Is Content Really King?

There continues to be talk in the communications business about network infrastructure providers as "dumb pipes." That's a bit of an analogy to the "content is king" discussions that the video business periodically revisits. Put simply, there is a tension, in either communications or media businesses, between the value added by network services and applications, and the debate never seems definitively solved.

Consider the case of Time Warner, which is in both the "content creation" and "network delivery" businesses. Some financial analysts say the content assets are overvalued, compared to the cable assets.  Time Warner Cable trades at a discount to Comcast on price-to-earnings multiple, some note. 

To be sure, some analysts worry about increasingly effective competition from Verizon and AT&T. But Time Warner Cable still is adding net subscribers in a recessionary environment. Of course, these debates tend to run in cycles. 

Distribution was the focus of the entertainment industry for much of the past 15 years. The large entertainment conglomerates took advantage of looser ownership regulations and technological advances to acquire more television and radio stations, cable and satellite subscribers, and internet portals. Basically, that's an argument for the importance of distribution. 

Some think there will be a swing in the other direction, as content owners increasingly focus on distribution across all platforms. News Corp. and Time Warner now are now sellers of distribution assets, for example. 

That doesn't necessarily speak directly to the relative importance of distribution compared to content ownership, though. It might be closer to the truth to say that in a climate where capital is scarce, and viewership is changing rapidly, content companies need to stick to their knitting. 

Conversely, some of us make the argument that distribution remains vital, and in any case is a far-bigger business than content. In 2003, for example, Hollywood box office revenues were $11 billion in the United States and $25 billion to $30 billion globally. The global music industry earned $35 billion. Videogaming, consoles and all software represented $40 billion worth of revenue.

In contrast, U.S.telecom revenues pulled in $348 billion.

Content is sticky, content is a fairly large business, content is part of the business the telecom industry now is part of. But that's not the same thing as arguing "pipes" are commodity items with no ability to differentiate. In fact, those pipes remain highly-valuable, very-scarce assets supporting a huge applications business. Voice is declining in value, to be sure. But broadband and mobility apps have arisen to replace those lost revenues. And the new frontier is all sorts of other business models, ecosystem relationships and values. That isn't to say the transformation will be easy, or steady in its progress. 

So make no mistake: transparent optical transport and access are, in some ways, undifferentiated at the moment. But that does not mean the values, features and applications delivered over those pipes are undifferentiated or commodities. 

It may never be possible to determine, once and for all, whether "content" or "distribution" are "the" king of the ecosystem. One thing is clear, though. Distribution is a far bigger business, because it includes the large person-to-person, machine-to-machine and one-to-many and many-to-one communications functions.