Advertisting Funded Content - HYPOTHESES
Futher to the Broadband Connectivity and Voice and Messaging hypotheses, here are the Advertising Funded Content Hypotheses we will be testing at the break-out session on Day 2 of the Telco 2.0 Brainstorming event.
- With Voice revenues and margins under pressure, Operators are seeking alternative sources of growth.
- Content has long been held up as a future source of growth for both fixed and mobile players.
- To date, the main source of content revenues for Fixed Operators has been when they have moved directly into adjacent markets, such as cable & media services, with little revenue generated over their traditional telephony networks.
- Similarly, outside Japan and South Korea and excluding SMS, Mobile Operators have had had little success in generating content revenues.
- Operators are still enthused about the prospects of content distribution revenues with many launching IPTV and Video on Demand services recently.
- Structurally, the content distribution market is tough to make money in:
- There are a small number of powerful content rights companies that currently make less than 2% of revenue via digital channels (therefore telco's are not important as a channel currently and have little leverage).
- There is a lack of effective Digital Rights Management (DRM) solutions in the digital channels, making content rights owners reluctant to distribute through them.
- There are many alternative channels for content, including the internet which is FREE.
- The TV and Cable companies make as much (or more) money from advertising than they do from content distribution - Pay TV generates less revenue in US than TV advertising.
- To date, Operators have done little to differentiate their content distribution offerings and have, instead, adopted a me-too approach - e.g 3G TV.
Question (in the mind of the operators)
- What content do customers want to receive from us and how do they want it delivered?
- Where are the real sources of value in the content distribution market?
- What do we (as operators) need to do to exploit these areas of opportunity?
Answer (our suggestion as to the solution)
- Customers would like NON-INVASIVE, PERSONALISED and CONTEXTUALLY RELEVANT content which they do not receive effectively at the moment from any channel (c.f. broadcast TV - one-to-many offering).
- Customers are also demanding much higher volumes of user-generated (rather than Hollywood-generated) content - c.f. MySpace, CyWorld etc.
- To deliver this, operators require best-in-class Customer Relationship Management (CRM) systems that exploit the customer data on preferences and usage that operators hold and combine it with other contextual information (e.g. Location) to provide customers with unique and targeted content.
- Operators are skilled in connecting people together and in delivering user-generated content (e.g. SMS). These skills now need to be applied to connect like-minded groups together to exchange content. It is highly likely that customers would be willing to pay for this.
- Advertisers are currently an untapped source of revenue for Operators. IF Operators can provide personalised and contextually relevant content, then they are in a position to deliver similarly personalised advertising. For example, on-line advertisers love to have their banner ads placed on User-Generated Content sites like MySpace because they are guaranteed an appropriate audience. For operators to manage this process, there needs to be a method of sharing appropriate customer data (possibly through a Federated Identity model). Such an investment would create a unique distribution channel for advertisers for which they would pay a premium.
Summary: IF content is going to become a key area of growth for the Telco community then Operators will need to take the lead in (a) improving their internal CRM systems and (b) working with advertisers and content owners to develop a data-sharing model which can benefit all.