Image via Netflix

APEX Insight: The IFE landscape is changing, and CSPs are facing a number of challenges, including the apparent threat of OTTs, but how much of a risk do the likes of Netflix actually pose? Michael Childers, chair of the APEX Technology Committee, clears the air.

When Spencer Wang, vice-president of Finance and Investor Relations at Netflix, announced a new service called Netflix Inflight 2.0 at APEX EXPO in Long Beach last September, headlines heralding the subscription video on-demand service’s stride into the skies were a flurry.

“In-flight Netflix will be available on more airlines in 2018,” read a piece on Engadget. And in an article posted on Variety, Todd Spangler wrote, “Starting in 2018, the company will extend bandwidth-efficient technology built for mobile devices to airline carriers across the globe – in the hopes that more airlines will partner with Netflix to offer low-cost or free Wi-Fi entertainment to passengers.”

What Wang announced at the show – efficient encoding that could potentially lower bandwidth requirements and cost for streaming – would theoretically help airlines improve the viewing experience of online content for subscribers of the over the top (OTT) service in flight. But the consumer press doesn’t seem to understand the nuances of an IFE service (in which an airline actually licenses public performance exhibition rights) versus a connectivity service (in which airlines provide passengers with a connection that enables them to access OTT content that they subscribe to directly), says Michael Childers, chair of the APEX Technology Committee.

“OTTs like Netflix use a B2C model, not a B2B one.”

“OTTs like Netflix use a B2C model, not a B2B one. They do not sell their OTT content service to airlines – only to consumers,” Childers explains, adding that generally the only kind of inroads and partnerships that OTTs can actually engage in with airlines “have nothing to do with the licensing of content, but only with the support for the delivery of those streams via connectivity.”

Connectivity was indeed the basis of a deal inked between Netflix and Virgin America in 2015, which saw the airline offering free Wi-Fi to Netflix subscribers on select aircraft. The OTT service has since entered similar agreements with Aeromexico, Qantas and Virgin Australia. Such deals and the introduction of services like Netflix Inflight 2.0 may make a positive viewing experience more likely but it still can’t be guaranteed given that the amount of bandwidth available on a flight is still dependent upon the competition for bandwidth among onboard users, Childers says.

So why doesn’t Netflix just circumvent the connectivity hurdle altogether by offering airlines an onboard server filled with cached content for subscribers to access? The answer, Childers warns, brings us to complex legal terrain.

“The inside of an aircraft is, as defined by law, a ‘public performance’ venue. Content can only be exhibited by an airline on board the aircraft if the airline obtains public performance rights, and only the proprietors of such public performance rights can license and provision content for in-flight exhibition via an IFE system.” And a recent U.S. Supreme Court decision ruled that entities that do not hold rights to the content in an ecosystem for a specific market cannot alter that ecosystem for delivery to a different market, Childers adds.

Typically, OTT providers do not hold IFE rights to the preponderance of the content they offer, if at all.

Typically, OTT providers do not hold IFE rights to the preponderance of the content they offer, if at all, and even in the case of “original productions,” it isn’t smooth sailing, Childers says: “The production may have been commissioned by Netflix from the actual producer and may not have been subject to an ‘all-rights’ deal that included IFE. For example, The Crown, which was produced by Sony for Netflix, is only available on Netflix streaming service and not IFE.”

Of course, if Netflix wanted to buy the rights to a program, and the holder of these rights was willing to sell them, it could. But, at least for the time being, the OTT seems content to wait for airlines to equip their aircraft with the broadband connectivity needed to stream directly to passengers’ devices – remaining within its B2C roots.

So, for now, when airlines are said to “offer Netflix,” they are really offering an Internet connection and perhaps an icon on their IFE system for click-through so that subscribers don’t have to go to the trouble of typing “Netflix” into their browser. “Calling that ‘offering Netflix’ rather than offering connectivity that permits Netflix subscribers to attempt to access their accounts may not be of significance to passengers,” Childers says, “but it is an important distinction when describing where such services fall in the IFE/connectivity bundle curated by the airline or CSP, along with the applicable limitations such as to subscribers only.”

What is of importance to Netflix subscribers is that the OTT is taking positive steps to ensure a better viewing experience in the in-flight environment, and enhancing the “anytime, anyplace” attribute of mobile entertainment. “From an airline or CSP perspective, as connectivity bandwidth increases, and the window between IFE availability and OTT availability narrows, the ratio of content accessed through connectivity versus the content accessed through the IFE system may increase,” says Childers, “and the balance between the two becomes a strategic curation decision.”