BBC Paints a Pretty Canvas, but Will People Buy It?

LONDON, July 9, 2010 – Project Canvas, a bold attempt to make the Internet a major medium for TV distribution, is gathering steam in the United Kingdom led by terrestrial broadcasters BBC and ITV, along with major telecommunication companies including the largest national carrier BT.

The service, which will be launched under a new brand, possibly “YouView,” in early 2011, will allow U.K. consumers to watch broadcast programs including BBC channels as well as its iPlayer catch-up service, from their televisions via the Internet. Much of the content will be free, but consumers will have to buy a set-top box to connect their TVs to a broadband connection for access to the Canvas platform.

A major milestone was met in June 2010 when the BBC was given the final go-ahead to participate in Canvas by its governing trust, under certain conditions ensuring that access is available to all U.K. broadband subscribers and not bundled with content packages.

The next step comes this month with release of the Canvas software development kit, enabling set-top box makers to start building units in time for the 2011 launch. “We think this will deliver significant public value for license fee payers,” said BBC Senior Trustee Diane Coyle. In the United Kingdom, television-set owners pay a compulsory license fee of about $210, which covers most of the budget for the BBC, the world’s largest broadcaster with 2009 operating costs of more than $6 billion.

Project Canvas has been criticized for wasting public money on just another online video service, but if it achieves its objective it will prove critics wrong. It will bring premium broadcast content onto the Internet, and make this the 21st century equivalent of the old terrestrial distribution networks but with the potential to access all digital content, including movies. Some critics have called it a threat to television, but proponents say it will have the opposite effect by broadening content for TV. The real threat is to the existing pay TV providers, notably BSkyB and Virgin Media in the United Kingdom, which have been campaigning against Canvas.

A spokesperson for BSkyB said: “The BBC’s involvement in Canvas is an unnecessary use of public funds. The BBC Trust’s announcement is a predictable decision from a body that has shown little inclination to think independently or set meaningful boundaries on the BBC’s activities.”

Virgin Media CEO Neil Berkett said, “The BBC Trust’s consultation has been a shameless whitewash that contravenes almost every principle of good regulation. The trust has stubbornly ignored all requests to address our concerns by imposing safeguards to prevent the BBC emerging as de facto gatekeeper of the digital world.”

But such concerns have made little impact with the United Kingdom’s regulators such as Ofcom, largely because they believe consumers should be able to access mainstream content, including the BBC’s, free of charge over all available media platforms to provide as close to universal coverage as possible.

The extent of the threat to pay TV providers will depend on how successful Canvas is in gaining rights for premium content such as movies and major sporting events, currently dominated by BSkyB in the United Kingdom. This in turn will partly depend on whether Canvas can persuade content houses that they can trust the Internet for distribution.

Canvas has deployed the industry standard Digital Rights Management platform called Marlin, developed by a consortium including major electronics companies like Panasonic, Phillips and Sony. It was chosen because it has already been proven to work for Japan’s national IPTV service. It combines flexibility in deployment with security equivalent to current pay TV services, built into the set-top box.

The timing for Canvas is about right, with the launch coming when people are becoming familiar with accessing video content over the Internet via PC. Consumers are already moving beyond YouTube, with other services now growing faster both in the United States and Europe.

In May 2010, 133.7 million people watched online video in the United States, an increase of 1.8 percent from April, with YouTube watched by 101 million, up 4.3 percent, but CNN Digital Network up 20 percent to12.38 million, and Google Video up 50 percent to reach 18.8 million, according to the ratings agency Nielsen.

Accurate figures for Europe are harder to come by, but there is evidence that recently online video viewing has been catching up with the United States. According to Internet market research company ComScore, the number of videos viewed online in the United Kingdom in February 2010 was 5.5 billion, up 37 percent from February 2009, with the BBC’s sites now the second most popular with 140 million views, although still dwarfed by YouTube at 2.5 billion. However people were watching longer form content on the BBC sites, which bodes well for Canvas.