Deals Initial takes on Google’s acquisition of Widevine have focused primarily on the power of Widevine’s widely used DRM technology to help Google curry favor with content owners wary of Google TV and YouTube (see here, here and here). Also getting mentioned are the potential for Widevine’s extensive relationships with CE makers to boost adoption of Google TV, and the importance of Widevine’s adaptive streaming technology to Google’s Android platform, which currently has no effective way to cope with fluctuations in end users’ last-mile bandwidth (see here and here).
While nice, those factors are almost certainly incidental to Widevine’s real value to Google. As a threshold matter, none of those considerations required Google to buy the company, presumably at a premium to its current earnings. If it wanted to assure content owners of its commitment to protecting content on Google TV it could simply have licensed Widevine’s DRM like anyone else and added support for it to the Google TV platform. Ditto adaptive streaming.
More critically, those new features won’t solve Google’s real problems with content owners. The networks are not blocking Google TV because they’re worried about content security. They’re blocking it because they’re worried about its implications for their business model. Likewise, though Widevine has broad adoption among CE makers, whatever problems Google may be having in getting Google TV adopted have to do with the cost of implementing it for device makers, not with any objection to adding its functionality to their HDTV sets.
Adaptive streaming technology would genuinely add value to Android, but as with its DRM, Widevine makes its video optimization software freely available to anyone who wants to license it. No need to buy the company to get it.
So what could make Widevine worth buying to Google? I think its value lies in two assets that are not strictly speaking part of Widevine’s IP and therefore could not simply be licensed.
First, Widevine’s downloadable conditional-access system has been certified by the FCC to comply with Section 304 of the Telecommunications Act, which requires pay-TV providers to separate the channel surfing functions of their systems from the security functions. The purpose of the provision is to enable third-party device-makers to sell set-top boxes with their own navigation features that can interoperate with a cable systems, by integrating the cable system’s conditional access components without having to adopt the service’s navigation system. Widevine’s CA system complies with that requirement because it can be downloaded separately to a set-top.
Actually getting the provision implemented via regulation has been a source of frustration for the FCC since the law was passed in 1996. But the commission signaled in October it is serious about promoting integration with third-party devices by adopting new rules meant to speed up the rollout of CableCARDS. It is also considering broader steps to require all service providers to adopt a standard home “gateway” that would further enable interoperability between services and devices.
With the acquisition, Google will now be able fully to integrate Widevine’s conditional access technology with the Google TV platform. Not only will that make it easier to design Google TV-enabled CE devices that interoperate with cable systems, it will make it easier for cable operators to integrate Google TV with their own services.
In effect, the addition of Widevine transforms Google TV into a kind of middle-ware platform on which cable and IPTV providers can build their own, branded implementations of Google TV functionality as a premium service for their subscribers with Google TV-enabled devices. New services and content could come through Google TV but would look as if they were coming from the service provider’s own system. All the subscriber would need to do is connect a Google TV device to the cable system and download the conditional access code for a fully integrated, FCC-compliant linear and interactive video experience.
As I’ve argued before, I think integration with pay-TV services is one key to the long-term success of Google TV, and ultimately more important than whether the broadcast networks block access to their content in the near term.
The second reason for Google to buy Widevine is that Widevine’s DRM is one of only five certified by DECE (now UltraViolet). Though UltraViolet has a tough climb ahead of it with consumers, in my view, the case for making devices and services compliant with the UltraViolet system is pretty straight forward: it could help, and there isn’t much downside. Making your device or service compliant will mean licensing various UltraViolet system components, but you’re going to have to support various DRMs, codecs and file formats anyway. So you might as well adopt the industry standards.
Up to now, Google has not been a member of DECE. In assuming Widevine’s position, however, it gains a critical seat at the table for the device and service certification process. That will give Google leverage to ensure that nobody does anything that leaves either Google TV or YouTube at a competitive disadvantage to other technology or service providers. That could be particularly important should YouTube try to create a subscription service to compete with Netflix and Hulu Plus, which seems likely. The fact that Netflix also uses the Widevine DRM the deal could give Google some visibility into a key competitor.
Google could have other reasons as well for acquiring Widevine, of course: keeping its IP out of the hands of others, the value of its overall patent portfolio, new technologies in its back pocket we don’t know about yet, to name a few possibilities. But assuring content owners of its good intentions probably wasn’t at the top of the list.