If telecom carriers can strike up a cozy relationship with Hollywood and the TV networks, their upcoming IPTV systems may get a leg up on cable and satellite networks (see IPTV Security: Content Is King).

While Hollywood still has content protection concerns, some believe the studios are warming up to the IPTV distribution channel, and may eventually give it “most favored” trading status because of IPTV's potential audience reach, reporting capability, and bi-directional nature.

A source at a Motorola customer conference this week says that one Fox Broadcasting Co. executive told attendees his studio was studying the idea of releasing new movies to IPTV providers six weeks after theatrical release (well before release on DVD). That kind of unprecedented debut would give customers a real reason to choose IPTV providers over cable or satellite providers.

While the idea is still largely future-tense –- only 1.2 million to 1.5 million people worldwide have IPTV service today –- content exclusivity arrangements are not without precedent (see IPTV Tidbits: Microsoft, China & More and IPTV Scramble Is On).

Hong Kong Telecom operates the largest IPTV service in the world with 450,000 subscribers, and has used exclusive content deals to attract customers.

“An example of that is that they’ve taken on exclusive rights to ESPN Inc.,” says Steven McCay of Entone Technologies Inc. “Anybody that wants ESPN in Hong Kong can only get it from the telco." (See BNS Expands With Entone IPTV and Consolidated Picks Entone for VOD.)

McCay says that while Hong Kong Telecom paid a premium to ESPN for that right, its gambit has paid off. The telecom provider now serves 60 percent of the viewing public, while the local cable company gets only a 40 percent share.

But McCay adds that such arrangements would be considerably more difficult in tighter regulatory environments like the U.S.

Also, a few specialized content arrangements exist between content providers and wireless providers, and might be seen as precursors to larger wireline agreements.

“The content companies that I’ve heard of that are doing this are already providing this for mobile providers, so they have relationships with telephone companies already, albeit with different divisions of telephone companies,” says IPTV consultant Steven Hawley of Advanced Media Strategies LLC.

In the U.S., Hollywood’s increasing contact with IPTV players such as SBC Communications Inc. (NYSE: SBC) and Microsoft Corp. (Nasdaq: MSFT) is resulting in an increased comfort level with the medium, and an increased awareness of its bells and whistles (see Alcatel, Microsoft Confirm IPTV Deal and Verizon Makes Microsoft Video King).

“When we talk about IPTV we talk about integration with all of our services,” says Wes Warnock of SBC about his company’s negotiations with networks and studios (see SBC Awards Microsoft $400M IPTV Deal ).

“So taking the TV experience beyond the television to other devices such as cell phones, then we’re talking about extending their audience and taking that content to, say, 50 million Cingular Wireless LLC subscribers,” Warnock says. “They hear that and they perk up their ears.”

Warnock declined to comment on the specifics of the negotiations because of their competitive nature. SBC plans to offer IPTV service to 18 million subscribers with its 5-Mbit/s to 20-Mbit/s fiber-to-the-node (FTTN) network by late 2007 (see SBC: IPTV's Day Has Come).

Hollywood is also realizing the possibilities created by the bi-directional aspects of the IPTV distribution model.

“Because it’s a point-to-point solution you know what everyone is watching and you can keep track of every stream that’s being delivered into the house,” says Keith Wehmeyer, general manager of telecom products at Thomson (NYSE: TMS; Euronext Paris: 18453).

Wehmeyer says this may make for a more tolerable advertising experience on the viewer side too. “You’re going to be forced to watch a commercial no matter what, so if you supply some information about your likes and dislikes, you might end up watching a commercial that you at least have some interest in seeing.”

Perhaps Hollywood’s main worry about IPTV, or any other distribution channel for that matter, is the security of the content.

Makers of IPTV conditional access and digital rights management (DRM) software have invested handsomely to convince Hollywood of their products’ ability to protect content from DVD piracy, and their efforts may be paying off. And with good reason, too. The Motion Picture Association of America (MPAA) estimates that the industry loses in excess of $3 billion annually due to DVD piracy.

The studios are getting more comfortable with the idea that content may be less prone to piracy on a closed, secure IP network than on DVDs, which pirates continue to crack and duplicate with relative ease, says Brian Baker of DRM software provider Widevine Technologies Inc.

Of course there are limits on the amount of special treatment content creators will give to any one distribution channel.

“As they look at this IPTV marketplace, I think they want to make sure they don’t get into a situation where one entity has a chokepoint on distribution,” Thomson’s Wehmeyer says.

“With IPTV it’s probably not so much of a concern because you have each of these telcos operating largely in their own geographies and trying to do deals directly with the studios,” Wehmeyer says.

— Mark Sullivan, Reporter, Light Reading