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.