Trouble in Store: The BBC beats the retreat from TVOD

The collapse of the BBC Store has huge implications, writes Research the Media’s Richard Marks. How can broadcasters generate additional revenue from their content online?

It’s been a busy last few weeks in the news, so you could be forgiven if you did not notice – or did not pay much attention to – the announcement that the BBC’s on demand video service, BBC Store, is to close less than two years after it opened. It’s a hugely significant development, both for the BBC and video content owners generally.

Not only is the Store closing but the BBC has to refund in full every single purchase made since it opened.

Does this mark the last rites for Transactional Video on Demand (TVOD) and specifically ‘buy to keep’, the beginning of the end of consumers owning as opposed to accessing video? If so, will that leave a gaping hole in broadcaster finances going forward? How much is it costing the BBC to close the store?

The BBC Store was launched in November 2015 as the natural successor to the BBC’s lucrative but declining DVD business. The BBC’s own iTunes. It certainly seemed logical at the time – the BBC needs to monetise its massive video library in order to maximise the profits from BBC Worldwide put back into programme making, but physical sales have declined sharply. Moving from physical formats into a ‘buy to keep’ online store seemed the logical next step.

However on 25 May customers – including myself – were informed by email that that the BBC Store will close on 1 November. As of now, no further purchases can be made and we have till November to finish watching our purchases before the video player app itself is shut.

The announcement reveals the major commercial flaw in the whole concept of buy-to-own video. When the store closes the BBC will have to refund in full every single purchase made at the store so far. Purchased videos can only be played within the app so that DRM (Digital Rights Management) can be protected. Legally, the closure of the store gives only two options: drop the DRM and make the content freely transferable (but also easily copied) or give a full refund.

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Sky and BT have circumvented this legal issue with their ‘buy to keep’ services by also dispatching a DVD copy of the movie at the time of purchase. So if services are shut or customers move to another services, they still have a DVD and technically ‘own’ the content even if they can’t stream it any more.

Yet the whole point of the BBC Store was to remove the need to make and distribute DVDs and so exploit the long tail of content.

How much this has left the BBC out of pocket? It’s one thing for a shop owner to shut down due to lack of trade. But imagine factoring in giving a full refund to every single customer that you ever had. Allowing for development, marketing, rights negotiations and refunds, the loss for the BBC must surely run into the tens of millions. I just hope there isn’t another zero on the end of that.

The next set of BBC Worldwide accounts will make fascinating reading. With Top Gear no longer an international phenomenon, Doctor Who due a much-needed relaunch and Sherlock a sporadic gift at best, new revenue streams will be vital.

More importantly the demise of BBC Store is a bellwether for a major shift in the way we consume all media, not just video. We are moving from an ownership culture to one of access.

Yet again the world of video has followed the music industry. CDs were supplanted by iTunes and MP3s as initially the ‘ownership’ culture continued as people took their collecting habits online, but downloading is now being succeeded by music streaming services. Millennials feel little need to actually ‘own’ the music they are playing. Clearly video has now gone the same way.

However, that plays havoc with finances as the revenue from streaming is a fraction of that from downloads. As Roger McGuinn of The Byrds tweeted last week:

“Pandora played “Eight Miles High” 228086 times in the second 1/4 of 2016 and paid me $9.15”

And therein lies the problem. BBC Worldwide has contributed significantly to the BBC coffers over the last couple of decades by selling formats and shows internationally, but also from sales to consumers as VHS regenerated into DVD and then Blu-ray.

The BBC Store was designed to continue that stream of income: lower revenue potentially, but hopefully higher margins. That dream has crashed and burned and as license fee payers we should all be concerned as it potentially removes a major subsidy. The BBC can still get revenue from licencing content to SVOD services like Netflix and Amazon and sales in iTunes, but these will be a fraction of what it received from charging millions of consumers £20 for a Planet Earth DVD.

So this is where BritBox – the US SVOD joint initiative with ITV launched in the US in March – becomes hugely significant.

A few years ago an international version of iPlayer was tentative rolled out. Overseas users paid a monthly subscription for access, but the content wasn’t extensive and anecdotally users were disappointed. Very recent UK content had already been licensed to local broadcasters, so subscribers were left with older archive content. The international iPlayer was closed in 2015 in preparation for the launch of BBC Store.

Presumably the future therefore lies in launching Britbox in the UK and internationally; an in house SVOD service in which the revenues are split by BBC and ITV.

That won’t be straightforward as rights issues will need to be dealt with and licences with other SVOD services will need to expire first. It may well require changes to the platform neutrality implicit in the BBC’s charter.

This may explain why the BBC is currently claiming it has no current plans for a UK SVOD service, but in the long term crumbs from the Netflix table won’t fill the revenue hole left by the demise of physical media.

So farewell then BBC Store. Its passing leaves a major question mark over the long term future of TVOD. It’s clear we live in a streaming world now.

Personally, I am cursing my own bad timing. Just the week before the BBC Store closed I was debating whether to buy a collection of classic Goodies episodes. Had I done so I would have been able to effectively watch them and get my money back in November! In the meantime I have four months to binge on the first two seasons of Torchwood that I have bought from the Store, effectively for free. Captain Jack Harkness says at the start of each episode:

“The twenty-first century is when everything changes. And you’ve got to be ready.”

Let’s hope that, with Britbox, the BBC is also ready.

Richard Marks is managing director of Research the Media