Media and Content Industry Regulation Will Have to Change, as Did Regulation of VoIP

Does it make sense to regulate some suppliers of the exact same products, sold to the exact same customers, in different ways?

Over the last several decades,  new technology has erased barriers between formerly-separate industries, complicating regulatory tasks, spurring cross-industry mergers and rearranging business models.

Internet voice used to be regulated differently from common carrier voice. Internet video is regulated differently from linear video; internet messaging is treated differently than common carrier messaging. Cable TV firms, telcos and big application providers are regulated under different rules when supplying similar or identical products.

Content creators and packagers have been regulated differently from content distributors. But now content creation and delivery are not separate.

Typically, regulators are “behind the times” when these changes happen, essentially making decisions which look in the rear view mirror, instead of out the windshield. It is a common problem.

Generals often are derided for “preparing to fight the last war,” for example. So it might be worthwhile noting that the old distinctions between content production, content aggregation and content distribution have fundamentally changed.

All that matters because, in the past, there have been legal  barriers between those functions. With the blurring of former roles, distribution and content production have become parts of a single process and value chain.

Consider only content creation and distribution as practiced by Facebook and other application providers. In the clearest of ways, Facebook creates its own content and acts as its own distribution network. In fact, there is no way to separate those roles.

Facebook now has two billion monthly active users. YouTube has 1.5 billion monthly users. The point is that the leading app providers have numerous advantages over “old media” providers.

Traditional internet service providers with content operations are far smaller, and rarely global. The leading app providers are global. And though the metric for Facebook is active users, while the metrics for AT&T tend to be “subscribers,” each of those metrics is a proxy for “audience.”

AT&T has less than 150 million U.S. mobile accounts, 46.6 million video accounts and less than 16 million internet accounts in service. Facebook has more than two billion monthly users. YouTube gets 1.5 billion monthly viewers.

Netflix has more than 100 million video accounts, growing globally at about a 41-percent annual rate. Linear video, meanwhile, is declining.

For a major app providers, the incremental cost to create the next unit of content and the cost to distribute that content, are negligible. Marginal cost is quite low. That tends not be true for a traditional provider (Time Warner or AT&T, for example).

Even at scale, adding the next unit of an account, or creating the next unit of content, is expensive, in comparison to Facebook, when undertaken by AT&T or Time Warner.

Telco video subscribers number in the tens of millions, at best. And though telco content revenues arguably are substantially higher than similar revenues earned by the likes of Facebook and Google, that clearly will change.

And growth has implications for valuation. The market values growth, which is why equity valuations of major app firms are much higher than valuations of internet service providers.

The point is simply that industry boundaries are being erased. Content production or aggregation now is also embedded with distribution. So old line of business rules are increasingly irrelevant.

And that is a larger problem across the communications and media industries. These days, even if there are distinct regulatory environments for cable TV and telco firms, they serve the same markets and customers.

And though regulatory environments similarly are distinct in treatment of application providers and other content producers and distributors, those rules are growing incongruous. Increasingly, firms competing in the same business are regulated distinctly.

The problem is that, eventually, the asymmetry of the rules--in conjunction with disparate business outcomes-- will have to be addressed.

Regulators always have two fundamental avenues: applying the most-stringent sets of rules on all providers, or applying the least-stringent rules on all providers. Some will argue that in rapidly-evolving markets, less stringent rules for all make more sense, at least until some semblance of stability is reached.

It goes without saying that clear commercial interests also are centrally involved. Some will see business advantage if competitors are regulated more strictly. Others might prefer less regulation for virtually all providers, to let the restructuring play out.

Either way, the old distinctions are losing relevance, when content creation and delivery are unity parts of the value chain, and not separable.


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