It’s been a long time coming. The television and Internet industries are working together to offer consumers the ability to download, legally, movies and television episodes. This convergence might be seen as inevitable, particularly since the advent of TiVo, Foxtel iQ, and other services using digital video recording systems (DVRs), as well as the popularity of P2P file-sharing networks. These industry developments reflect an important influence: the power of consumer demand.

Many Internet users assume that they should be able to download music, movies, and television shows on demand. File-sharing software and P2P networks have long been used to upload and download (primarily pirated) songs, movies, and television shows, much to the chagrin of the music, television, film industries. Over the past few years, the industry has started to respond, particularly in the area of music downloads, and there are now a number of legitimate sources for purchasing and downloading single songs or entire albums. Apple’s iTunes is just one such service. For all of the difficulties posed by P2P networks to the music industry, it’s not unfair to say that the preferences and habits of users have resulted in the creation of the digital music industry, from the sale of songs to digital music players (such as the iPod).

The television and film industries have been slower to respond to the challenge of P2P networks. In part, this delay is probably due to the fact that high bandwith, fast machines, large hard drives, and substantial data storage systems are necessary to download files of any significant size [average size of episodes and movies?] All of these things have become much less expensive and, as a result, significantly more widespread over the past year or so. Purchasing a 100GB hard drive is only [xxx], whereas [xxx] years ago it was [xxx]. Broadband services have generally become more affordable and more easily availabe to a larger population. Recordable CD-ROMs have become less expensive and are capable of holding more data than ever before. So the threat to the industry is that much greater.

One of the more immediate industry developments is the advent of DVR-based television services. These services, such as TiVo, enable users to select television programs to be recorded on a one-off or a recurring basis onto the hard drive of the DVR. Generally, the number of shows capable of being selected and recorded is limited only by the capacity of the DVR itself. Users can then view the programs recorded at any time convenient to them, via their television set.

These services have many advantages over the old tape-in-the-VCR way of recording shows. The DVR-based systems enable users to record a particular show from week to week without re-programming the device; and, since the systems have access to television programming schedules, will still record the show if for some reason the time is changed. They also free the consumer from the need to make sure there is a fresh tape in the VCR. Also, that pesky problem of recording two shows back to back on different cable/pay TV channels is also gone, as the DVR records directly from the set-top box feed and is able to switch channels when necessary. And DVRs have the same advantage as VCRs — viewers can fast forward through the advertisements.

These services have earned supporters not just amongst consumers, but in the television industry itself. While the industry originally feared the loss of advertising dollars (caused by viewers fast-forwarding through the advertising breaks), the reality has been somewhat different; several television networks in the United States have found that they have gained viewers who might otherwise miss a show when originally aired. In the United States, nearly 8% of households subscribe to DVR systems.

But now the industry has gone a step further, and is beginning to offer television episodes for sale or rent via the Internet. This development is a good one in many ways, not least for the entertainment industy itself, which is finally offering a legitimate alternative to file-sharing. Efforts have been made on this front over recent years, but technological issues as well as insufficient consumer awareness have proved problematic.

I’m aware of three such services . One, announced just this past week, is In2TV, a joint initiative of AOL and Warner Brothers. This service will sell episodes of older TV shows only. The shows will contain advertising; in addition to spots during the regular commercial breaks, there will be two minutes per half hour, broadcast before and after the show. Unfortunately, the service will be available only to AOL subscribers, and the shows available will be somewhat limited, not including shows currently broadcast on television nor shows in syndication. The episodes are downloaded from AOL.

Another service, also announced this past week, makes use of file-sharing software. NBC Universal will be renting both movies and television episodes through Peer Impact, a legitimate (ie, legal) file-sharing network. The movies will be available after they have been released in DVD format, and have been coded to work for only 24 hours after first being played.

Finally, Apple Computer and Walt Disney announced in October that they have partnered to enable consumers to download episodes of currently-running television shows, such as “Lost”, through the iTunes Music Store, which also sells music videos in addition to songs. This service is already up and running. Notably, the television shows are ad-free. This service was launched with the release of the newest incarnation of the iPod can play videos as well as music.

These developments are encouraging. I am wondering, however, how long it will be until these systems go global. As Apple found with launching iTunes in Australia, navigating local copyright (and licensing) laws can be much more complicated than anticipated. To me, part of the appeal of services offering television shows and movies for download is that I might not have to wait for the next season of say, “The Sopranos”, to start broadcasting in Australia while all my friends back in the US have already seen half the season. The gap between US and other countries’ movie release dates (and some television show release dates) has shrunk in recent years, but it’s somehow not the same.

Two things need to be worked out before these services (which appear to be limited to US residents) can go global.

First, the industry needs to figure out a revenue model that will work, either by including local advertising depending on the location of the purchaser, or by charging enough to compensate for the lack of advertising dollars.

Second, copyright law in multiple jurisdictions will need to be navigated. The legal issues extend not only to securing licensing for particular television shows, but also influence the type of digital rights management used, with particular emphasis on what types of copying (if any) are allowed. The Australian Government’s current inquiry on fair dealing/fair use may have a real impact on the model eventually adopted, not only with respect to these services but in relation to the DVR-based systems. After all, while making recordings off the television for one’s own personal use clearly falls under the fair use defense to copyright infringement under US copyright law, that is not the case in Australia (although I understand that Australian law may change soon as a result of the Attorney-General’s Department’s current fair dealing inquiry).

Finally, it is interesting to note that this development, and convergence of media-related industries generally, is significant from a competition law perspective. New technologies–and new uses for existing technologies–challenge not only the regulation of industries but conceptions of market definition, which has a direct influence on industry analyses for the purposes of competition/antitrust law analysis, particularly in the merger approval context.

Once offering television shows online becomes mainstream, the nature of the market will change as well. The result could be a market for television shows delivered via traditional television broadcasting, digital feed through a set-top box, or via the Internet. Alternatively, the market could be defined more broadly to include several types of visual entertainment (television shows, movies) delivered online. Other market definitions are also possible. This reshaping of industry (and legal and regulatory) boundaries is already well underway with respect to music and voice telephony. The shape of the market may be very different even a few years from now.