How the BBC’s Netflix-killing plan was snuffed by myopic regulation UK
How the BBC’s Netflix-killing plan was snuffed by myopic regulation
The BBC press office’s statements are usually reserved and measured – not this time. On Wednesday, when the culture secretary, Nicky Morgan, warned that the broadcaster had to adapt or become like Blockbuster, the chain of video rental stores annihilated by Netflix, the reply was trenchant.“The BBC tried to set up a Netflix service a decade ago while they [Netflix] were still sending DVDs in the post, but was prevented from doing so by regulators,” the statement read. “The BBC is the most used media organisation in the UK. It reaches the most people. It’s used for the most time. You wouldn’t think that from some of the things being said today.”The statement was a robust defence of the BBC from politicians determined to throttle its power. And it referred to an attempt the BBC made unsuccessfully over ten years ago to build a Netflix-like service called Project Kangaroo, which could have changed what the world of streaming video looks like today.It all started in 2007, in a Shepherd’s Bush pub where Ashley Highfield was having a pint and mulling over a bold plan. As the director of technology and new media at the BBC, Highfield had just overseen the launch of the iPlayer – BBC’s online catch-up service. Now he wanted to try and build a commercial equivalent that would earn more. For that reason that he was meeting over drinks with Ben McOwen-Wilson, then head of strategy at ITV.Scribbling on the back of a coaster, the two mapped out the plan for a British digital television streaming service which would feature selected Hollywood films alongside content from the BBC, ITV and Channel 4. That service would be named Kangaroo.The premise was simple: it would be the best of British television, co-owned by the three broadcasters, fully committed to the project. It was a prototypical Britbox, the streaming service that the British networks finally set up in 2017, but according to Highfield it would have packed a heavier punch thanks to a broader range of content, including rights to American films.“I think the difference [with Britbox is] that each of the players realises this is too little, too late, and will therefore hedge their bets,” says Highfield, who now works outside the TV industry, in a yacht-making business. Back then, he says, there was impetus to act as the battle was not yet lost.“Each of the big players was desperate to not be wrong-footed by the emergence of players like Hulu and Sky’s growing dominance in this area.”  There were also rumours swirling of other streaming platforms that could come in and steal audience share. “The stars aligned in a way that took ten years to even partially align again.”The birth of the iPlayer itself had been difficult, according to a source present at the time in the BBC, who asked not to be named because they still work for the organisation. “It faced huge resistance internally from TV,” they say. Digital was considered the “weird sibling” of television and radio before the internet content boom, and commissioners in traditional broadcast were worried digital services would cannibalise their audiences. Some were still stuck in a 20th century mentality, and couldn’t understand the appeal of on-demand viewing.“There was lots of ‘Why would anyone watch our expensively made TV on a laptop?’ views,” the BBC source says. Digital terrestrial television had just begun, and few households owned high-definition laptop screens.But Kangaroo was different. The iPlayer had confounded expectations, and quickly dominated the nascent market. The stars may have aligned, the unnamed BBC source says, because there was no alternative for ITV and Channel 4.“Neither ITV or C4 could afford to build something that competed with iPlayer, which was the majority player,” they say. “They took a ‘can't beat them, join them’ view.”So when the broadcasters set up Kangaroo, with Highfield as its CEO, there was significant excitement. Internally, the BBC began developing the project in earnest, using the basis of the iPlayer infrastructure but scaling it up. “We’d taken all the learnings from the iPlayer,” says Highfield. “We had built a pretty impressive user interface and entire system.” The team Highfield assembled had moved into its own offices on Euston Road in London and built the product with the help of a team of 40 to 50 contractors. They were testing the final product and clearing the final rights for content to be broadcast on Kangaroo. “It was pretty much ready to go – when they shut us down,” he says.“They” were the Competition Commission, a non-departmental government body that investigates mergers and company creations that would give any single market participant excessive dominance. The Office of Fair Trading (OFT) – the UK’s erstwhile consumer protection agency – had asked it to investigate Kangaroo’s role in the market. “The OFT, perfectly reasonably, said: ‘This looks quite complicated,’ and it referred it to the Competition Commission for an investigation on the potential market impact,” says Patrick Barwise, an emeritus professor of management at London Business School and the author of an upcoming book on the BBC.The Competition Commission was given the case in June 2008. It was asked to check whether Kangaroo would hold too dominant a position in the nascent video-on-demand industry. The panel tasked with it – staffed by people with little expertise in media or technology – reported back in February of 2009. They blocked the joint venture. It “would be too much of a threat to competition in this developing market and has to be stopped,” said Peter Freeman, the competition lawyerwho chaired the inquiry group. Kangaroo, which was ready to launch, never did.“I was absolutely gutted," says Highfield. "This was my departure from the BBC. I was so excited by it. The fact that we had managed to get ITV, Channel 4 and the BBC to work together was a massive achievement.”Highfield believes that the Competition Commission made a significant mistake. He says that there was lobbying by potential competitors, including Sky – a fact confirmed by media reports – but he doesn’t believe that ultimately forced the Competition Commission’s hand.“I don’t think it happened,” Highfield says. “I was there. We sat down with them a lot and they just clearly didn’t understand the power of Apple, the power of the online players, and the relative lack of power and market share of the broadcasters. They couldn’t see it. They just read across from broadcasting and said ‘you guys have got too much market share and too much market power’.” He left the meeting thinking the panel seemed unable to recognise that while the three broadcasters held power in traditional broadcast media, they didn’t in the digital world.The BBC source believes Kangaroo’s messaging also played a part in its being rejected by the competition authorities. “I think it was possibly seen as too much on the commercial pitch than as a public good,” the source says.Barwise is also clear about what happened. “The whole point about competition is: you need to understand the market definition, and to do that you need to understand customer behaviour in that market. They didn’t have anyone who knew about that in the market.” The narrow terms of reference for the investigation excluded not just live and time-shifted TV programmes, but movies, short-form videos on sites like YouTube, DVDs – still popular at the time – and, of course, Netflix.“If you define the market narrowly enough, the potential market share is high,” says Barwise. “It’s just gobsmacking. I can’t imagine how anyone who had spent much time looking at the way people choose TV programmes would have made that mistake.”With Kangaroo closed, Highfield lost his job and moved on. The British TV industry wouldn’t see an on-demand service for nearly another decade. So what would have happened if Kangaroo came to fruition?“Netflix would’ve never stood a chance of getting its current market penetration [in the UK],” says the BBC source. “All the big players would have had the market covered for streaming video-on-demand (SVOD) with a product that would have scaled.” The source also believes other broadcasters like UKTV and Sky would have joined the project, similar to the way both have some free-to-air channels on Freeview today.Barwise is uncertain about the eventual outcome. In the short term, it clearly wasn’t a big blow, he reckons, because these things take time to develop. But as video on demand has flourished, the non-existence of Kangaroo has had a negative impact not just on the BBC, ITV and Channel 4, but Sky too.“Netflix and Amazon were given a clear run and that’s bad for all the incumbents,” he says. There might have also been a positive impact on customers had Kangaroo lived: subscription fatigue and its associated financial costs may have been lower.The man behind the project itself is equally uncertain. “Who knows?” says Highfield. “Maybe it wouldn’t have worked. Maybe we wouldn’t have been able to pump the money needed into commissioning and securing rights.” But he still thinks that Kangaroo would have seen some success, and that the BBC's retort, last week, was partly justified.“I don’t think it would have stopped other players coming in and being successful,” he says. “But it would have meant people had a broader range of choice, and a service that was very focused on British tastes and interests.”This article was originally published by WIRED UK