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Will Video Kill the Telecoms Star?

In preparing for the plenary brainstorm next week we’ve come across a couple of useful items. The first is a report just out by Bain for Liberty Global on the European Video Content Market (99 pages here, but summarised for you below). The second are some recent ‘strategic presentations’ by BT (‘Generating Revenue in the New World’) and Accenture (‘The First Trillion Tridgets’) given at a public conference a few weeks ago - both available here.

The latter demonstrate a couple of things. Firstly that BT definitely knows where the future lies - it’s in the ‘platform’, beyond just APIs. Secondly, the big advisory companies like Accenture are heading in the right direction too, although they haven’t quite worked out what the business model for the platform is (it’s an open issue!) or how to describe the wider set of assets the telcos have to make it into a true commercial growth story. As you’d expect they’re also very good at not confusing telco execs too much, and using some gimmicky phrases to differentiate their ideas. Accenture’s are ‘pods/plexes/pipes’.

The trouble, of course, is that this sort of framework for thinking about the future environment is based on technologies not business models. There’s a lot more strategic commercial richness in each of these areas, especially the one people shun quickest - the ‘pipe’. (We’ll reveal our thoughts on this next Wednesday, and continue the debate on this blog).

One view is that a lot of telcos will have to surrender to BT in the next few years in an IT arms race. They’ll have the networks, alright, but won’t be able to keep up with building the IT and services platforms. BT’s competition is indeed Google (as their CTO said, slightly unguardedly, last year) and the Googleplex’s incredibly low cost of operation. Some thoughts on how BT might like to tweak it’s Global, Open and Real-Time product strategy are here.

So, back to Bain research and video: ie what might fill the pipe and need supporting by a platform:

We have to say that the report seems eminently sensible. It suggests that we’ll see an evolution in video content usage in the next 5 years rather than a revolution. To quote:

“Evolving Market scenario: In our view, this is the most likely scenario. The video content market evolves towards “Next generation” [More radical usage patterns based on On Demand models]. Consumer viewing habits undergo a gradual change. They move from analogue to digital TV and start adopting digital TV on-demand. Growth continues at historical rates (4% to 6% p.a.), fuelled by broader distribution of content and new video viewing opportunities. Profi ts start shifting from traditional players to new media competitors, but traditional business models are still profi table. Video piracy is an issue, but unlike in the music industry, it is not such a fundamental threat that it prevents content owners from making programming available online. Investment continues in content quality, distribution infrastructures and innovation.

There are six key reasons why we see “Evolving” as the most likely scenario:

  • Watching TV is very different from surfi ng the Internet—a “lean back” vs. “lean forward” experience—and there is little evidence that Internet usage is cannibalising TV viewing today;
  • In the next fi ve years, alternative technology solutions for viewing video content will make real progress in terms of viability for the consumer. However, it will take time to catch up with the “lean back” experience of traditional TV. In particular,Video on demand (VOD) based on TV (or IPTV) will be likely to offer a superior experience to Internet-based VOD for most or all of the period;
  • Youth behaviour is changing, with viewing shifting towards new Internet VOD models—but the impact will likely be limited in the period through to 2012, since the demographic changes will take time to fl ow through and also because experience suggests that only some youth behaviour will carry forward into later life;
  • In the short term, content creators are unlikely to actively promote the development of Internet-based on-demand platforms at the expense of TV-based platforms. However, they are likely to experiment with all channels to get their content to customers;
  • Equally, we believe industry players along the value chain (content creators, aggregators and distributors) will be successful in rethinking their business models and regulators will provide policies aimed at avoiding extreme outcomes;
  • The regulatory framework in this scenario is assumed to be one that follows market trends rather than aggressively steering towards a desired outcome.

Over the next 10 years (to 2017), the natural development of the “Evolving” scenario would lead to “Next generation.” The main constraints to the “Next generation” scenario coming sooner are infrastructure roll out, and scale.”

The report concludes: “Gradual change does not mean that established industry players can sit back and do nothing. Quite the opposite: They must position themselves now to remain competitive in the future. The consumer’s increasing power raises the stakes. To keep this empowered viewer from defecting, content quality, content aggregation and a superior customer experience are more important than ever.

This means traditional players will need to raise their game to compete in this market.”

“Will Video Kill the Telecoms Star?” is the question we will be debating next week with Liberty (incumbent triple player), Akamai (CDN) and Carphone Warehouse (broadband market disruptor) stimulating us with their thoughts and responding to our survey results on video distribution sytems.

We should have an interesting time interrogating just how the ‘game’ needs to be raised next week and beyond.

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Note, I only read the introduction of the Bain report.

That said, it strikes me like a thinly veiled attempt to suggest that European policymakers should anticipate a nice orderly "evolution" -- and therefore maintaining the current regulatory "status quo" would be advisable.

Wishful thinking? A self-fulfilling prophecy? Call the Bain report what you want, it doesn't matter.

IMHO, EU regulators would be wise to base their public policy decisions upon actual consumer perceptions of the current status quo.

Bain's genteel view of the future seems to support the notion that innovation and disruption will be "contained" within the EU markets.

Why do they have such low expectations for European market development?

The Bain report (written for Liberty Global) then suggests what Regulators need to do, as follows:
Implications--regulators and policymakers

Policymakers aiming to increase consumer welfare and choice whilst fostering
sustainable growth in the European video content industry will face multiple
trade-offs. For example:

Trade-offs between removing restrictions on the sharing and use of content to
encourage "democratisation" vs. exposing copyright holders (and the creators of
content) to abuse, through illegal sharing and copying;
Trade-offs between stimulating alternative platforms and networks for distributing
content vs. maintaining incentives for the players that currently provide most of the
investment in technology enablement;
Trade-offs between using regulation/deregulation to promote maximum choice
of content for the consumer (such as "unbundling" distribution from aggregation) vs.
allowing consumers and industry players to capture value of integrated propositions;
Trade-offs between stimulating public service programming through public funding
vs. ensuring that publicly funded players do not become overly dominant in content
creation and aggregation;
More broadly, regulators face trade-offs between intervening in issues relating to the
development of new business models vs. allowing market forces to resolve them.
Some important questions in this arena include:
How to create scale for video on demand (VOD) products and support their
access to distribution?
How to make sure that cross-border content licensing opportunities can be
increased by reducing complexity in copyrights clearance systems?
Whether and how to adjust regulation to refl ect shifting competitive balance
in the content value chain?
How to increase confi dence in digital rights management systems, so that
consumers have fl exibility to use content they acquire in different ways,
and owners have the security they seek to protect their investments?

Simon, all good points. Understood.

However, assuming that the traditional "restraint of trade" barriers continue to be removed in both the communication and media sectors, change certainly won't be gradual as "fragmentation" is fully unleashed upon the markets.

When you fully remove the artificial construct of a monopoly, the outcome is extreme.

Likewise, when the contained mass-market gates are fully opened and the flood of independent content creators enter for the first time, the outcome is extreme.

Do you raise your game, or do you adapt to the new rules? Well, Radiohead apparently didn't need Bain to tell them that anticipating "gradual change" in the music distribution arena would be unwise.

Frankly, I'm not sure what "raising the game" means in real actionable terms. Perhaps it should mean "be prepared for extreme outcomes."

Containment is no longer within your control, Liberty Global. However, how you react to market fragmentation is something you can envision, and plan for, now.

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