Telstra's avoidable copyright gaffe

Telstra had similar technology to that offered via Optus' TV Now in its research labs a decade ago, so why did it sign a $153m AFL contract?

At the stroke of a pen, a federal court judge has potentially wiped many billions of dollars off the value of copyright holders’ balance sheets around the world and reallocated some of this to sports fans, digital media startups and telcos.

The decision by the Federal Court’s Justice Rares in Optus v NRL Investments (AFL and Telstra), which will be appealed until the Australian Government and copyright holders get the outcome they can buy, ricochets around the world striking at the very core of broadcast copyright holders in all fields, and not just sports.

And it undermines the charge of facilitation often brought out in big-gun cases against alleged offenders, such as in the iiNet case brought by the US MPAA through its proxy in Australia, AFACT.

At its core, Justice Rares came down on the side of consumers, with caveats, by deciding that Optus technology didn’t contravene copyright because:

1) The user initiated the action to record, using its standing rights under time shifting provisions in the Copyright Act;

2) But held the caveat that storing content in anticipation on the network-attached storage in Optus’ data centres may be in breach of copyright laws.

Optus, sensing something in the wind when sports codes began muttering last year after the July launch of its TV Now service, took the unusual step of taking the codes and Telstra to court to seek a ruling on the legality of its technology service.

You have to be very confident of your position to take such action and it’s obvious that Optus lawyers carefully crafted the technology to circumvent any legal challenges it may face. And this time they were proved right.

A lot of people around the world will be scrutinising the Optus decision and there will be howls of anguish in boardrooms of the major media and sports companies and codes. The US Government is also likely to take a keen interest and I would expect some State Department cables to be flying back to Washington analysing the decision and its potential impact on US interests.

Telstra and its CEO David Thodey, especially, look foolish because it had similar technology in its research labs a decade ago but seems not to have understood its implications and signed on for $153 million for something it should have known could be worthless. There should now be questions over exactly which logical processes were employed to derive that figure of value or whether it was a random amount negotiated between the parties.

If there is no “out” clause in its contract with the codes, then Telstra’s board should take a long, hard look at itself to make sure it writes in such clauses in future.

The Federal Government in its incompatible roles as umpire, bookie, coach and player will be none too pleased with the decision because as revenues shift inexorably to mobile and internet rights, the value it can place on the monopoly rights for free-to-air transmission (over which the sports are nominally broadcast) are diminished. It will also seek urgently to reorient the playing field (pun intended) to hand these rights back to the FTA broadcasters so it can extract its exorbitant monopoly rents from them.

If not, it may get creative and signal certain prohibitions over what can be broadcast over parts of telcos’ data spectrum in future. It could, as happened with blank tapes in the ’80s in places such as Canada to counter perceived copyright losses from home taping of music, impose a compulsory tax on all mobile phone subscriptions to cover the industry’s lost revenues.

Won’t somebody please think of the fans?

What’s been lost in the analysis and outrage is the sports fans. They now have a choice that was largely denied to them for many years even though the technology was rapidly getting to the point where it could be used in such a way. And as mobile 4G gets better, and the NBN rolls out, fans’ ability to access sports content of choice at an affordable price increases exponentially. At the same time, it’s pertinent to question what future for professional sports groups – and by extension its fans – if a significant and growing revenue stream is now barred to them or at least diminished?

But rewriting the law to remove time-shifting and other rights from the public could have profound and unintended consequences.

What should be remembered is that copyright is a balancing act between private rights holders, to encourage them to create, and public rights holders. So it is perfectly acceptable at a time when copyright is all one-way traffic flowing to private enterprises for a court to side with the public rights holders using existing laws, as happened here, to rebalance the ledger.

And while this case looked at sports broadcasts on free-to-air being rebroadcasted shortly after the initial, live airing, it may have implications for all free-to-air broadcasts – we’ll just have to wait for further judgments as they apply to drama programs, for instance.

This has broader implications outside Australia’s borders for the same reason that Hollywood brought action against iiNet – because of the influential nature of our judicial, regulatory and legal systems on similar Western jurisdictions, this case sets a litmus for similar such providers as Optus all around the world.

I expect the likes of big sports bodies such the NBA, PGA, NCAA, Olympic Committee, F1 and so on to be crawling through this Optus judgment and lending support to the losers of the first round.

And as NRL flack John Brady and the AFL’s chief operating officer Gillon McLachlan said in tandem, getting their messaging in line, “This is just the pre-season for the case”. This could wear on for years although Australian courts have recently shown great speed, insight and resolution in coming to decisions but this is complicated because of the way the law is structured and the balancing act between the parties involved.

The next step for the losers will be to seek to injunct Optus to limit any further harm until such time as the appeal is heard. This is likely to be granted given the cases brought against the likes of Samsung in the Apple litigation over the Galaxy Tab.

Optus is now in an incredibly strong position to set the terms of its relationship with sports codes and is on the front foot with Telstra. And it handed the playbook to digital media startups interested to follow in its footsteps. A hundred of these could be online inside a week, all streaming FTA broadcasts from around the world, breaching geographic restrictions with impunity, and selling their own ads over the top. Fairfax, for instance, would be a winner in this new world.

But none of this should be a surprise to anyone – Australia like most of the West has long accepted time-shifting and the rather more obscure notion of FTA rebroadcasting such as Imparja’s Remote Area Broadcast Services to bush dwellers outside the range of big city transmission towers. These are delivered over the air through low-power transmitters and satellite.

I am somewhat encouraged that all the hand-wringing, Chicken Little pronouncements from the first-round losers are premature.

History has shown that every technology and ability to share content has brought with it, after initial cries of foul from copyright holders even bigger slabs of cash to them. It’s now up to the sports codes and erstwhile copyright holders to work out whether to turn this judgment to their advantage or seek to prolong the legalities.

A way they could do this is to make the most of the two-minute window available under this judgment to encourage people to share their thrills at, say, their team’s points scoring using social media and then provide targeted ads around this qualified and high-value audience. Such “tweetcasts” have proved effective in the US to provide value-added services for theatrical TV affected by unauthorised peer-to-peer rebroadcasts.

It could prove a hit with sports tragics who will want to participate and engage with the events in real-time – there’s no point arguing the toss when the ball has already moved up and down the field a few times.