Is In-Flight Entertainment An IFEey Business For CSPs?

The potential size of the in-flight entertainment (IFE) business is mind-boggling: Around the world, there are over 37 million commercial airline flights each year. These flights are made with 25,000 aircrafts; of those, just half have IFE. Over 750 million passengers a year are exposed to IFE services, out of three billion (in 2014) worldwide passengers. IFE services cost airlines an estimated $2.85 billion in 2015. This figure is expected to rise to $5.8 billion in 2020.

But with the advent of on-board Wi-Fi, changes are “in” the air and “on” the air, which could cloud the current business model for the IFE industry.

For the time being, however, the sky is the limit. In the recent past, in content business lingo IFE sales were called “ancillary” rights. Earlier, they were referred to as “non-theatrical” rights (and, in addition to IFE, they included ships at sea, prisons, hotels and schools), while nowadays they are simply “other windows.”

The IFE sector is segmented into connectivity (wired and wireless), content and hardware (portable and non-portable). According to New York-based researcher Frost & Sullivan, in 2012 hardware took 68 percent of the market share and connectivity took 20 percent. However, in 2020 the hardware share will decrease to 48 percent and connectivity will increase to 44 percent. But, the content portion is expected to decrease from 12 percent in 2012 to eight percent in 2020.

Nonetheless, total volume for content suppliers is expected to jump to $464 million in 2020 (from $342 million last year). Indeed, it is a big increase if one considers that in 1982, movies sold to airlines brought to U.S. studios a total of $20 million ($50 million in today’s dollars).

The structure of the IFE model is that airlines appoint content service providers (CSPs) — companies such as the Marina del Rey, California-based Global Eagle Entertainment (GEE), the London-based Spafax, Stellar Entertainment from Pompano Beach, Florida, and Inflight Dublin in Ireland. CSPs in turn buy movies and TV shows from content owners, which could be inflight distributors like Encore Inflight (Hong Kong), Jaguar Distribution (Studio City, California), Skye Inflight (Montreal), Terry Steiner International (New York City) and Entertainment in Motion (EIM), a GEE subsidiary. Plus, CSPs buy from U.S. studios, independent producers and sales agents.

According to Jovita Toh, CEO of Encore Inflight, “the only airline that buys directly from content owners is Turkish Airlines. For the other 95 airline clients that we have, we work through the CSPs.”

For indies the process is as follows: Airlines have divisions that screen everything and make a list for their CSPs to pursue. CSPs also make recommendations to airlines and advise on final selections. For these reasons content owners send screeners to both the airlines and CSPs. However, pricing is only discussed with CSPs. The business arrangements between airlines and CSPs can be on a total monthly or yearly spend, but some CSPs work on fixed budgets with the understanding to share the savings they manage to achieve as well as the over-budgets.

According to Jim Griffiths, svp Content Distribution and Purchasing at GEE, “most airlines are represented by a CSP. GEE reps close to 150 airlines worldwide and almost 80 percent of those airlines are outside of the U.S.” Maura Chacko, vp Development at Spafax concurred, “most airlines partner with a single CSP, but we do have airline clients that use multiple providers.”

Nowadays, some airlines spend up to $20 million each year on IFE content, and, according to Griffiths, the “IFE business is driven by first-run feature films.” For this reason IFE companies attend trade shows such as the Cannes Film Fest, AFM, TIFF and the airlines’ own market, Apex events and even the L.A. Screenings, but generally not NATPE, MIP or MIPCOM.

IFE content must be thoroughly vetted: airlines stay away from scenes of terrorism and violence (for Europe); air disasters and nudity (for the U.S. and the Middle East); and political and religious content. Airlines even go to the lengths of changing gory scenes to black and white, and censoring dialogue that mentions pork products and scenes with homosexual content (for Singapore), and those showing competing airline logos.

However, content owners provide only theatrical versions and inflight distributors will provide edited versions. If additional edits are required by the airlines, the CSPs will take care of them. However, according to Griffiths, nowadays theater distributors already edit most films for various territories.

The IFE business model has changed from when airlines used to pay content owners $0.08 to $0.10 per seat. Today, the largest international carriers can pay $90,000 for a license to show one movie over a period of up to three months. In the U.S., airlines pay a flat fee, plus a fee each time the movie is watched. Usually, studios don’t give “airline windows” day-and-date releases, since theatrical box office is used as a metric for the downstream revenues. For GEE, Griffiths said that they license content for up to one year and sell content to airlines on a flat fee or on a per airline flight basis.

The airline window is usually 40 to 90 days after theatrical release and there is no exclusivity. But, explained Spafax’s Chacko, “Airlines always want exclusivity! While it’s obvious that many airlines will take the same new release titles in a given month, there is so much in a programming lineup that can be tailored to an airline and its passengers.”

Arthouse titles could screen on airlines before theatrical releases. However, commitments are made earlier in order for the movies to be included in in-flight magazine guides. But this could soon change since, in order to reduce weight, airlines are phasing out print versions of their in-flight magazines in favor of digital versions.

According to Encore’s Toh, “Purchase orders for films are placed eight to 12 weeks before screenings in order to give inflight magazines sufficient time.” While for Chacko, “We work with our airline clients to solidify a lineup approximately two months in advance of play. This allows for all related parties: the in-flight magazine team, the marketing team, and others to have enough time to promote the content.”

As for the airline window, Toh stated that they could vary from one month to as long as a whole year. However, her company acquires films on a two-to-three year license period, regardless of how long airlines take them for.

“Each of our clients decides how long they want to have a feature film onboard,” said Chacko, “In most cases, new release titles will be on board anywhere from three to six months. However, very popular titles are often held on longer or brought back for ‘encore’ performances.”

Plus, content has to be dubbed in various languages and Toh explained, “For mainstream English movies, the more languages you have, the more popular they will be with the airlines. For non-English movies, generally English subtitles are sufficient.”

Dubbing is a rather complex matter, since for the main languages content owners are to provide dubbings. For specific languages (e.g., Arabic, Korean, Turkish) the CSPs undertake the responsibility.

Explained Chacko, “Each of our clients has a very specific set of language requirements, based not only on their home country, but also the major markets they serve. A couple of our clients take up to eight languages per film. With the vital importance of the international box office, studios are providing more languages more quickly than ever.”

The next big evolution in IFE is Wi-Fi, which lets passengers bring their own video devices (BYODs), saving costs (lighter equipment and less maintenance) and possibly increasing revenues (shopping and gambling) for airlines. Even though seatback video devices allow on-board purchase of food and drinks, traditional IFE systems can cost up to $6 million per aircraft and equipment that weighs 300 kg. can add $50,000 per plane a year in fuel costs (also adding electrical power draw).

Travel website Tnooz calculated that an airline can save up to $24 million for a 200-seat aircraft when the traditional on-board IFE is replaced with BYOD.

Some airline analysts are now saying that the old embedded IFE system is a thing of the past and that only connectivity-type models will remain, including virtual reality headsets that offer cinema-style 2D and 3D movies. But inflight connectivity is a shared pipe and high-quality video experiences are limited by today’s bandwidth.

However, technology is coming to the rescue with faster Wi-Fi systems, such as Exede, which uses ViaSat satellite technology and offers speeds eight times faster than other systems (reaching up to 12 Mbps) and four times the number of passengers connected simultaneously (basically every passenger on the flight), compared to older models that use air-to-ground: a broadband network of cell towers on the ground.

Taking advantage of ViaSat technology, last fall, air carrier Virgin America teamed with Netflix to provide complimentary in-flight Wi-Fi access to stream Netflix content to passengers who subscribed to the VoD service.

Similarly, through ViaSat, JetBlue is offering free high-speed Wi-Fi in-flight services at the cost of a “coke and a bag of peanuts” to the airline.

However, GEE’s Griffiths doesn’t see Netflix as an IFE threat, since the airline window is the first window after theatrical releases, while Netflix’s SVoD window is third in line after TVoD and pay-TV.

“Improved connectivity changes the nature of IFE,” acknowledged Spafax’s Chacko, “but offers us a new challenge to find unique ways to engage with passengers. It opens up a world of IFE opportunities which allows us to help our clients engage their passengers in real-time — a concept we call ‘in-journey, in-play.’”

Competing with Exede are GEE’s Raw 44, On Air, Live TV and BAE’s IntelliCabin. On the other hand, Gogo Vision and GEE’s WISE use wireless IFE systems that operate completely independent of connectivity and can stream content while in-flight without being connected to the Web.

Recently, GEE also introduced ENTICE (Entertainment, Information, Communication and E-Commerce) a platform for wireless IFE, offering up to 10,000 hours of content.

New York-based Euroconsult reported that total revenues to airlines from passenger connectivity services are expected to grow from $700 million in 2015 to about $5.4 billion by 2025. At the end of 2015, 72 airlines had installed or planned to install passenger connectivity systems on-board. The number of connected commercial aircraft is expected to grow from 5,300 to 23,000 over the 2015-2025 period, accounting for 62 percent of the global fleet.

For sure, in-flight BYOD will change the current IFE system into an in-flight connectivity (IFC) model. According to Frost & Sullivan, the content sector (comprising CSPs) is going to consolidate into “two or three players that will be driving the market.” In addition, vertical integration will continue with hardware suppliers becoming content integrators. But contends Spafax’s Chacko, “In our 30-year history, we have seen both consolidation and fragmentation of our business. Through all that, we have been able to remain a leading CSP.”

(By Dom Serafini)