New Zealand internet service providers offering customers "back door" access to streaming web content will stop offering those services from September in a deal cut with broadcasters who were taking them to court.

Pay-TV operator Sky Network Television today said it has dropped legal proceedings against the ISPs after reaching a settlement, which will see the 'global mode' unavailable in New Zealand from September 1.

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Sky teamed up with Television New Zealand, Media Works TV and Lightbox, Spark New Zealand's online streaming service, to take the action against Bypass Network Services, CallPlus Services, Orcon and Flip Services over the service, claiming it breached copyright obligations and the Fair Trading Act.

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Online streaming video has become increasingly competitive as traditional broadcasters and telecommunications companies alike have seen it as an avenue to replace some of their shrinking revenue streams.

While the broadcasters were adamantly opposed to the 'global mode' service, they've been less stringent in their opposition to virtual private networks (VPNs), another way consumers can get around regional blocks.

InternetNZ said yesterday it was deeply disappointed Global Mode service was being withdrawn from New Zealand the out of court settlement meant that that the copyright issues that led to court action would be no clearer.

It was by no means clear that the service was illegal, and we were keen to see the matter go before the courts to provide users and the industry with clarity." said Internet NZ chief executive Jordan Carter.

"Withdrawing the service and settling before court seems a worse outcome for all concerned. The media companies have said that they wanted to clarify their own legal rights over content - a settlement doesn't achieve this, and leaves us all none the wiser.

"This outcome makes it ever more important that we review New Zealand copyright law, to ensure that the interests of consumers and creators are appropriately balanced." said Carter.

IDC senior research director Peter Wise said the Global Mode case has exposed how quickly the TV and movie content models were changing and how demand for global content was growing.

"More people will have got a taste for overseas TV and movie content so we may see either more people signing up to Lightbox, Neon and Netflix services locally or some may resort to technical solutions such as virtual private networks or piracy to access more content.

"Internet Service Providers are all seeing huge increases to the volumes of traffic that their networks must carry to support video services like Netflix, Lightbox and Neon.

"But ... it's very hard for ISP's to increase prices to cover these increased costs.

"If the online TV trend continues something will have to give - either networks become congested affecting performance such or prices have to increase to cover the costs of increased network capacity for the video traffic," Wise said.

-with John Drinnan