Will Project Kangaroo fly?

By Tom Green

This month the broadcasters behind the proposed online video-on-demand service with the working title of Project Kangaroo announced that they will run a closed trial of the service in the New Year.

Yet, while BBC Worldwide, ITV and Channel 4 are maintaining a public display of faith in the concept, a growing number of media industry commentators are suggesting that, if it does eventually open to the public, Kangaroo will be in a form different from that originally intended.

From the Writers' Guild’s point of view, agreements are already in place covering similar services to ensure that writers are paid fairly and their rights are protected. But, as General Secretary, Bernie Corbett, explains (below), for Project Kangaroo, some further negotiations are still required.

In the beginning

Project Kangaroo was first announced in November 2007. The idea was to complement existing free online catch-up services (BBC iPlayer, ITV Catch Up and 4oD) with a single portal that would carry advertising around free programming and sell shows from the archives.

The BBC press release said that Project Kangaroo would be:

• A single destination for over 10,000 hours of quality entertainment content

• An historic joint venture between three of the UK's largest broadcasters

• The first time that viewers will have access to a large range of catch-up and archive programming

• A major competitor in UK on-demand content market.

In many ways it was the UK answer to the American Hulu, a joint venture from networks and studios including NBC and Fox. With many viewers, especially younger ones, now choosing to watch content online, video-on-demand has become seen as an essential service rather than an add-on, and the broadcasters need to find ways for it to make money.

In a blog posting last year, Ashely Highfield, who briefly became Project Kangaroo’s Chief Executive, insisted that for the BBC there was no conflict between its licence-funded services and commercial video-on-demand.

“If BBC iPlayer is like BBC TV,” he wrote, “Kangaroo is more like UKTV. There is space for both: indeed, they're complementary.”

For ITV and C4 the logic is even more straightforward. Their online offerings have not been as successful as BBC iPlayer and they lack the resources to develop and market independent on-demand services.

Many observers agreed that Kangaroo was a move in the right direction. Writing in The Guardian, Jemima Kiss wrote: “I'd been wondering for a while when we'd see some consolidation of all these media players and on-demand services. It's just not practical for everyone to have multiple desktop players and different online tools for all this content, so from that point of view the...Kangaroo project makes absolute sense.”

Competition

Yet there was also concern about the country’s three biggest broadcasters launching a joint venture into a new market, and in June 2008 an inquiry was launched by the Competition Commission at the request of the Office For Fair Trading.

The Project Kangaroo partners insisted that there was no cause for concern:

“The concerns of some third parties that the transaction would result in UKVOD [ie Project Kangaroo] having strong retail market power and be able to drive up prices is unsustainable given that nearly all transactions will be free and advertising will be sold in a market which is highly competitive and in which the Parties will have a small market share. For transactional material, the Parties will face strong competition from more powerful and better established services. Consumers are generally extremely reluctant to pay for any internet or TV related content and, where they are prepared to pay for such content usually in respect of DTO [download- to-own] – there will be alternative outlets for the same and similar content.”

Not surprisingly, submissions to the inquiry from companies that have their own video-on-demand services took a different view. For example, BT Vision’s submission said that: “The creation of the Kangaroo joint venture is likely to enable the Kangaroo parties to leverage their market power in linear TV in the UK into the emerging market for VOD services in the UK and thereby reduce competition, to the detriment of consumers.”

Others, like Virgin Media and BSkyB, made similar arguments – although Google, owner of YouTube said that it “does not expect this JV [joint venture] to have any negative impact on competition or customers. We hope that the JV would be willing to partner with us.”

As the Competition Commission inquiry continued, rumours emerged about the compromises that might be required if Kangaroo were to be allowed to launch.

Most significant was the suggestion that it would have to share archive programming with other on-demand broadcasters. Pact, the independent producers’ association, was quoted as saying that it wants Kangaroo to make its entire library available to other on-demand services “at a fair, reasonable and non-discriminatory price”.

More details on any such requirements could emerge in provisional findings published by the Commission later this month. Its final report is due in February next year. Meanwhile, to add to Project Kangaroo’s difficulties, Ashley Highfield has been and gone as chief executive and the broadband providers are complaining about the demands on their infrastructure from another new bandwith-hungry service.

So can Kangaroo overcome its problems?

Yes, says Jon Gisby, C4's director of digital media and technology. "We need to make sure our content is where people want to watch it,” he told The Guardian earlier this month. “Kangaroo is absolutely essential as one of the big, strategic building blocks to take video-on-demand to the next stage of our strategy. We are absolutely committed to it."

While many of the issues around payments to writers for services like those proposed by Project Kangaroo have been resolved, some remain – as Guild General Secretary, Bernie Corbett, explains.

The Guild position is that any form of download-to-own (or to rent) needs to be paid on the normal royalty of 5.6%(often called the ‘multimedia royalty’), and not the special videogram terms that were introduced for pre-recorded VHS tapes and later extended to DVDs. Videogram terms vary slightly between the different broadcasters/producers but typically start at 1.5 % of distributor’s gross receipts rising by stages to 3 % for sales over 50,000 units (which is a big seller but not in the Gervais/Little Britain stratosphere). The lower videogram royalties were introduced on the back of arguments about factoring in the costs of manufacturing, packaging, warehousing, freight, retail overheads, etc. Most of these considerations do not apply to DTOs.

BBC and C4 have agreed to a normal royalty but ITV still want to use videogram terms, which could be a problem if all three organisations are supplying material via the same website. We need to sort this out, but broadcasters and producers are reluctant to discuss Kangaroo issues before the Competition Commission decision as they don’t want to appear to be making assumptions about the outcome.

The Guild is optimistic about DTO for several reasons:

• The writer’s payments will accurately reflect the number of sales

• The unit cost will be much cheaper, so although the payment per sale to the writer will be lower this is mitigated by a higher royalty rate (see above) and hopefully much higher volumes of sales.

• Only a minority of shows justify release as a DVD, but there is no reason why every show can’t be available as a DTO, so much more material will be available than ever before.

• On the Kangaroo model many shows will be available as DTOs as soon as the catch-up window ends (“Day 8” in BBC parlance).

Article published 26.11.2008

Update (03.12.2008): The Competition Commission has now published its provisional findings (pdf), concluding that Project Kangaroo would restrict competition. It is inviting feedback on a range of  possible remedies (pdf).