Paul McIntyre: Telcos logging in to the movies

What exactly is Australia's biggest telco doing in Hollywood securing content rights to feature films and television shows like Friends and The Simpsons?

It's a question the major TV networks and pay TV operator, Foxtel, of which Telstra owns 50 per cent, are finding a touch unnerving. And they should.

The managing director of Telstra Media, Gerry Sutton, confirmed this week that his group was set to launch a major offensive into internet TV "this calendar year", offering its Big Pond broadband customers about 1000 movies, TV shows and a string of sports packages which can be downloaded and viewed on PCs. Big Pond may yet open the service up to non-Big Pond subscribers.

As intriguing as it seems, Telstra is simply slipstreaming a swag of telecommunications companies in the US and Europe which are squaring up for what's known as a "triple play".

Traditional phone companies are starting to offer voice, internet and video services and they're being forced into this corner simply because pay TV operators with their cable and satellite networks are themselves launching telephony and internet services.

Indeed, anyone who owns a distribution pipe into the home wants to expand revenues in what will prove to be a real dash for consumer tech cash in the next three years.

The idea of broadband-delivered TV content has been in the ether for at least five years, but the trigger for the acceleration in rollouts is the massive surge in home penetration of broadband internet access.

Figures out this week from Nielsen NetRatings show the number of Australians using broadband from home has doubled in the past 12 months. Of the 8.5 million "active" home internet users in Australia, 52.9 per cent, or 4.4 million, are doing it via broadband - the first time the figure has broken the critical 50 per cent threshold to outrank slower dial-up users.

Suddenly, traditional broadcast delivery of filmed entertainment has a serious contender, although the TV networks probably have at least a decade before their business models based on advertising look tenuous.

The real issue for TV stations and Hollywood studios, though, is with the younger, tech-savvy tribe who, in the past 12 months, have fast-tracked some new storm clouds.

A combination of faster internet access and rapidly growing peer-to-peer (P2P) internet file-sharing networks is triggering massive growth in the downloading of pirated TV programmes and feature films. It is a strikingly similar scenario to what hit the music industry in 1999 with Napster, which allowed the swapping of mostly illegal digitised music over the internet.

P2P networks such as BitTorrent, Grockster and eDonkey efficiently allow the downloading of massive video files on to PCs. The British internet traffic analyst CacheLogic estimates that BitTorrent alone accounts for one-third of all data sent across the internet. More than 20 million people have downloaded the BitTorrent application.

We are indeed starting to see the early signs of structural change in how TV and movies are distributed to the masses and it has content creators on the hop. So much so that the illegal video downloading under way has them very nervous about assigning internet rights to the likes of Telstra.

"Acquiring content is a difficult issue," says Telstra Media's Gerry Sutton. "The movie and TV guys are very cautious about what they will allow us to do. There's a very limited range of movies. The whole industry is testing the technology for security and I think that will go on for some time yet before we see significant opening up to broadband delivery."

Telstra, however, is not the only telco in Australia looking at internet TV services. Two weeks ago, Primus Telecommunications unveiled plans for its own $100 million broadband network, reaching half the population.

Interestingly, Primus is in discussions with the commercial broadcasters here to retransmit their TV schedules through its service.

"They are cautiously looking at it," says Primus general manager for strategy, Campbell Sallabank. "It opens up a raft of possibilities which you can do with your broadcast signal. It has potential for a creative thinking TV network and, if they're smart about it, it should open up more revenues without cannibalisation."

For media companies, the internet is starting to bite.

* Paul McIntyre is a Sydney journalist