Hargreaves Review of Intellectual Property

Written evidence submitted by Virgin Media

Virgin Media welcomes the opportunity to participate in the Business, Innovation and Skills Committee’s inquiry into the Hargreaves Review of Intellectual Property issued in May 2011 and the Government’s response to that Review.

Given the tight timeframe which stakeholders have been given to respond, our comments focus on the following recommendations:

· Recommendation 1: Evidence.

· Recommendation 5: Limits to copyright.

· Recommendation 8: Enforcement of IP rights.

In summary, Virgin Media broadly supports the above recommendations and, furthermore, makes the following suggestions to Government for implementing the recommendations:

· work with industry to conduct a controlled pilot which may provide evidence as to how the availability of legitimate sources of content (and the means to access such content) can reduce instances of piracy;

· implement a ‘personal use’ exception to copyright which appropriately balances the interests of copyright owners and the legitimate expectations of consumers in the digital age;

· focus on incentivising the development of new, compelling content services which address consumers’ desire for high quality and affordable services, and therefore provide consumers with meaningful alternatives to illegitimate services; and

· ensure that the copyright regime in the UK is flexible enough to underpin the transition through evolving phases of the digital revolution to catalyse – rather than prevent - the UK digital market emerging as one of the most competitive and innovative digital markets.

Evidence

The Hargreaves Review rightly highlights the difficulty of obtaining objective evidence on the impact of online copyright infringement on the creative industries. Virgin Media strongly endorses the view set out in Hargreaves that some of the data published by the rights owner community was inaccurate and unhelpful for the development of a reasoned and balanced public debate on the issue of piracy. The confluence of data models and lobbying has made it extremely difficult to quantify the scale of loss to copyright owners, or equally to demonstrate the positive impact of technological innovation and the digital age on the distribution of copyright works. Virgin Media strongly believes that a focus on understanding behaviours and incentives is essential to developing a sustainable solution to the issue of piracy.

Virgin Media suggests that in order to understand the extent of online infringement and its impact on the creative industries, Government needs to work with ISPs and copyright owners to acquire meaningful data and information on the behaviour and demands of consumers. For example, the behaviours of different groups of consumers could be observed in a controlled test environment by giving one group access to legitimate services which offer a full range of content at affordable price points, and restricting the other group access to such services. This experiment could show the extent to which consumers are enticed away from illegitimate services by legitimate, paid-for services which meet their demands.

Furthermore, such an experiment could show differences in consumption habits and trends between various consumption models – for example, streamed content vs downloaded content vs traditional physical products. A live, controlled experiment would fundamentally enable a real-world view of customer behaviour and commercial realities, and therefore provide more accurate data than estimates and statistics which are largely collated in the abstract. Virgin Media is discussing the possibility of such an experiment with DCMS officials in the context of a larger piece of work on the benefits of superfast broadband connectivity.

Limits to copyright

The digital revolution must be recognised

The emergence of the digital age has prompted numerous reviews into the statutory copyright regime, such as those conducted by Mr Gowers and Professor Hargreaves. Virgin Media welcomes these reviews, but is aware that the ‘digital revolution’ is now entering its second phase. Accordingly, the reviews and – in particular – Government’s response to such reviews, need to be considered in this context.

Phase one of the revolution gave consumers digital downloads, the ability to copy files from physical materials (such as CDs) to electronic devices such as personal computers and iPods and the ability to record television programmes to the hard drive of personal video recorders (PVRs). These practices are now well established in the UK marketplace and the digital revolution has moved into phase two. Phase two practices, such as the ability to stream audio-visual content and access cloud-based music lockers on multiple devices via widely available and location-agnostic wi-fi connectivity, have the potential to offer UK consumers even more flexibility and portability in relation to their use of content. The challenge to harnessing this potential is an overly restrictive copyright regime which acts to block these sorts of innovations, inhibiting the UK’s digital development and expansion.

The emergence of phase two of the revolution is evident in the growing prevalence of smart phones, tablets and on demand services which have changed the way consumers access content. For example, whilst the majority of people continue to access BBC iPlayer on their PCs, access via mobile devices has increased 46% [1] in the first half of 2011 and there are now 200,000 views of BBC Online per month via tablets and 400,000 views per month via smartphones [2] . Further, the arrival (or, in some cases, imminent arrival) of propositions such as Sky Go, Slingbox, Apple TV and Spotify demonstrate that full flexibility and portability are today expected by consumers as standard.

Virgin Media supports this kind of innovation and has contributed to it in a number of ways. For example, Virgin Media launched its TiVo set top box in 2011 which has the potential to provide customers with (amongst other things, some of which are discussed below) the ability to stream recordings that are made to the hard drive of the living room set top box to the set top box in the bedroom. Further, Virgin Media has responded to growth of simultaneous multi-device use in the home with investment in faster broadband speeds, including the continuing roll-out of our 100Mb residential connection to our entire network. Virgin Media is also developing a Metro Wi-Fi proposition that delivers connectivity across an entire geography, not just in one or two coffee shops, enabling consistent, 360-degree connectivity and a level of performance that consumers are beginning to expect.

The recommendations in the Hargreaves Review and Government’s response give recognition to the reality of content delivery and usage during the first phase of the digital revolution. However, Virgin Media submits that the measures implemented by Government to expand exceptions to copyright should be broad enough to be able to cater for the second, third and later phases of the revolution, such that they offer consumers maximum flexibility as to how they may view, use and access legitimately obtained content. In short, the Government should adopt measures that are able to satisfy consumers’ appetite for entertainment anywhere, so long as the content in question has been legitimately obtained. If it fails to do so, Virgin Media believes that consumers may satisfy their appetite through illegal, rather than legitimate, avenues.

Virgin Media’s recommendation

Acknowledging where we are in the digital revolution, Virgin Media strongly submits that the Government should implement statutory exceptions to copyright that go further than simply legalising format shifting but extend to enabling the consumption of legitimately purchased content via the device of their choice. Therefore Virgin Media contends that Government should develop a ‘personal use’ exception to copyright to give UK consumers freedom to use lawfully-obtained content in any manner they wish, provided that such activity is undertaken solely for personal purposes in order to enjoy the content in the most convenient way.

Such a personal use exception would go beyond legalising current, accepted (albeit unlicensed) uses of copyright material such as the copying of CD files to MP3 format, but would also legitimise the consumption of that digital content in ways (such as content ‘side-loading’, discussed further below) that may not fall within the ambit of a narrow format shifting exception. Further, by implementing an exception to copyright that does not simply legitimise a particular, currently-known activity (i.e. format shifting) but recognises as lawful a class of generic activities (i.e. ‘personal use activities’), Government will future proof the legislation and give technology developers the legislative certainty they require in order to ensure that the functionality offered by future innovations are consistent with the principles of copyright law.

Virgin Media refers to its recently-launched TiVo set top box, which represents an example of how a personal use exception to copyright could benefit UK consumers without prejudicing the central objectives of copyright law. TiVo offers set top box functionality which is new to the mainstream marketplace in the UK. Amongst other features, TiVo provides customers with the ability to make recordings of broadcast recordings that have been made (pursuant to section 70 of the Copyright, Designs and Patents Act) to the hard drive of the set top box in common with other PVRs in the market, and additionally the potential to stream such recordings to other devices such as personal computers and tablets. It is also technically possible to move content from a PVR device and store on another for viewing later. This functionality (known as side-loading) enables customers to watch the recordings that they have legitimately made at a more convenient time and in a more convenient place on a device of their choice.

TiVo and side-loading functionality has been available in the United States for many years. Despite this, TiVo has only recently been introduced into the UK mass market by Virgin Media [3] and Virgin Media is yet to enable TiVo’s side-loading functionality. Accordingly, it is in the interests of UK consumers that an exception to copyright which permits practices such as side loading is introduced, especially considering that such an exception would not prejudice the interests of copyright owners for the following reasons:

· the relevant content is legitimately received and recorded by the customer;

· consumers have historically been able to lawfully achieve the same end result by making a copy of a broadcast on a DVD or VHS tape and watching that disk/tape in a place of their choosing;

· the practice of recording programmes onto physical materials such as VHS tapes is dated, and the VHS recorder is now a defunct technology. It would be non-sensical for consumers to be more restricted now than they were in the age of VHS recorders; and

· the practice of side-loading is a species of format shifting, as both involve the transfer of legitimately obtained files from one medium to another to facilitate more convenient use. If format shifting is to be legalised, there is no justifiable reason as to why side loading should not also become lawful.

In addition to enabling side loading, a personal use exception to copyright would enable UK consumers to enjoy other technological innovations of the second phase of the digital revolution, such as the ability to store and access content from a remote location (a "cloud").

Music cloud services enable consumers to access their legitimately-obtained library of music wherever they are and regardless of the device they are carrying at any particular time. Google, Amazon, Apple and other smaller providers (such as MP3tunes) have launched music cloud services in the United States, many relying on the fair use provisions contained in the US copyright legislation to do so. It is notable that no such service has yet launched in the UK. One can only presume that this is the case due to the UK’s stringent copyright regime which arguably would require cloud service providers to enter into licence agreements with the music labels to be able to launch a consumer proposition [4] .

In addition to music cloud services, UK consumers are suffering an opportunity cost in relation to other cloud-based services that could be available but for the current copyright regime. For example, Virgin Media would like to be able to allow subscribers to record programmes from broadcast channels in the cloud rather than on the hard drive of the set top box. While not conceptually different to traditional time-shift recording, it may be argued that the recording in this instance would not be ‘made in domestic premises’ and therefore not fall within the current section 70 exception. Nonetheless, if Virgin Media were to offer this functionality to subscribers, it would give subscribers true freedom with regards to the use of the relevant content as, without having to copy the recording in advance from one device to another, they could access it at any time, on any device and in any place, as long as they can access the cloud.

Virgin Media contends that there is no justification for preventing the availability of cloud services (such as those described above) in the UK through copyright legislation. It would not be prejudicial to the interests of rights owners for consumers to use a cloud service and, indeed, customers expect to be able to listen to or watch content that they have paid for and are lawfully entitled to access in any way they wish, including by storing or recording it in a cloud so that they may be accessed at any time and on any device. Without having the ability to gain such flexible access, consumers may be dis-incentivised from lawfully obtaining content and may instead opt to access illegally distributed material. Accordingly, Virgin Media submits that it is likely to be in the interests of both copyright owners and copyright users that a significantly more liberal approach to copyright is adopted.

Virgin Media acknowledges that Government needs to balance the interests of copyright owners (and preserve their incentives to create copyright material) against those of UK consumers and developers who ought to be able to enjoy the opportunities offered by the digital age. Virgin Media is mindful of the Government’s considerations in this regard, but strongly believes that a personal use exception to copyright – more so than a limited format shifting or private copying exception – would strike this balance. Virgin Media is similarly mindful of the security concerns that copyright owners may have if consumers are able to use digital means to freely transfer and copy content between devices and access content from the cloud, but considers that these concerns can be addressed by the private sector by implementing technical measures to prevent hacking or other misuse of content. Ultimately, Virgin Media believes that it is in the interests of both copyright owners and users that the law permits lawfully obtained content to be used in whatever manner is most convenient to the end user and therefore submits that a personal use exception is worthy of serious Government consideration.

Access to quality content

As a final comment in relation to limits to copyright, Virgin Media also notes the ever-increasing importance to consumers of having access to the widest possible choice of high quality content. While emphasis is placed by consumers on the content delivery mechanism, ultimately, quality of content is the key driver of consumer interest in a particular device or platform.

Whilst clearly beyond the immediate scope of the Hargreaves Review, Virgin Media encourages Government to ensure that all relevant stakeholders are able to make quality content (such as public service broadcaster content and premium pay TV content) available to consumers. Any restriction in stakeholders’ ability to access quality content from rights owners would have the same effect as overly restrictive legislation in stifling technological development, as smaller parties would be dis-incentivised from creating innovative products due to the lack of material with which to support the innovation.

Enforcement of IP rights

Virgin Media recognises the challenges faced by copyright owners in terms of the long term decline in the value of content in a digital age and the challenge of moving from analogue distribution to digital. Virgin Media therefore supports the Hargreaves Review’s recommendation that a combination of education, effective markets, modern laws and appropriate enforcement is likely to be the most effective in preserving the value of intellectual property rights.

In particular, Virgin Media strongly supports Professor Hargreaves’s recommendation that the Government should focus in particular on strengthening and growing legitimate markets in copyright in conjunction with education and enforcement measures.

In that context, in 2009 Virgin Media announced a partnership with Universal Music to offer consumers the world’s first unlimited "all you can eat" DRM-free music download service. In parallel, the two companies agreed to work together to protect Universal Music’s intellectual property and drive a material reduction in the unauthorised distribution of its repertoire across Virgin Media’s network by implementing a range of strategies to educate file sharers about online piracy and to raise awareness of legal alternatives. The measures were intended to include, as a last resort for persistent offenders, a temporary suspension of internet access. No customers were to be permanently disconnected and the process would not have depended on network monitoring or interception of customer traffic by Virgin Media.

Due to a number of challenges, Virgin Media has not yet launched the unlimited download service. Virgin Media has however recently announced a partnership with Spotify to bundle its popular streaming service with Virgin Media broadband, television and mobile products. Virgin Media believes that the bundling of services such as Spotify, which gives consumers excellent range and quality of content, with broadband and other services could improve the take-up of legitimate services and therefore help reduce online infringement.

Furthermore, Virgin Media strongly believes that the rapid development of compelling subscription video-on-demand premium movie services is critical to facilitating sustainable monetisation of the digital entertainment economy. For example, in the United States the rapid development and adoption of the subscription VoD service Netflix is having an impact on traffic types available on networks and on usage of illicit services [5] - it now accounts for 29.70% of peak period downstream traffic. [6] Even when measuring total traffic and averaging over 24 hours, Netflix, with 22.2% of traffic, has overtaken BitTorrent (21.6%) as the largest component of Internet traffic on North America’s fixed access networks. [7]

However, until distortions in the UK digital rights market - such as Sky’s monopoly over subscription video-on-demand movie rights for premium Hollywood movies - are resolved, neither policy makers nor industry players will be in a position to understand the potential impact of comprehensive legitimate streaming services on the issue of online infringement.

In terms of enforcement measures to prevent digital piracy, in parallel with the Coalition Government’s recent decision not to invoke at this stage sections 17 and 18 of the Digital Economy Act 2010 relating to site blocking, the successful judgment in favour of the MPAA in the recent Newzbin2 case in the High Court demonstrates that rights holders do have recourse under existing legislation to seek court orders to block websites, the primary purpose of which is the hosting of links to illicit content. Virgin Media believes that the Newzbin2 judgment demonstrates that rights holders can access existing legal processes to make major-in roads into the blocking of such illicit websites in the future. With this legal recourse in place there is a reduced requirement for further intervention and legislation by the Government.

Virgin Media agrees with the Hargreaves Review and Government that ultimately rights holders must continue to take responsibility for the exercise and protection of their rights and to educate and guide consumers. As Virgin Media’s partnerships with Universal and Spotify demonstrate, however, ISPs and other industry players can play a strong role in supporting the rights holders to facilitate new commercial models for distributing content, as well as educating consumers and enforcing those rights where appropriate.

20 September 2011