Content - Regent or Rubbish?
The debate over the future value of content, particularly mobile content, to Operators seems to show few signs of abating. Currently, there seems to be 2 camps:
(1) Those who see content as the lifeblood of the industry, and
(2) Those who believe that content will never make any money for Operators.
Over the next several months in the Advertising & Attention section of the Telco 2.0 blog , we want to examine this debate in detail and also explore the option of a 'Third Way' for Opeators to make money out of content & advertising - one that leverages their unique network, billing and customer relationship assets.
Content is King?
Most Operators and many established market research organisations still believe that content will be a huge source of revenue (and profit) for Operators. Typical evidence cited includes:
1. Operators (& others) continue to make a bundle of money from ringtones
3. Analysts are forecasting substantial growth in the market for content. For example, Informa predicts the market for mobile music, games, tv and video will reach $25.9bn by 2011 and Strategy Analytics reckon the overall Mobile Data market will be £55bn by 2008.
But there are plenty of skeptics out there and they make a compelling case against content for Operators. Leading the charge (on this and many things) is a brilliant academic, Andrew Odlyzko, who published a great piece called 'Content is not King' back in 2001.
This is well worth a read - his overall thesis that communication (connectivity) not content, is where the real value lies in the digital world has largely been borne out in the last few years on the internet, where free content is virtually limitless and people pay to be connected (e.g. Businesses paying Google billions to be connected with interested consumers...). The skeptics can point to other evidence too:
1. The money's in communication NOT content. Forrester Research pointed out in a training session at 3GSM in February that European consumers spend €101bn on telecommunications (and still growing), but only €87bn on all content (news, books, cinema, TV, etc.) WITH very low growth!
2.Power in the content distribution value chain lies with a few BIG content rights owners. Even if the Operators generate revenue from distribution, the margins will be razor-thin.
3. Margins will also be put under pressure because there are so many alternative distribution channels for content - both TV and the Internet vie with the mobile channel and the Internet is FREE - why, as a content rights owner or a consumer, would you pay a telco when you can distribute or receive content for nothing?
4. A whole slew of disrupters are springing up which are distermediating the Operator. Slingbox allows consumers to 'forward' real-time TV images from their 'home' device (usually a PC or TV) to ANY connected device ANYWHERE in the world. Why pay Vodafone for Sky when you have already paid at home? TiVO stores TV programmes on a hard disk and then enables users to forward them to other devices at a later date. And Akimbo enables users to download and store internet TV programmes. Given that an iPOD already stores 60GB of data now and will probably store 600GB by 2010 and mobile phones are following suit (I have a 2GB SD card in my Treo 650), the future for Operator-led streamed content looks uncertain.
5. The established analyst houses do not have a stranglehold on views about the future prospects of content for the Operator community. There are dozens of highly-informed bloggers out there in the ether who argue (very articulately) that Operators are barking up the wrong tree with their existing IPTV, Music and other content distribution strategies. Among the best are Telepocalypse by Martin Geddes; Eurotelcoblog and Chaotica by the Daiwa Securities analyst, James Enck; GigaOM by Om Malik of Business 2.0 magazine; and Mark Evans.
What about an Alternative Strategy?
In Telco 2.0, we want to widen the debate and explore whether and how Operators can make money from content and, particularly, advertising. Why is advertising so interesting? Well, the advertisers always bemoan the lack of targeting available through existing channels, like broadcast TV, but they still spend huge amounts of money through these channels.
Consider this: in 2004 in the US, advertisers spent $67bn on TV advertising compared with $54bn for ALL pay TV revenue. The cable and broadcast companies make as much money UPSTREAM from advertisers as they do downstream from consumers. Compare this with the Telco industry, in which Operators make 99+% of revenues from their downstream customers and have yet to tap this huge potential.
The same principle applies to the content itself. Content rights owners will charge less to a Telco distribution channel (thus improving Operator margins) IF the Operators add value by driving volumes up.
So how can Operators add value to content providers and advertisers? Well, Google makes money through contextual advertising - ie giving buyers relevant ads based on their search terms. Yahoo! does something similar with its Search Marketing. Microsoft has recently seen the value of giving customers information about products and services they want and is rumoured to be sniffing around Third Screen Media, a company specialising in advertising on mobile phones.
There is clearly a very profitable business model for those companies that can make it easier for two parties to get together - a consumer and ...a business/product/film/game/song/other consumer (insert as appropriate). Connectivity is pretty much the core competence of Operators - putting people together via voice and messaging services. Telco's haven't adapted this model to the IP-World yet, but they actually have some substantial advantages over their future competitors:
1. They understand the network better than anyone else and have a great opportunity to yoke network capabilities and Internet capabilities together - e.g. contextual advertising PLUS 'Click-to-dial'.
2. They are know more about their customers' usage and preferences than either Google or Yahoo! (or virtually anyone else for that matter) so they do not have to rely on a real-time search in order to provide relevant content or advertising to their customers.
3. They have a trusted relationship with each customer, authenticate them to use services and bill virtually all their customers evey month (certainly the post-pay ones) making it potentially possible to collect payments from customers for all kinds of content and services.
This is not to say that it's going to be easy for Telco's to become the 'enablers' of targeted content and advertising but just that they have more assets and skills relevant to this space than others. The industry is just waking up to this idea:
1. The Mobile Entertainment Forum, a trade association representing operators and vendors, has done a substantial amount of research on what it terms 'Advertising Funded Mobile Entertainment' (AFME) - see here for an interesting white paper on the subject.
2. In its latest (poorly received) strategy update, Vodafone said that it would seek to provide "Advertising-based services that are delivered in ways that customers find attractive". Pretty light on details, but they are clearly looking at this as a source of future revenue.
3. Another industry body, The Liberty Alliance consortium, is exploring how the industry can use 'Federated Identity' to share customer information and preferences amongst a trusted circle of vendors (Operators, Advertisers, Content Owners etc.) to better provide targeted solutions to customers. This would also have the added benefit of allowing the customer to sign-on once (probably with an Operator) to buy a wide-range of content and services. The Operator, of course, is in a great position to sit at the centre of the 'Circle of Trust' and bill the customer.
4. STL, which is coordinating the Telco 2.0 initiative, has done a great deal of work in this area and has a detailed analysis of the opportunities for Operators in this area in their new report, Telco 2.0: How to Make Money in an IP-based World. They have an interesting blog, IMS Insider, that looks at this and other 'Next-Gen' issues for Telco's and Vendors. Click here for a piece on Federated Identity.
Perhaps the most interesting thing happening in the next few months for anyone intested in this area is a big industry brainstorm in October. This 2-day event will have a whole day dedicated to Content and Advertising and will be a great place for senior executives across the industry to explore the issues in this space.
Well, that's the intro to what we want to cover in this section of the Telco 2.0 blog. The key thing we want to achieve is a strong dialogue on this subject so, please, feel free to contribute with comments!