Tuesday, June 7, 2016

Can Telcos Succeed at Content?

AT&T reportedly is going to launch a new video subscription service targeting viewers interested in anime, video games, niche action sports and other niche content, while Verizon is bidding to buy Yahoo, adding to its content assets anchored by AOL, and launching the Go90 mobile video service.

Some will be be skeptical. The traditional argument is that content is not a telco core competence, which is a valid concern. But content was not a core competence of cable TV operators, either, and they long ago became owners of content businesses.

Nor was linear video subscription a “core competence,” but telcos have successfully entered that business.

Also, as we now see commonly within the Internet ecosystem, firms routinely enter segments of the value chain. That is especially the case for app providers.

Google, Amazon, Netflix, Facebook, Microsoft and Apple are among the firms that moved into ecosystem adjacencies, manufacturing consumer devices, fostering the creation of content and now creating whole access platforms, while fostering new network infrastructure architectures and leading open source, lower-cost network equipment and software approaches.

Such movements into adjacencies are not new even in the telecom business, though such moves in the past rarely have been terribly successful. Many telcos have tried to enter various parts of the computing business, without success, in the past.

In fact, AT&T even owned the largest U.S. cable TV business, before selling those assets to Comcast as part of a deleveraging move. More recently, leading telcos have tried to create roles for themselves in content as well, again without success.

In 2002 the former BellSouth was licensing content from firms such as Disney to create programming assets and services using the then-prominent “portal” strategy.

One might argue there is room for more optimism now. For starters, firms learn from experience, including from what has not worked in the past. It now is quite doubtful whether the traditional “not invented here” syndrome is as big a problem as in the past.

Large service providers arguably are more willing to admit they do not know how to create or operate new assets, and therefore hopefully are more able to allow those business units to succeed.

Still, the outcome is open to some question, in some quarters. Perhaps the template is set by the U.S. cable TV industry, which primarily makes its money from access operations, but now also makes significant revenue by its ownership of content firms.

The overall approach is to “own some of the content and apps you deliver.” If telcos have learned the lessons, they might be able to follow the cable TV model.

Whether telco managements have learned from their prior mistakes, including what many would say was excessive interference with business unit independence, is the issue.

What cable TV executives have managed to do is generally allow content firms to be good at creating content, and profiting from the revenue upside. Telcos will have to learn to operate in the same way.

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