Facing the development and delivery of digital content

by OECD

WORKING PARTY ON THE INFORMATION ECONOMY
DIGITAL BROADBAND CONTENT PANEL AND GOVERNMENT SESSION, 3 JUNE 2004

SUMMARY AND CONCLUSIONS

The panel was designed to analyse and discuss changing digital broadband content value chains and business models and help identify new challenges and issues facing the development and delivery of digital content. Three sectors presenting different dynamic characteristics of digital content development and delivery were presented and discussed in detail: scientific, technical and medical publishing, music, and online computer and video games [see document DSTI/ICCP/IE(2004)7, Table 1 for a list of these characteristics]. The summary and conclusions draw out the generic themes coming from the panel and afternoon government presentations. Summaries from the individual sector panel sessions are at the beginning of each section below at pages 9, 13, 17 and 22. The government session was designed to provide an initial overview of policy issues and developments in OECD countries. Short versions of the six government presentations are presented in the subsequent section.

Broadband content: Changing value chains and business models

Rapid change and high potential. The generic themes of the panel were:

• Network convergence and rapid diffusion of high-speed broadband has shifted attention towards broadband content and applications (new demand for the digital economy) that promise new business opportunities, growth and employment. The potential for digital content growth is very high and growth is only just beginning. Technologies to assure the diffusion of content and content products are increasingly R&D-intensive (faster networks, new platforms, softwareintensive products, virtual reality applications, data-base management, etc.).
• Demand for content from consumers and intermediaries exploiting the potential of multiple content delivery channels is extending and supplanting infrastructure push as a major driver.
• Disruptive technologies, and broadband in particular, are challenging established business models while creating important development opportunities in all three sectors. Mobile content and applications received particular attention and are potentially major drivers of mobile telecommunication service and content industry revenues in OECD countries.
• The relationships between content originators and final users are changing, intermediaries are being created or replaced, and attitudes to content ownership and acquisition are changing. However complete disintermediation and direct contact between content creators and content users has not so far developed to a significant extent in the three sectors.

Early impacts.These developments are being felt by the digital content industry in five ways:

• Users are challenging established ownership and distribution arrangements, whether through P2P networks or open access/open archive publishing conventions, or through new mass distribution and inter-community trading. Network availability and broadband applications create possibilities for new forms of expression by users (“users as content creators”). Each of the sectors is restructuring value chains and developing different business models to meet these challenges. Responses differ in the different sectors, with digitisation and digital delivery very high in scientific and technical publishing and business models developing in the brand new on-line games sector which satisfactorily deals with intellectual property and copying issues.
• New pricing models and segmentation of value chains has put pressure on the digital content industry, but the currently successful models continue to be new versions of subscription, pay per view and access charges. Positive revenue feedback cycles are generated when growing numbers of paying users foster the development and distribution of online content and services, which in turn draw more paying users.
• Challenges for the digital content industries include: development of innovative content adapted to broadband; co-operation and changing roles among value chain players (in particular between content owners, network operators, Internet service providers, hardware and consumer electronics suppliers); extending broadband access; digital piracy and the role of file-sharing; digital rights management and customer authentication; and efficient payment methods (especially for micro-payments); content standards (e.g. digital object identifier and metadata standards in scientific publishing) and interoperability.
• Major concerns are the role of intellectual property in protecting ownership in both products and services, the future development of copyright in a digital world, enforcing these rights, defining fair use and the boundaries of legitimate use, and the interaction between competition law and copyright. There are important issues in providing content for new platforms; licensing negotiations can be lengthy and complicated due to differing legal regimes across platforms and countries.
• Compatibility and interoperability issues, oligopolistic content markets with a strong role of publishers, exclusive access to content or networks (network access gatekeepers) that could slow deployment of broadband applications and content, are all issues meriting further attention.

Challenges. In each of the sectors it was clear that existing and new commercial players can overcome perceived difficulties and migrate to being network content providers. Some sectors have successfully launched new business models (online games) while others are still experimenting with new approaches. In all cases the required levels of innovation are high. In particular, participants noted that:

• Access points, mobility, portability and delivery media are all changing.
• There are no readily established business models to simply pick up and use. Old business models do not automatically apply to emerging markets. On the other hand, investment in digital content and digital delivery has to be sustained by margins derived from traditional market models until successful new models emerge, are tested by commercial operators and accepted by users.
• Productivity gains are vital to reduce prices for users, but in many cases these gains require structural change in content creation and delivery industries. On the supply side the new generations of ICTs are leading to changes in the market structure of telecommunications, information services and content firms. Essentially, all the players must reinvent themselves. Network operators need to generate revenue to support investment in next-generation networks and replace loss of traditional business. For intermediaries, existing players are reinventing themselves, some are superseded and new ones emerge.
• New content value chains are creating new sets of activities which different or new players in the value chain can assume: content production, marketing of publishing offers, rights acquisition / management, packaging and distributing content, content protection, management of emerging publishing services, sale of advertisement space, profiling users, billing management, payment management, customer relation management, security/control, access management and other activities. Single suppliers or providers manage few of these multiple roles; they are often joint or separate activities of content providers, network operators, intermediaries, etc. There are new roles for content providers and content aggregators, network operators and intermediaries (including revenue sharing among them), which involve a high degree of co-ordination as well as competition along value chains, all of which have impacts on market structures.

Policy issues. Broadband provides the potential to accelerate developments and capitalise on new market opportunities that have impacts on growth and employment. Government roles include:

• Public policy needs to acknowledge these changes and adjust policy and the regulatory environment to dovetail with them (adapting existing frameworks to take account of digital content development and new digital transactions and related policy issues described below).
• Recognition that the speed and structure of change has to be measured and economic consequences for networked and traditional businesses in content sectors analysed.
• Recognition of the role of governments as content creators and users, and the role of government procurement and the establishment of best practice guidelines.
• Some industries have been able to deal with the emerging challenges more rapidly and there are many lessons to be learnt through horizontal analysis and international dialogue.

Many of these issues were also covered in the government presentations in the afternoon session (see below).

Issues related to digital content development and delivery identified from the government presentations and initial case study analysis

Innovation and technology

• R&D and innovation in content, networks, software and hardware.
• An environment conducive to content production.
• Venture capital and other financing.
• Skills and human resources development.

Value chain and business model issues

• Framework conditions for creation of new business models and spread of best practices.
• Convergence issues and associated regulatory challenges across different value chains and industries (content, communications, and electronic equipment industries).
• Technology neutrality. Digital content treatment consistent across different platforms.
• Competition and co-ordination issues along value chains. New distribution and revenue sharing models (network services, content providers, intermediaries etc.).

Infrastructure

• Broadband policies to ensure coverage and access to infrastructure and applications.
• Technological issues related to digital content delivery – standards, interoperability (including DRM), etc.
• Technical protection issues including digital rights management and watermarking.
• Infrastructure for payment and micro-payment systems, electronic signatures, authentication.

Business and regulatory environment

• Adapting established regulatory frameworks to digital content value chains and business models.
• Protection of intellectual property rights: Counteracting piracy, DRM as enabler of business models, clarification of use rights along content creation and delivery value chains, digital rights clearing systems.
• Taxation issues specific to digital content – tax neutrality for digital content.

Public / government content (public sector information) and applications

• Government as model user in putting government content online.
• Digitising public content (meteorological data, archives, etc.) and providing access to education, cultural and public information resources. Availability, access and pricing questions.
• Public demand: Digital content in education, health, etc. Multi-device access (e.g. mobiles, PDA, TV, PC, consoles) to education and cultural public resources.

OECD work is focusing on the following activities:

• Sector analysis, benchmarking, and review of analytical and policy issues.
• Policy forum on specific issues.
• Organisation of panels, workshops and ad hoc activities to address specific policy issues.

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