How long can content region-locking last?

One of the questions I’ve pondered a lot recently is the topic of content region-locking. I’m mostly talking about the practice of TV/film rights owners reselling their content to different local providers across the world, with each local provider only having license to distribute the content in their local territory. Examples of this are the region codes in DVDs (and in VHS previously), and of course different TV networks across the world showing the same show to their local audience. This has been a great demonstration of price discrimination in action, and has generally helped rights owners maximize their revenue/profit.

In the analog, or rather, pre-streaming world, there were attempts to arbitrage the system, with varying degrees of success. Pirated satellite TV has been around for ages, especially in emerging markets such as many parts of Asia. And of course the whole pirated DVD industry, which was quite dominant in countries such as China – as evidenced by DVD hardware manufacturers having full region unlock as a must-have feature – if your brand of DVD players can only play DVDs coded for the Chinese market, you might as well not go into business. In mature markets, it usually wasn’t worth the effort for the average person to try to steal satellite TV; although western visitors touring China usually tried to take full advantage of the local DVD prices, knowing that they were buying pirated copies of the whole box-set of Lost (or some other long-running series).

In the Netflix/Hulu world, where rights owners are hesitantly putting their content online, the situation suddenly gets very complex. Rights owners, used to thinking of the virtues of region-locking, are rightfully reluctant to give any one streaming provider (say, Youtube) worldwide rights to their highly valued content. This is why Netflix has to expand one country at a time, while they carefully negotiate their rights; this is also why you can only watch Hulu from the US.

However, in the online / streaming world, the hoops required to jump through to pretend to be a visitor from the US (and therefore acquire the content on Netflix/Hulu) is dramatically lower vs. the offline / physical world (where you literally had to buy a plane ticket to go to China to enjoy the low cost of content). And service providers such as Netflix and Hulu thereby have a real issue of enforcing their rights management vs. harming the user experience of the primary users they are trying to serve. The monthly cost of getting a VPN that offers a US IP address is usually less than $10 – unless Hollywood can get regulators to regulate VPNs, it is hard to see how they can avoid a continued in-flood of global traffic to Hulu (as more content is put online, the value of VPNs will rise further, and more people will adopt VPNs), which undermines the entire premise of region-locking.

What’s even worse than global traffic flooding to Hulu is the fact that there are more and more content being put online legally outside the US. As US TV series have caught on in China (in a big way) in the past 5-10 years, the leading Chinese video sites are coming to Hollywood to acquire content. On sites such as Youku and Sohu, top programming from AMC such as The Walking Dead, Breaking Bad and Mad Men are all legally available (usually in a few hours after they air in the US) to users from a Chinese IP address, all free of charge. There will certainly be entrepreneurial efforts in the US to arbitrage this discrepancy – after all, why should you buy/rent these shows from iTunes when you can access them from Chinese providers with a free Chrome extension(search “unblock youku”) or a Chinese IP VPN?

This certainly begs the question – is it legal to get a VPN to enjoy content that was licensed to a certain region? I am not a legal expert, but even I can see that this easily crosses into net neutrality territory and is a legal mess for rights owners to try to enforce. Furthermore, there are so many legitimate uses of VPN tech (prime example – bypass censorship) that it seems unfathomable that VPN providers would comply to limit/monitor/block VPN traffic when it comes to video. And while services such as Hulu can be pressured to improve their tech to try to block VPN IPs (is that legal?), or add more screening measures (e.g. you must create an account with a US credit card, or show you are living in the US via a utility bill statement), all these would certainly hurt the user experience – after all, I’m just trying to watch some TV, why do you need my identity?

At the end of the day – getting a US VPN to watch Hulu is a lot better than going to to download the same show. At least in the first case Hulu generated ad revenue from the visitor, which rights owners should get a % share of. The question is how mainstream such activities can get, and how fast – if an entrepreneurial VPN provider tries to make a marketing push by highlighting the rich content available in overseas markets, will rights owners be able to effectively respond?

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