
3 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
service an irresistible momentum with which no other market participant will be able to compete.
1.5 Third, the PSBs with commercial operations (i.e. ITV, Channel 4 and Five) will have the incentive to use Canvas as a mechanism to damage competing retail platforms, especially pay TV platforms. Despite the BBC's best intentions, Canvas will enable such PSBs to act on this incentive, for example, by withholding content.
1.6 Our concerns are consistent with Ofcom's public position as regards Canvas as set out in page 2 of Ofcom's letter to the Trust of 17 April 2009, in which Peter Phillips states:
"[t]he collection of individual standards into a single specification – as is likely under Canvas – may effectively result in the creation of a new 'platform'"
and that
"[p]latform services such as [navigation, personalisation and recommendation]– and any electronic programme guide – will need to be considered carefully to avoid the creation of a competitive bottleneck for third parties wishing to reach audiences via Canvas".
1.7 This adverse market impact could have a material chilling effect on the developing, and very dynamic, market for the supply of VOD services in the UK. Although VOD and IPTV are currently relatively embryonic technologies, this market is already characterised by a number of different service providers, equipment manufacturers and VOD content providers and aggregators, all of which compete to provide innovative VOD and IPTV services to viewers. As the market continues to develop, Virgin Media expects the number and range of VOD and IPTV technologies and services to continue to grow. Canvas will jeopardise this growth and development. Given the nascent state of the market, such stifling of growth and development will have an exponentially negative impact on the market. This will be exacerbated by the fact that the JV will effectively control the two technologies at the heart of this growth and development, i.e. VOD and IPTV.
1.8 Further, and importantly, there is no need for the BBC to create an entirely new TV platform with mandated user experience and a single, proprietary central user interface in order to achieve its stated goals. The Executive has acknowledged that Canvas (and its cornerstones of neutrality and common user experience) is "intended to lower the barriers for content and service providers and application developers, democratising access to the television set and creating a simple, accessible environment to deliver value to the broadest range of UK consumers."2 The goals of lowering barriers to entry, democratising access to TV and creating a simple environment could just as easily be achieved with a simple open technical standard. The creation of an entirely new platform for this purpose is not required and cannot be justified.
1.9 In this regard, the Executive has vigorously argued that a mandated user experience and a mandated user interface are particularly important, and indeed the only way, to deliver the benefits it seeks to create. We fundamentally disagree with the Executive. In fact, the Executive materially overstates the need for a single mandatory user interface and user experience and instead demonstrates an unconcealed ambition, which is entirely beyond its remit, to exercise control of the delivery of VOD content in the UK. In short, a mandatory user interface and a mandatory user experience are not required to reduce barriers to entry, are not required to underpin the Canvas brand and are not required to ensure that the benefits of IPTV are understood and enjoyed by all audiences.
2 Executive's Further Information, Section 1, page 1.
4 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
1.10 Accordingly, it is apparent that Canvas is an entirely unnecessary expansion of a project, the objects of which can be achieved effectively in other ways. In this regard, Virgin Media continues to maintain that Canvas would be highly effective in achieving the Executive's goals and would not have a material negative market impact if it were subject to the following conditions:
(a) Canvas must be an open standard freely available for all to use;
(b) market participants must be free to compete with each other in relation to the look, feel and operability of the user interface and user experience;
(c) the Canvas brand must be available for market participants to use if certain basic conditions are met; and
(d) there should be no editorial, or indeed any other type of, gatekeeper role for the JV parties.
1.11 Finally, Virgin Media notes that it has some further concerns about the JV, namely that:
(a) in light of the serious market impact resulting from Canvas, the Trust must ensure that the Canvas proposals are subject to the highest level or scrutiny, with adequate time for industry and Ofcom to formally input into the process;
(b) the structure of the JV, in particular the proposals as regard voting rights and majorities, does not allay Virgin Media's concerns about the conflict between the public and private aspects of the JV, especially given that the BBC could easily be outvoted by parties with commercial interests;
(c) Canvas does not appear to be consistent with the BBC's Remit;
(d) Canvas raises potentially significant competition law issues that are likely to be of interest to Ofcom, the Office of Fair Trading and the EC Commission; and
(e) the Executive has not adequately considered the IP distribution issues arising from Canvas and in particular the allocation of additional costs that will be incurred as a result of the increased interest traffic arising from Canvas. In this connection, the BBC must fully engage with ISPs to minimise these costs and seek solutions as regards the allocation of any residual costs.
1.12 Against the above background, Virgin Media does not believe that, acting reasonably, the Trust could approve Canvas in the form currently proposed by the Executive.
2. INTRODUCTION
2.1 This submission (the "Submission") sets out Virgin Media's response to the BBC Executive's ("the Executive") additional documents provided on 24 July 2009 in response to the BBC Trust's ("the Trust") request for additional information ("Executive's Further Information"). The Submission is structured as follows:
(a) Section 2 describes Virgin Media's understanding of how Canvas will operate;
(b) Section 3 comments on the market impact Canvas would have both on Virgin Media and the market generally, including the impact on consumers;
(c) Section 4 sets out in further detail Virgin Media's observations on the Executive's proposal as regards user interface ("UI") and user experience ("UX");
(d) Section 5 comments on the issues raised by the structure of the Canvas joint venture ("JV"); and
5 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(e) Section 6 sets out Virgin Media's concerns as regards distribution issues.
3. VIRGIN MEDIA'S UNDERSTANDING OF CANVAS
3.1 In our submission to the Trust dated 8 May 2009 (the "May 2009 Submission"), we expressed concern that the original application by the Executive was insufficiently clear about the structure, purpose and content of the Canvas project.3 The Trust's request for clarification from the Executive has elicited a significant amount of new information, such that the full extent of the JV is now clearer (although as indicated below, uncertainty remains in certain areas). In response to the clarification provided in the Executive's Further Information, this Section first sets out Virgin Media's understanding of Canvas and second refers to certain aspects of Canvas which still remain unclear.
Summary of the key features of Canvas
3.2 As outlined in the Executive's Further Information, Canvas is, in summary, the establishment of a new TV platform in the UK. In this connection, the Executive explicitly refers to Canvas as being a new platform. For example, the Executive states that "all Canvas devices can be addressed as a single platform by content providers"4 and elsewhere refers to Canvas as "a new Free to Air (FTA) platform venture".5 This new Canvas platform has the following key features:
(a) a standards-based open environment (although this specification is not "Canvas" in itself); and
(b) the promotion of a standardised, consistent UX (in the same manner as Freesat) and a single, proprietary central UI which would be linked to use of the eventual Canvas consumer brand.
3.3 In this connection, it is not completely clear what the Executive means by UI and UX. It appears, however, that the Executive intends the Canvas would entail:
(a) a consistent UX. The UX refers to the complete software, including the look and feel, navigational environmental and underlying technology6; and
(b) a UI. The UI is essentially akin to an electronic programme guide ("EPG") for VOD and linear content and will consist of both:
(i) core Canvas elements ("the Core UI") which will be mandatory and controlled by the JV. By controlling the Core UI, the JV will be able to control the look, feel and structure of the main menu, and the way in which viewers will be able to access VOD TV content, web/interactive content and settings options. The JV will also control the linear TV/radio EPG.7 Canvas will also control the first layer of searching/browsing technology for both TV VOD content and web/interactive content (e.g. through directories), and the Canvas settings options; and
3 May 2009 Submission, Section 2.
4 Executive's Further Information, Section 2, page 4.
5 Executive's Further Information, Executive Summary, page 3.
6 Executive's Further Information, Section 2, page 1.
7 In this connection, the Executive has indicated that it will adopt the Digital Television Multiplex Operators Ltd ("DMOL") /Freesat EPG. DMOL is a company owned by the operators of the six digital terrestrial television ("DTT") multiplexes and provides technical platform management for the DTT platform. Freesat is a free-to-air digital satellite television JV between the BBC and ITV. The service was marketed from 6 May 2008 and offers a satellite alternative to the Freeview service on digital terrestrial television, with a selection of channels available without subscription for users purchasing a receiver.
6 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(ii) non-core elements which viewers, device manufacturers, service providers and content providers will be able to control in order to personalise the Canvas service. In this connection, third parties will only be able to control interactions between viewers and content at lower levels. For example, once a viewer has directed itself to a specific content provider via the Core UI, the content provider may only then choose to create its own search functionality, and then only in relation to its own content.
3.4 In order to take advantage of the Canvas trademark, the UX and Core UI will have to be adopted, i.e. these core features will not be able to be personalised by device manufacturers, content providers or service providers. In this regard, it is clear that the UX and the Core UI will be mandated by the JV.Third parties will, therefore, have no control over, and will be forced to adopt, the JV's design and functionality of the UX, the Core UI (including the linear and radio EPG, which will be based on the current Freeview/Freesat EPG), and search and navigation services.
3.5 Device manufacturers will be able to use the Canvas open standards specification to produce consumer equipment. However, only those devices that use the approved Canvas Core UI and UX will be entitled to use the Canvas brand. Accordingly, only devices with the Core UI and UX will benefit from the JV's Canvas marketing and promotion efforts.
3.6 Canvas will eventually facilitate the full range of business models for content providers: advertiser supported, subscription, pay-per-view, micropayments, etc.
3.7 The JV will be majority controlled by the incumbent public service broadcasters ("PSBs"), with a minority stake shared between internet service providers ("ISPs") who command a minimum five per cent share of the UK broadband market. Although there may be scope for other parties to join the JV (such as infrastructure partners), commercial non- PSB broadcasters will not be eligible to join.
The tensions in the original Canvas proposal
3.8 Our May 2009 Submission outlined some underlying tensions in the original description of Canvas, not all of which have been reconciled in the new proposals. In particular, the following tensions, each of which is discussed in turn below, have not been adequately addressed in the Executive's Further Information:
(a) open access or negotiated carriage;
(b) platform neutral or free-to-air prioritisation; and
(c) content neutral or editorial gatekeeper.
Open access or negotiated carriage
3.9 The Executive has confirmed that Canvas should be open to "all content providers who adhere to technical, editorial and UX standards".8 In this regard, we remain concerned that the fee structure for listings on the Canvas service may undermine this "openness".
3.10 The Executive states:"we have agreed to charge a fee on a cost recovery basis and the level of this charge will be confirmed later."9 The Executive goes on to explain that similar types of content provider (providing "equivalent services") will be charged the same fee and that there will be different fees for different types of content. However, it is still unclear what the quantum of these fees is likely to be, and without even a vague
8 Executive's Further Information, Section 2, page 1.
9 Executive's Further Information, Section 2, Appendix 1, page 15.
7 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
understanding of the costs of entry to the platform, it is impossible to assess how "open" the platform will truly be.
Platform neutral or free-to-air prioritisation
3.11 The Executive has not addressed our concerns about whether Canvas will be platform neutral or whether free-to-air TV services will enjoy some form of priority. It remains unclear whether the Canvas standards are intended to be compatible with all major forms of broadcast distribution methods (including digital cable) or exclusively as an augmentation of the current Freeview and Freesat services. Clearly, this has a material influence over the market impact of the Canvas project.
Content neutral or editorial gatekeeper
3.12 One of the most troubling aspects of the original vague Canvas proposal was the extent to which Canvas would be content neutral or whether the JV would act as an editorial gatekeeper limiting access to the platform (i.e. favouring some content providers over others). In this connection, the Executive's original application was peppered with references to "minimum editorial standards" and "quality" thresholds and even "policing all websites", which created the impression of a platform with an interventionist approach to managing content (and indeed, a platform with high barriers to entry).10
3.13 The Executive's Further Information has, to a certain degree, sought to reassure the Trust that the JV will not seek to exert editorial control over content on the platform. The Executive has confirmed that only content that breaks UK law will be prevented from accessing the platform, and that the JV will not seek to impose any editorial standards on content.11 In this regard, Virgin Media observes that policing illegal content is not the role of the BBC and that there are, and will be, other regulatory and legal mechanisms to address such concerns. In any event, however, it should be emphasised that even if the Executive does not impose explicit editorial standards on content, the JV parties would still be able to act as a gatekeeper by use of other levers (such as technical reasons, capacity restrictions and prioritising PSB content in the Core UI) to shape the platform in their own interests and restricting access to the platforms for other content providers. In considering the scope, objectives and governance of the JV, the Trust will need to be mindful of how the commercial interests of the JV partners might be unfairly furthered through Canvas.
4. THE MARKET IMPACT
4.1 This Section sets out Virgin Media's concerns regarding the impact Canvas will have on Virgin Media and the market in general in light of the Executive's Further Information. In short, the clarification provided by the Executive has confirmed that, of the possible scenarios set out in the Executive's original proposal, the form of Canvas that the Executive wishes to purse will be that which will have the most damaging impact on the market. [CONFIDENTIAL]. In this connection, this Section:
(a) first, summarises the key negative market impacts of Canvas;
(b) second, describes the most damaging features of Canvas, including by reference to the resulting consumer detriment; and
(c) third, discusses why it is necessary for the Trust to undertake a detailed market impact assessment which ensures full participation by interested parties.
10 See, for example, the Executive's Canvas: Proposition and Public Value Case, published by the Trust on 26 February 2009, footnote 34, pages 20 and 23.
11 Executive's Further Information, Section 2, Appendix 1, page 23. In this connection, Virign Media
8 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
4.2 Each of these issues is discussed in turn below.
Summary of the key negative market impacts of Canvas
4.3 In Section 3 of Virgin Media's May 2009 Submission we set out the likely adverse impact Canvas will have on the market, [CONFIDENTIAL], if Canvas is allowed to develop into a fully-fledged and heavily cross-promoted platform with a mandated UI. These concerns have not been allayed following clarification of the Canvas proposition by the Executive. In fact, the Executive's Further Information confirms that the Canvas proposal will not just be limited to a set of standards but rather will be a new platform which is precisely the scenario that has the greatest negative impact on [CONFIDENTIAL] the market in general.
4.4 [CONFIDENTIAL]:
(a) [CONFIDENTIAL];
(b) [CONFIDENTIAL];
(c) [CONFIDENTIAL];
(d) [CONFIDENTIAL].
4.5 [CONFIDENTIAL].12 13
Explanation of the most damaging features of Canvas
4.6 In light of the Executive's Further Information, it is clear that the following features of the Canvas proposal are the most harmful and, consequently, lead to the significant negative market impact:
(a) the mandated UX and Core UI;
(b) not allowing sufficient time for other industry participants to build in conditional access systems into their set top box ("STB") thereby compounding the first mover advantage Canvas will enjoy;
(c) promotion of the Canvas specification in the UK through, inter alia, enshrining in the JV's articles of association the requirement to market and promote the Canvas standard; and
(d) the blurring of the public/private nature of the JV, having regard to the incentives of the commercial PSBs and the advantages conferred on Canvas by the BBC's unique position in the market.
4.7 Each of these issues is addressed in turn below.
Mandated UX and Core UI
4.8 As set out in more detail in paragraphs 3.3 to 3.5 above, in order to take advantage of the Canvas brand, the mandatory UX and Core UI must be adopted. The lack of control over these features will significantly undermine the ability of manufacturers and platforms to innovate and therefore respond competitively to the significant market impact Canvas will have on VOD providers. These combined features will curtail a third party platform from innovating to provide its customers with a different and enhanced UX and Core UI from
12 [CONFIDENTIAL].
13 [CONFIDENTIAL].
9 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
that of the Canvas proposition. The negative market impact and consequent consumer detriment will be manifested in a number of ways:
(a) the specification of the UX and Core UI to the exclusion of all other types of interfaces and specifications will stifle the ability of competing retailers to develop new and innovative features to appeal to different types of consumers and suppliers for fear of losing the Canvas trademark. [CONFIDENTIAL]. As the Enders analysis of Canvas observed, the mandating of the UI and the restriction on creative innovation means that the "worry is that the Canvas specification will soon become the "national health glasses" of the TV world if it prevents manufacturers and services from differentiating and innovating".14 This limiting of the scope for industry participants to innovate is particularly concerning given that the market is in its nascency and any limiting of innovation at this early stage of market development will have an exponentially negative impact of the market;
(b) the mandating of a single Core UI provides the BBC and the other JV partners the ability to editorialise the home page to promote their own channels and preferred channels suppliers. In this regard, Virgin Media is unsurprised that the Canvas linear EPG will be based on the current DMOL/Freesat line up, on which the JV parties have desirable slots. The recent restructuring of the Freeview EPG indicates how, despite Ofcom regulatory requirements to list channels on a fair, reasonable and non-discriminatory basis, the initial proposed restructuring unfairly favoured the commercial interests of the PSBs (ITV, Channel 4 and Five) and discriminated against other channel providers. It was of no coincidence that – with the exception of Virgin1+1 – the channels which were going to move higher up the EPG were all controlled by the PSBs. This highlights Virgin Media's underlying fear that a mandated linear EPG as part of the Canvas UX and Core UI will be designed to favour the PSBs' interests, which may not coincide with what is best for the long term development of a competitive market or ultimately viewers' interests;
(c) a similar concern as above exists in relation to the VOD EPG parts of the Core UI. The Trust should note that no equivalent fair, reasonable and non-discriminatory regulations exist in relation to the order of services which are placed in a VOD EPG. The Executive suggests that places would be reserved on the VOD EPG on a first- come-first-served basis which would suggest the JV partners would have preferential access to the VOD EPG space ahead of any other content providers;
(d) the specification of the UX, Core UI, and search and navigation functionality is based on the current view of the world where on demand and linear television is clearly delineated. Virgin Media considers that consumers' preferences may change over the years such that they may no longer wish to distinguish between content which is currently being broadcast and content which is a few days old. Likewise, consumers may wish to customise, search and navigate through content based on terms which the current specification does not permit. Not having the flexibility to develop the UX, Core UI and search and navigation features will further stifle development in this market;
(e) related to (d) above, in a world where consumer preferences may change and where the UX and Core UI may need to be updated to reflect these changes, it will be very difficult, from both administrative and technical perspectives, to agree and rollout changes across the entire suite of Canvas services available in the market. These difficulties will inevitably delay innovation in the market; and
(f) the mandated UX could also create barriers to entry. This is because it will be impossible for any other player to effectively compete unless it adopts the Canvas UX. As a result, the mandating of a specific UX will stifle innovation. This clearly
14 Enders Analysis Canvas "drive digital Britain" 31 July 2009.
10 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
contradicts the Executive's statement that mandating the UX will have the effect of "[r]educing barriers to entry for content and service providers, stimulating innovation and choice and democratising access to the television screen".15
4.9 In the face of criticisms such as those set out in paragraph 4.8 above, the Executive claimed that that mandated core UI and UX is necessary to achieve its goals. Virgin Media sets out in detail in Section 5 below why this is not the case.
Insufficient time for retailers to develop an alternative consumer proposition
4.10 The Executive has clarified that the JV partners are committed to delivering devices to market by September/October 2010 to ensure availability for Christmas and to coincide with Freeview High Definition ("HD").16 In essence, it seems that the launch of Canvas is not structured around the development of the interests of the industry as a whole but rather with the aim of supporting Freeview HD, to allow these two services, which primarily benefit the incumbent PSBs, to cross-promote and "piggy back" off each other.
4.11 Virgin Media sets out in paragraphs 3.15 to 3.21 of its May 2009 Submission why Canvas will enjoy rapid take-up by consumers and why any competitive response will be limited. In summary:
(a) first, the BBC has already invested significant time in the development of the Canvas standard, which is expected to enable it to develop compatible STBs by September/October 2010. As a result the JV partners' Canvas proposition will be more advanced and faster to market than any other proposition.17 The development of other propositions is hampered by the fact that third parties do not yet have access to the Canvas standards and, accordingly, are not been able to begin developing compatible STBs. In this connection Virgin Media notes:
(i) the Executive itself acknowledges that conditional access will only be considered as part of the long term road map and not appropriate for a 2010 launch product.18 This means that the first set of Canvas STBs will not have conditional access built in meaning that those consumers who buy their STB immediately and for some time after the launch will not be able to watch premium content;
(ii) [CONFIDENTIAL]; and
(iii) the BBC and the JV partners will be able to piggy back off the cross- promotion and marketing arising out of the launch of Freeview HD, thereby ensuring that the take-up of Canvas is maximised;
(b) second, Canvas will immediately make available the most popular UK VOD content that consumers want to watch19 and there is a real risk that highly attractive VOD content from the PSBs will not be available to VOD service providers who do not use the Canvas technology. In consequence, such alternative VOD service providers may not have access to the attractive VOD content required in order to compete with Canvas.20 Despite the fact that the Competition Commission in its findings in relation to Project Kangaroo recognised the importance of this content, the Executive has provided no comfort that the JV will not increase the commercial
15 Executive's Further Information, Section 2, page 3.
16 Executive's Further Information, Executive Summary, page 4.
17 May 2009 Submission, paragraph 3.16.
18 Executive's Further Information, Section 2, page 12.
19 May 2009 Submission, paragraph 3.17.
20 May 2009 Submission, paragraph 3.20.
11 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
PSBs' incentives and ability to limit content distribution and withhold VOD content from competing retailers in order to harm their propositions;
(c) third, the BBC and the other JV partners will have the incentive and ability to cross- promote Canvas over other services.21 Further, the BBC's unique position in the market (including strong brand name, internal resources and access to enormous public funds) will give Canvas a unique and irresistible momentum that no other service will be able to replicate, or compete with; and
(d) fourth, Canvas has been deliberately timed to benefit from the retail rush before Christmas 2010, and given that the retail market is very quiet, Canvas is likely to be heavily promoted by retailers.22
Enshrining the promotion of the Canvas in the articles of association
4.12 The Executive's Further Information sets out the objectives of the Canvas venture, namely to:
"Promote the Canvas specification in the UK through, inter alia, marketing and promotional campaigns:
• informing consumers and retailers about the availability of services (e.g. wide choice of catch-up, VOD and linear television along with interactive and web content, as part of a new hybrid platform which enables both free and pay services)
• [i]nforming consumers and retailers about availability and accessibility of service from various ISPs".
4.13 Given that it is a requirement of joining the JV that the partners cross-promote the Canvas brand, it will be practically impossible for any other player to market its alternative STB sufficiently to overcome the marketing impact and spend of the JV to ensure the necessary take-up of the service. This is particularly so given the BBC's unique market position and extensive resources.
The blurring of the public/private nature of the JV
4.14 Virgin Media considers that the blurring of the public/private nature of the JV will affect the incentives of the PSBs. In this regard, the Executive's Further Information provides no additional clarification on how it will curtail its commercial partners' incentives to use Canvas as a mechanism to damage competing retail platforms. Although the Executive may have public goals in mind in relation to its involvement in Canvas, the other JV partners have commercial incentives which are contrary to these goals.
4.15 As stated in the May 2009 Submission,23 Virgin Media's television proposition relies on aggregating a range of different content from both mainstream and niche rights holders. Canvas [CONFIDENTIAL] creates an incentive for rights holders to by-pass TV service providers [CONFIDENTIAL]. In relation to the PSBs, it should be noted that:
(a) they have every incentive to ensure that if they were to supply content to other VOD service providers, any resulting revenues must outweigh the resulting impact on the Canvas proposition;
21 May 2009 Submission, paragraph 3.18.
22 May 2009 Submission, paragraph 3.19.
23 May 2009 Submission, paragraph 3.37.
12 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(b) they have a real incentive to favour free TV platforms over pay TV platforms. This is because the PSBs enjoy a larger share of audience viewing on free TV than they achieve on pay TV platforms. By withholding content from pay TV platforms, PSBs can give free TV platforms a real advantage and derive greater related revenues;24 and
(c) as a result of PSBs' incentives not to supply third party VOD service providers and the importance of the content to them, the balance of negotiating power will tip heavily in favour of the PSBs, such that they will be able to extract better terms from VOD service providers further disadvantaging platforms such as Virgin Media.25
4.16 Virgin Media considers that given that Canvas is likely to restrict access to key UK content, which will further curtail significantly any third parties' ability to respond to the Canvas proposition, it is crucial that the Trust considers the negative market impact Canvas will have on third parties' ability to acquire content.
4.17 Also, the Trust should consider extremely carefully the impact of the BBC participating in Canvas. The BBC's participation will give the Canvas service irresistible momentum, something which no other market participant will be able to replicate. This is because the BBC has a unique position in the market as a public body with access to enormous public funds, extensive resources and very strong brand presence. In this regard, Virgin Media is extremely concerned about the BBC investing in a project which will distort the market to the benefit of the commercial interests of the other JV parties.
The necessity of a full market impact assessment
4.18 Given the significant adverse impact Canvas is likely to have on Virgin Media, the market in general and consumers, the Trust should ensure that the Canvas proposals are subject to the highest level of scrutiny, with adequate time for industry and Ofcom to formally input into the process. The Trust must ensure that:
(a) its market impact assessment is rigorous and fully examines the likely impact of the Canvas on the market;
(b) its market impact assessment fully assesses the impact Canvas will have on the cable platform as a revenue decline of ten per cent as suggested by the Executive is significant;26 and
(c) it provides adequate time for the industry to comment on the market impact assessment.
4.19 It is not the Trust's function to expedite the process to ensure that the new Canvas STBs are available in time for Christmas 2010. Rather the Trust's role is to ensure a proper, rigorous and fair consultation is conducted. This is especially important given that Canvas threatens to drastically change the structural composition of the TV industry by creating an entirely new platform and because once Canvas is established it will be extremely difficult to undo any negative impacts.
5. THE USER INTERFACE
5.1 Out of all the concerns discussed in detail in Section 4 above, the mandatory Core UI and UX27 remain our biggest and most fundamental concerns about the JV. In summary our
24 May 2009 Submission, paragraph 3.37(d).
25 May 2009 Submission, paragraph 3.37(e).
26 Virgin Media notes that this ten per cent estimation by the Executive may, actually, underestimate the impact on Virgin Media. See paragraph 4.5 above.
13 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
view is that by mandating a single, homogenous Core UI for Canvas, the Executive risks stifling innovation in what is a dynamic and rapidly evolving area: the search and navigation of linear and non-linear content.
5.2 We previously raised concerns about imposing a mandatory UI in our May 2009 Submission.28 We have also reiterated, and expanded on, these concerns in paragraphs 4.8 to 4.11 of this Submission. In response to such criticisms and questions from the Trust, the Executive argues that a single UX is the only way to deliver the benefits it seeks to create. In this connection the Executive has stated that it "believe[s] that a consistent UX is necessary to create a successful platform of meaningful scale […] At the same time we recognise needs of content providers, device manufacturers, platform operators and ISPs and want to create a flexible approach that supports their business models but still delivers the benefits described above".29 The Executive has specifically argued that a single, mandated Core UI and UX is vital to:
(a) reduce barriers to entry for content and service providers, stimulating innovation and choice and democratising access to the television screen;
(b) underpin a consistent consumer brand to protect scale in the horizontal market for device manufacturers and advertisers; and
(c) ensure the benefits of connected television are understood and enjoyed by all audiences.30
5.3 We fundamentally disagree with the Executive. As a general point, Virgin Media considers that the Executive's justifications overstate the importance of mandating a single, consistent UI and, by insisting on a mandated UI, the Executive risks amplifying the negative market impact of the JV. In this connection, we refer the Trust to paragraphs 3.52 to 3.57 of our May 2009 Submission and paragraphs 4.8 to 4.11 above which talk at length about the general risks associated with the imposition of a mandated UI.
5.4 In particular, we note that the Executive's arguments on the importance of a mandated UI fail to recognise the competitive and dynamic nature of the VOD space currently in the UK. There is currently a high level of innovation and competition between market participants, characterised by the rapid and broad VOD development over the last several years. This has even been acknowledged by the Executive.31
5.5 Virgin Media sets out below a critique of the specific justifications for a mandatory UI as set out in the Executive's Further Information.
Reducing barriers to entry for content providers
5.6 The Executive states that barriers to entry will be lowered by mandating a single UI, and that access to the television screen will be democratised,32 although no evidence is provided to support this. The Executive also claims that "[t]he flexibility and scale of this environment will stimulate the development and delivery of the widest range of content
27 See paragraphs 3.3 to 3.5 above.
28 May 2009 Submission, paragraphs 3.52 to 3.57.
29 Executive's Further Information, Section 2, page 3.
30 Executive's Further Information, Section 2, page 3.
31 For a detailed review of market developments, including those specifically acknowledged by the Executive, see paragraph 3.14 of the May 2009 Submission. See also paragraph 5.7 below.
32 Executive's Further Information, Section 2, pages 2 to 4.
14 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
and services."33 Given the rigidity of the mandated Canvas Core UI and UX, we find the logic of this statement, and in particular the claim about "flexibility", baffling.
5.7 In any event, the rapid developments over the last several years, including new entry into the VOD space,34 clearly indicate that barriers to entry to providing VOD services are already low and that content providers are already finding innovative ways to reach viewers. Indeed, recent developments reinforce Virgin Media's firm belief that the VOD services market in the UK is dynamic and competitive and that Canvas is not necessary to achieve the Executive's goals. In this regard:
(a) New Media Markets recently reported that the Franco-German HBBTV initiative is being launched with the view to extending the roll out of this hybrid TV/VOD open technical standard into the UK. The BBC has even explicitly acknowledged that HBBTV "has the same objective [as Canvas] – bringing interactive, on-demand TV to the living room".35 However, despite having the same goal, Virgin Media understands that HBBTV will be a simple open technical standard that will enable content providers and device manufacturers to provide content over broadband directly to consumers on their TV sets in UK and that this initiative does not involve a mandatory UX or Core UI. The HBBTV development illustrates, and supports Virgin Media's view, that a new platform with a mandated UX and Core UI is not required in order to bring VOD over IPTV to consumers; and
(b) iPlayer is achieving considerable success on Sony's PlayStation 3 ("PS3") which is an internet-connected game console over which viewers can watch iPlayer content on their TV screen. It was recently reported that 10 per cent of all iPlayer viewing takes place via PS3.36 This demonstrates that viewers are already using existing technology to watch iPlayer over IPTV. Further, Virgin Media notes that the BBC does not control the specification of PS3 devices or indeed the Core UI or UX (the BBC only controls the navigation as regards its own iPlayer content). This undermines the Executive's assertions that mandating the UX and Core UI is essential.
5.8 Further, if it was considered that entry conditions should be further lowered, a simple technical standard version of Canvas would be more than sufficient to make entry even easier as it would enable content to be available over multiple devices quickly and efficiently. We do not understand how a common look and feel for search and navigation, as provided for by the mandated UX and Core UI, will lower these entry conditions any further than a simple open standard. In our view, the technical standards themselves are the key aspect of the Canvas project that guarantee wide access to content – not the UI.
5.9 We also have a concern that Canvas may actually increase barriers to entry and expansion in the long term. In a world where Canvas is the default and dominant VOD delivery technology, third parties who do not wish to be shoe-horned into the Canvas specification may find it more difficult to bring a VOD service to market.37
33 Executive's Further Information, Section 2, page 4.
34 Virgin Media refers to its May 2009 Submission, Annex 1 which provides an overview of VOD services in the UK, including a description of the explosion in VOD services and VOD viewing.
35 Julia Glotz BBC and HBBTV claim hybrid harmony New Media Market, 4 September 2009, page 1.
36 See News for Gamers BBC iPlayer proves a hit on PS3, available online at http://www.n4g.com/ps3/News- 390979.aspx.
37 See also paragraph 4.8(f) above.
15 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
Underpinning a consistent consumer brand
5.10 The Executive seeks to create a "brand promise"38 for Canvas by restricting use of the Canvas trademark to only those devices that implement the UX and the Core UI. The Executive envisages that TV service providers will be able to make use of the Canvas delivery technology (i.e. a simple open standard) without adopting the mandated UX and Core UI. However under these circumstances the TV service provider will not be able to use the Canvas brand. In our view, the "brand promise" is wholly unnecessary and goes well beyond what will be required to promote take-up effectively. Further, the unbranded option is a wholly unsatisfactory proposition because, for example:
(a) it would be impossible to compete against a well-promoted and marketed Canvas- branded STB; and
(b) there would be no guarantee that content providers would make content available on both Canvas-branded and non-branded STBs. Content providers may choose only to make content available on Canvas-branded STBs, especially given that some content providers will not necessarily have the incentive to supply to all TV service providers (see paragraphs 4.4 and 4.14 to 4.16 of this Submission).39
5.11 It is Virgin Media's strong view that a mandated UI is not necessary to underpin a consistent consumer brand. As Virgin Media has already submitted, the Canvas brand could be attached to a simple, open technical standard.40 Indeed, Virgin Media struggles to understand why the Canvas brand needs to be linked to a full service platform with a mandated Core UI and UX. Canvas would be a consistent brand with strong appeal if it was attached to a simple technical standard. In other words, the brand promise of Canvas should relate to the on demand access to a wide range of content via a TV screen, i.e. informing consumers that they will be able to view VOD content on their TV screens via the Canvas-branded STB. In this regard, rather like the digital "tick" mark, or the "HD Ready" brand, the Canvas trademark and brand should be used to highlight the functionality provided by a device, rather than a sign of a particular look and feel to the on-screen navigation.
5.12 A comparison with Freeview is instructive here. The Freeview brand highlights that a specific device gives access to free-to-air digital television services. The Freeview brand does not promise a specific EPG, or suggest that a device will behave in a certain way. This has not limited its appeal to consumers in any way; Freeview take-up has been spectacular. Indeed, competition has been fierce among different manufacturers to provide Freeview (and Freeview Plus) equipment with different characteristics and different UIs.
Ensuring the benefits of IPTV are understood and enjoyed by all audiences
5.13 Without referring to any evidence, the Executive argues that a mandated UI is the only way to ensure that the benefits of IPTV are understood and enjoyed by all audiences. As an initial point, Virgin Media notes that developments in the TV sector do not support this view. For example, the Freeview experience clearly contradicts the Executive's proposition that "a consistent UX is critical […] to diminish the barriers, both real and perceived, confronting audiences seeking to access new technology".41 Freeview does not have a consistent UX and its take-up has been incredibly rapid. Consumers have adjusted quickly to the new technology.
38 Executive's Further Information, Section 2, page 4.
39 Virgin Media also refers to its meeting with the Trust at Virgin Media's offices on 6 August 2009.
40 May 2009 Submission, paragraphs 3.58 to 3.59.
41 Executive's Further Information, Section 2, page 4.
16 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
5.14 Further, the logic of the Executive's argument is that the Core UI and UX will be designed specifically to satisfy consumers who have little experience of technology, or who have specific accessibility needs. Virgin Media considers that such a simple approach will actively discourage innovative features for those who want more sophisticated functionality. Further, such an approach might, in any event, prevent the market from providing an optimal solution for those with little experience of technology or specific accessibility needs.
5.15 The Executive's argument that a mandated Core UI and UX are required in order to ensure the benefits of IPTV are enjoyed and understood by all audiences also presupposes that there are already real and perceived barriers for audiences which only the promise of a rudimentary UX and core UI can hurdle. The dynamic nature of the market, including the development and uptake of VOD services, entirely undermines this argument. In Virgin Media's experience as a VOD service retailer, consumers grasp and adopt VOD technology (including search functionality) relatively quickly.
5.16 We are also concerned that a proposition restricted by such limited and mandatory technology would act to hold back innovation in developing more sophisticated and powerful search and navigation methods. Ultimately, the "command-and-control" approach proposed by the Executive can only result in a chilling effect on innovation. The incentive for manufacturers and ISPs to develop new ways of accessing, organising and displaying content will be removed if the smallest deviation – however positive – from the Canvas-specified look and feel results in the withdrawal of the trademark and all of its associated benefits.42
5.17 In this connection, we have long experience as a provider of VOD content. We are constantly reviewing and exploring the best way of integrating linear and non-linear content so that consumers can make choices easily, quickly and intuitively. This is one of the most dynamic areas of the on demand market, and we know how innovation leads to great leaps in this area. It is unrealistic to suppose that the JV will devise the "best" UI, absent any competition or innovation from others.
The alternative approach
5.18 In its recent documentation, the Executive talks about the underlying philosophy to its vision of the Canvas UX: "to provide consumers with simple access to a wide range of content, while at the same time giving content providers a high degree of control and flexibility with regard to how their content is presented".43 This is indeed the right philosophy, but it need not entail the level of control and homogeneity that the Executive is proposing.
5.19 We support the idea that the Canvas brand should "promise" a certain level of consistent service to customers. For instance, it would be acceptable for the JV to build into the Canvas specification some basic requirements to facilitate access services for consumers, or to provide guidance about best practice in areas like font sizes and the use of colours. It would also be sensible to ensure some common principles for navigation – common keystrokes on the remote control, or some consistency about moving between menus. But this level of control would not extend to the way that different devices choose to display content or integrate linear and non-linear content. So long as a device employs the agreed technical standards and permits access to the widest range of content, it should be able to benefit from the Canvas brand.
5.20 In this way, the Canvas brand would be attached to the underlying functionality, rather than the UX or Core UI. Such an approach would allow vigorous competition to deliver the objectives that the Executive seeks, while ensuring that the BBC (and other content
42 See paragraph 4.8 of this Submission and paragraphs 3.52 to 3.57 of the May 2009 Submission.
43 Executive's Further Information, Section 2, page 5.
17 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
providers) enjoys unrestricted access to consumers via the agreed standards. For more detail on the principles that Virgin Media considers must apply to Canvas as a simple, open technical standard Virgin Media refers to its May 2009 Submission.44 In summary, Virgin Media considered, and continues to maintain, that Canvas would be highly effective in achieving the Executive's goals and would not have a material negative market impact if it were subject to the following conditions:
(a) Canvas must be an open standard freely available for all to use;
(b) market participants must be free to compete with each other in relation to the look, feel and operability of the Core UI and UX;
(c) the Canvas brand must be available for market participants to use if certain basic conditions are met; and
(d) there should be no editorial, or indeed any other type of, gatekeeper role for the JV parties.
6. THE STRUCTURE OF THE JV
6.1 This Section sets out Virgin Media's concerns as regards the structure of the JV. These concerns fall into two main categories, each of which is discussed below in turn:
(a) mechanics of the JV;
(b) compatibility with the remit of the BBC; and
(c) other potential regulatory issues.
JV mechanics
6.2 In its May 2009 Submission Virgin Media identified a range of concerns arising from the institutional and governance arrangements proposed for Canvas and, in particular, its establishment as a private/public JV.45 Virgin Media's core concern was that, although the Executive may have public goals in mind in establishing Canvas, the other JV parties have commercial incentives which are contrary to those goals, such as the self-promotion of their own content and channels, addressing the weak EPG positions of some of their channels and strengthening their bargaining power vis-à-vis other VOD service providers.46 As a result Canvas may evolve in a way different to that which the Trust intends and in a direction set by a range of commercially-driven partners.47 Virgin Media also expressed concern that Canvas may be used in a way that subsidises or aids the PSBs in their non-PSB activities (such as ITV's channels which are not licensed PSB channels, i.e. all ITV channels except for ITV1).48
6.3 In the Executive's Further Information, the Executive has submitted that the following governance structures address such concerns:
(a) the JV is characterised by aligned PSB interests and these interests will be protected through the use of a PSB-majority share split;
(b) the requirement that a PSB exiting the JV must offer its shares to other PSBs on a pre-emptive basis;
44 May 2009 Submission, paragraphs 3.46 to 3.62.
45 May 2009 Submission, paragraphs 5.1 to 5.10.
46 May 2009 Submission, paragraph 5.2.
47 May 2009 Submission, paragraph 5.9.
48 May 2009 Submission, paragraph 5.10.
18 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(c) the articles of association ensure that the JV enshrines the relevant BBC public purpose outcomes;49 and
(d) decisions in relation to certain reserved matters will be subject to a higher majority vote than a simple majority of 51 per cent.50
6.4 Virgin Media considers that these measures remain insufficient to allay Virgin Media's concerns about the public/private nature of the JV. This is because:
(a) first, not all PSBs have the same interests and it is, therefore, overly simplistic to refer to "aligned PSB interests".51 For example, although ITV has some PSB interests and obligations, it also has significant commercial interests as a result of the fact that a very large proportion of its business concerns channels and content which do not relate to its PSB role. Against this background, the protected PSB- majority of 66.7 per cent does not address the fact that PSBs, such as ITV, have non-PSB related interests. Accordingly, simply ensuring that PSBs will have 66.7 per cent of the shares in the JV is no guarantee that all the votes attached to these shares will be exercised consistent with a public goal or with the BBC's wishes or objectives;
(b) second, the governance rules envisage additional parties joining the JV. Although not entirely clear, it appears that if more PSBs joined the JV, the BBC's shareholding (its proportion of the 66.7 per cent set aside for PSBs) would be diluted. Accordingly there is a risk that the BBC's shareholding and corresponding influence over the JV could be diluted in the future;
(c) third, Virgin Media remains concerned that important decisions, the outcomes of which may have significant market impacts, may be subject to a simple majority vote over which the BBC may have limited influence. This is because Virgin Media has no visibility over the matters which will be reserved and subject to a higher majority vote; and
(d) fourth, Virgin Media has no visibility over the articles of association and cannot comment on the extent to which the JV enshrines the relevant BBC public purpose outcomes. In any event, these articles of association could presumably be amended, especially in circumstances where the BBC's influence is diminished.
6.5 Against this background, Virgin Media still has very real concerns about the long term operation of the JV. In particular there is a material risk that the new platform/service created by Canvas will be operated in a manner that favours certain JV partners, i.e. PSBs in general but in particular PSBs with commercial interests.52 These JV participants could influence the JV so that it operated in a manner that disadvantaged their competitors, customers and suppliers. In particular, the establishment of Canvas would give such PSBs the ability to act on their incentives to withhold content from competing TV platforms/services, such as Virgin Media.
6.6 Virgin Media notes that if Canvas was limited to a truly open standard (see paragraphs 5.18 to 5.20 above) these concerns would be substantially removed.
49 Executive's Further Information, Section 1, page 2.
50 Executive's Further Information, Section 1, page 3.
51 Executive's Further Information, Section 1, page 2.
52 This concern has been echoed by Ofcom in page 2 of its 17 April 2009 Letter in Response to the initial BBC Trust Consultation: "An inequitable approach to participation in the joint venture which favours certain participants may lead to potential harm for consumers as a result of market distortion. It is therefore important to ensure there are no unreasonable barriers inhibiting third parties participating in the joint venture and contributing towards future updates to the Canvas specification which may also help to support and foster innovation".
19 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
BBC remit
6.7 In paragraphs 4.4 to 4.16 of its May 2009 Submission, Virgin Media set out its concerns about the extent to which Canvas would be compatible with the BBC's public purpose remit. In summary, Virgin Media noted that it is a fundamental ambition of the BBC to secure universal reach and the widest possible distribution of its output. Against this background, the Trust should avoid approving Canvas in a form that heavily favours certain distribution methods (such as IPTV) over others (such as pay TV distribution over cable). Further, the Trust should be particularly concerned that the current proposal could bring about such market distorting favouritism in circumstances where the Canvas proposal could alternatively be adapted so that it would promote the delivery of BBC output on a wider range of distribution platforms and technologies (i.e. by imposing conditions that ensures Canvas is a truly open standard that is accessible to, and consistent with, all platforms and distribution technologies as set out in paragraphs 5.18 to 5.20). As discussed in these paragraphs, this approach to Canvas will deliver the maximum public value and would be consistent with the BBC's public purpose remit.
6.8 The Executive's Further Information has confirmed that Canvas will be a new platform/service with a mandated EPG and not a truly open standard accessible to, and consistent with, all platforms and distribution technologies. Accordingly, Virgin Media remains concerned that Canvas will not be compatible with the BBC's public purpose remit, in particular the BBC's fundamental ambition of promoting the widest possible distribution of BBC output. In any event, at the very least, the current iteration of Canvas as an entirely new platform is far less compatible with the BBC's public purpose remit than the creation of a simple, truly open standard.
Regulatory review
6.9 The Executive states that it "has been in consultation with competition lawyers […] in order to ensure, that the BBC's participation is entirely compliant with State Aid and other competition law".53 In this regard, Virgin Media notes that the discussion of competition law compliance is redacted in its entirety from the public version of the Executive's Further Information and Virgin Media cannot, therefore, comment on that analysis.54 In addition, whilst the Executive states that the advice relates to "the BBC's participation", it should be noted that competition law, in particular, will assess the proposal as a whole, including the participation of other parties to the JV.
6.10 In practice, if approved, the compliance of Canvas with applicable competition law will depend on, amongst other things, the final structure and objectives of Canvas and the extent to which conditions imposed by the Trust modify the proposal put forward by the Executive. Nevertheless, irrespective of the final structure and form of Canvas it is clear that, even at this early stage of the process, Canvas raises potentially significant competition law issues that are likely to be of interest to Ofcom, the Office of Fair Trading ("OFT"), and the EC Commission. This is regardless of whether the proposal is considered under merger control provisions of the Enterprise Act 2002 or general competition law provisions (i.e. Chapter 1 of the Competition Act 1998 and/or Article 81 of the EC Treaty). By way of example:
(a) for the reasons set out in Section 4 above the JV is highly likely dampen competition in relation to VOD platform and service features. This dampening of competition is most likely to be reflected in reduced innovation to the detriment of consumers;
53 Executive's Further Information, Section 1, page 6.
54 Executive's Further Information, Section titled "Competition law and state aid analysis".
20 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(b) where content is also paid for, a collaboration between competitors may be expected to result in a lessening of competition that will lead to higher prices for consumers; and
(c) Canvas has the very real potential to enable VOD content providers in general (and specifically PSBs) to act on their incentives to limit content distribution and withhold VOD content from pay TV service providers. This would result in reduced competition in relation to supply of such services (for example, because content providers would have a direct route to viewers without having to contract with pay TV retailers).55 Although this concern is particularly pertinent in relation to ITV, Channel 4 and Five as major suppliers of VOD content, Virgin Media is also concerned that it applies to the BBC and its commercial arm, BBC Worldwide.56
6.11 In this connection Virgin Media notes that Ofcom has already shown interest in the review of Canvas and has publicly expressed reservations about the JV if it were to develop in precisely the way that the Executive has clarified that it will develop.57
6.12 Lastly, Virgin Media notes that in circumstances in which public BBC funds are being used to support a commercial service (in preference to other competing commercial services), such arrangements are likely to be very closely scrutinised under EC State Aid legislation.
7. IP DISTRIBUTION ISSUES
7.1 This Section considers the internet protocol ("IP") distribution issues arising from Canvas, specifically it in turn:
(a) restates Virgin Media's concerns as regards the IP distribution issues associated with the Canvas proposition;
(b) summarises the Executive's Further Information; and
(c) sets out Virgin Media's concerns about IP distribution.
Virgin Media's concerns in response to the original application
7.2 Virgin Media has already expressed concerns about IP distribution issues during the course of the Trust's consultation on Canvas.58 Canvas will inevitably result in a considerable increase in the amount of VOD content viewed over the internet and this will materially increase the volume of traffic carried over all ISP networks.59 In its May 2009 Submission Virgin Media identified a number of distribution issues for ISPs which flow from this:
(a) first, every ISP network, and Virgin Media is no different, has a finite amount of capacity. An increase in the amount of capacity required by video content will reduce total available network capacity for ISPs;60
55 For further detail Virgin Media refers to the May 2009 Submission, Section 6.
56 Ofcom in page 2 of its 17 April 2009 Letter in Response to the initial BBC Trust Consultation underlined this point, urging the BBC to "continue to ensure its content is made available on a wide range of platforms, and to provide its services on a platform-neutral basis. In other words, it is important that commercially-led propositions which seek to compete with Canvas should not be unfairly prevented from accessing BBC content."
57 Ofcom 17 April 2009 Letter in Response to the initial BBC Trust Consultation.
58 May 2009 Submission, Section 7.
59 May 2009 Submission, paragraph 7.1.
60 May 2009 Submission, paragraph 7.4.
21 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
(b) secondly, any increase in demand for high bandwidth content will directly and immediately translate into an increase in the cost for ISPs of carrying content over the network to a consumer's home;61
(c) thirdly, an increased cost burden without any material improvement in the revenue stream would have the effect of reducing the scope for ISPs developing higher speed offerings;62 and
(d) finally, although in principle Virgin Media is well placed to serve any increased demand for high-speed broadband, [CONFIDENTIAL].63
The Executive's Further Information
7.3 In response to the Trust's request for more clarity and concerns from ISPs (including Virgin Media's concerns), the Executive acknowledges that internet traffic is likely to increase as a result of Canvas. However, it does not provide a solution for the inevitable IP distribution issues, but rather it merely notes that it is seeking to provide "an audience outcome that will enable and reward innovation in terms of provision of quality".64 In other words, the Executive appears not to be engaging with the serious IP distribution issues stemming from Canvas. The closest the Executive gets to proposing a solution is that it suggests the imposition of a proposed "minimum quality threshold".65 The Executive has not provided details of this quality standard, but it is expected to follow the model of a DTT channel, i.e. a defined minimum bit rate (reviewed periodically) and a requirement to play continuously.66
7.4 The Executive has, however, mentioned two potential approaches for meeting the quality standard, (although it has not provided any real detail on how these approaches would work) namely:
(a) managed delivery which will enable ISPs to decide how to deliver content via Canvas. It appears that the Executive is envisaging that managed delivery will require ISPs to guarantee bandwidth for Canvas. Managed delivery will enable content to be available on a real-time streaming (i.e. "play now") basis; and
(b) over the top delivery ("OTT delivery") where additional data is delivered to the Canvas STB via an ISP's broadband network on the same ad hoc basis as other data delivered over the internet (e.g. email). OTT delivery would result in a delay in the play of content until sufficient content has been buffered to enable continuous playback, i.e. content would be available on a "play later" basis. OTT delivery would also utilise push VOD technology.67 It is anticipated that HD content will be provided by means of the OTT delivery (i.e. on a "play later" basis).
Virgin Media's response to the Executive's Further Information
7.5 Virgin Media considers that the discussion of IP distribution issues in the Executive's Further Information is wholly inadequate. The Executive has not addressed the issues we originally raised in our May 2009 Submission and, accordingly, we continue to have fundamental concerns about the impact of Canvas on IP distribution. In this connection,
61 For more detail on how these costs are increased see the May 2009 Submission, paragraph 7.8.
62 May 2009 Submission, paragraph 7.9.
63 May 2009 Submission, paragraphs 7.10 to 7.11.
64 Executive's Further Information, Section 4, page 2.
65 Executive's Further Information, Section 4, page 1, point 1.
66 Executive's Further Information, Section 4, pages 2 to 3, point 3.
67 Executive's Further Information, Section 4, pages 1 to 2, point 2.
22 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
Virgin Media has a number of specific concerns about the Executive's approach to IP distribution, namely:
(a) first, the Executive has failed to engage on IP distribution issues to any material extent. The Executive has not attempted to understand the IP distribution issues faced by Virgin Media, which is one of the largest ISPs in the UK [CONFIDENTIAL]. The Executive's consideration of the IP distribution challenges arising from Canvas is scant and wholly insufficient. More industry engagement is sorely required;
(b) second, the managed delivery proposal is not, in practical terms, a viable solution for most ISPs. The Executive has indicated that under this solution a certain bandwidth may need to be guaranteed by the ISP in order to ensure that Canvas would have sufficient capacity for its needs at any given time. This is technologically very difficult to achieve and is beyond the capability of most ISPs, [CONFIDENTIAL]. It is inherently very difficult for internet capacity to be reserved. This is because most ISPs are capacity constrained and internet usage is demand-driven and inherently unpredictable. Accordingly, it is not possible to guarantee bandwidth in the way suggested by the Executive. The Executive also appears to imply the "reservation" of high volumes of bandwidth at peak periods of internet usage for a single application. This is wholly unrealistic and reflects the lack of engagement by the Executive with the serious IP distribution issues arising from Canvas;
(c) third, Virgin Media is concerned that the "play now"/"play later" solution proposed by the Executive suggests a degree of control over the Core UI that may be incompatible with how Canvas can be operated in practice (i.e. may be inconsistent with the mandated Core UI).68 How each ISP splits the Canvas content between "play now" and "play later" functionalities will depend on its capacity constraints and indeed the products it offers to subscribers;
(d) fourth, the increase in internet traffic resulting from Canvas, brings with it significant associated costs69 [CONFIDENTIAL].70 Inevitably, the increase in costs would eventually result in a narrowing of the per customer capacity available and in such circumstances, and without an alternative means of lowering costs, ISPs may be forced to protect their business by restricting or limiting to some extent the traffic on their networks. This would have a potentially damaging effect on Canvas and/or on other content providers. Against this background, Virgin Media would welcome the opportunity to discuss and resolve such cost allocation issues with content providers, including in particular the BBC; and
(e) fifth, the Executive refers to the BBC participating in various technology trials to deliver IPTV in more efficient ways, including using "Velocix" servers in Virgin Media's network.71 [CONFIDENTIAL]. We would, however, stress that Velocix or indeed other CDN-type activities, while potentially positive developments in themselves, are far from a solution to the IP distribution issues arising from Canvas. [CONFIDENTIAL].
7.6 Virgin Media appreciates that Canvas may have legitimate concerns about ensuring a minimum quality for the end product as accessed by viewers. Indeed, as a provider of high speed broadband, Virgin Media would be well placed to satisfy the likely technological
68 See paragraphs 3.3 to 3.5 above.
69 May 2009 Submission, paragraph 7.7.
70 [CONFIDENTIAL].
71 [CONFIDENTIAL].
23 LONDON\14468371.2 NON-CONFIDENTIAL VERSION
requirements for Canvas.72 However, it is essential that any minimum quality threshold imposed by Canvas, whilst ensuring that ISPs provide an adequate service to customers (which may have different expectations depending on the broadband product they subscribe to), must also be flexible enough to enable ISPs to compete with each other as regards price, quality and innovation. For example, a requirement that HD is only provided via OTT delivery on a "play later" approach, as intimated by the Executive,73 will discourage ISPs from innovating to provide a "play now" HD service. This would be an unfortunate outcome.
7.7 Virgin Media considers that the simplest way to manage quality challenges arising from IP distribution would be via an ISP-managed minimum service threshold which would be staggered by reference to the bandwidth available to each customer. This approach would work both in relation to the Executive's Canvas proposal and also in relation to a pared-down version where Canvas is simply an open set of standards. Customers subscribing to an internet service up to a certain speed would only be able to access content on a "play later" basis, whilst customers above a certain speed could receive content on a "play now" basis.74 The actual threshold could be set by Canvas in consultation with ISPs, however ISPs would be responsible for monitoring and enforcing compliance with these thresholds. ISPs could also choose which type of Canvas service to provide to its subscribers, i.e. an ISP may decide, based on its network capacity, to only offer a "play later" Canvas services. This approach would ensure that content viewed via Canvas would be of certain quality whilst providing enough flexibility to enable ISPs to compete with each other, in particular encouraging innovation.
7.8 Lastly, in relation to cost issues, Virgin Media also notes that in its Further Information the Executive has erroneously characterised Virgin Media's May 2009 Submission. The Executive states that Virgin Media was concerned "whether this cost [arising from additional internet traffic] could be mitigated by the increases in revenue from increased demand for high speed broadband services".75 [CONFIDENTIAL].76
72 As stated in the May 2009 Submission, paragraph 7.11(b), [CONFIDENTIAL] of Virgin Media's broadband customers already subscribe to a 10Mb tier or higher and from May 2009 Virgin Media plans to begin upgrading its [CONFIDENTIAL] existing 2Mb customers to a 10Mb service.
73 Executive's Further Information, Section 4, Appendix 1, page 4.
74 It may also be appropriate to provide that viewers subscribing to an internet service below a certain minimum bandwidth threshold should not be eligible to access VOD content via Canvas.
75 Executive's Further Information, Section 4, page 1.
76 [CONFIDENTIAL].
24 LONDON\14468371.2