More people are watching video over the Internet than ever before. It is becoming increasingly easy to stream online video on your television, bringing the lean-back and lean-forward technologies together in a pleasant way. We want this to continue, right?

There are two challenges facing the growth of a legal online video market. One is piracy. The other is a call for regulation to eliminate a copyright owner’s right to choose where their works are streamed.

The piracy threat is pretty clear. In the last two years there has been a tremendous increase in the sophistication of streaming pirate sites, allowing viewers in real time, without download waits, to watch infringed material. In some cases these sites actually charge viewers, profiting from the infringement and collecting credit card data from unsuspecting consumers, putting them at risk of identity theft.

I testified on this at the Federal Trade Commission in December, and it was also addressed last September at an FCC workshop (where I also testified) and at a recent congressional hearing. (Links to all three here.) This kind of illegal activity is near-impossible to defend; an EFF speaker on my FTC panel agreed that governments should crack down on this kind of behavior. The Information Technology and Innovation Foundation recently produced a paper giving policymakers some strong recommendations on action to take against this threat.

The call for regulatory action is a bit more tricky, because those making the call claim to be seeking to encourage the growth of online video, but their “solution” would actually retard the growth of legal services. As I’ve written here, it is a call for regulators to step into the online video market, and regulate it such that any owner of audiovisual works who makes their copyrighted work available to one video provider be commanded to offer it to any other video provider on the same terms.

The Wall Street Journal this morning has an interesting story about how some legal online video distributors are trying to crack the toughest nut in this business — generating sufficient ad revenue to make the venture something approaching profitable. Some of you may have already encountered this experiment; it gives the online viewer a choice of which ad to stream. Research shows the ad is retained better when the viewer chooses it, and all of the brands are seen by the viewer when selecting the ad, a boon to those not selected because they don’t get charged unless the actual ad is viewed.

I’ve been to too many business conferences where people much brighter than yours truly are working on the issue of monetizing video, important for the distributor AND the video producer. The bottom line is there will be no one solution; we’ll invariably see a mix of business models, just like we do in the non-Internet video world (free ad-supported over-the-air, ad-and-subscription supported cable, on-demand, movie theaters, DVD purchase and rentals, etc.).

Any business model is going to have different revenue streams, at different rates for different content and different viewer levels. Advertisers want to maximize return and take numerous factors into account. Demographics is an obvious factor — my Journal has Maserati display ads, which I don’t usually see in USA Today — but the Internet allows niche advertising in ways not imaginable in traditional media.

We know there’s money in intermediary Internet advertising — Google gets about 99% of its revenue from this model, and could buy most developing countries with its surplus cash. Remember, we’re not Google’s customers, advertising purchasers are; we’re the product.

So why would we want to force video content licensed to one provider under one revenue-generation model onto any other video distributor, when that distributor may not be set up to provide the same returns in the same business model? We want to encourage copyright owners to license, right? We want to encourage lots of legal ways for we as consumers to enjoy video, right?

My former colleague Adam Thierer, now president of the Progress & Freedom Foundation, testified this morning on Capitol Hill about the importance of ensuring a robust and competitive online video market. He provided Congress with fascinating data about the growth of legal online video services. He also offered statistics on the intense competition in the advertising market.

Adam is an early adopter, someone who can install a high-end entertainment system and also quickly master the latest online services and apps. Most of us aren’t in his league. We need to allow both distributors and creators of content, whether online or offline, to come up with ways we can all enjoy creative works legally and easily. There certainly is a role for regulation in our society — look at the Wall Street that one of my favorite newspapers covers for an example of that — but it needs to be done in a way that recognizes that sometimes what seems like it might be good for consumers could actually be harmful.

Perhaps Google, which funds the groups pushing for online regulation in the U.S., is getting a wake-up call in Italy, where the government has not only put Google executives on trial for defamation but is now planning to regulate the content on Google’s YouTube. I suspect Adam would say that one should be careful what one wishes for.

This entry was posted on Thursday, February 4th, 2010 at 10:58 am by Patrick Ross and is filed under FCC, FTC, advertising, capitol hill, copyright opponents, internet, licensing, market forces, p2p, piracy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.