So here we are at the start of a New Year and forecasters, visionaries and analysts are making their predictions for the year. Rather than jump on that particular bandwagon, let me share just three thoughts with you for 2011 that I believe should remain - as they were in 2010 - guiding principles for those who seek to build businesses in the telecoms and media service space in the coming year:
Mike
- “Scarcity should be nurtured, protected and aggressively monetised”. Much has been written about the “free” economy of the internet, a perfect market where millions of customers can be reached through a single channel, and where the marginal cost of content distribution is effectively zero. Chris Anderson in his book “Free: The Future of a Radical Price” extolls the virtues of this zero incremental cost distribution system in broadening access to a range of free services, for example, making it easier to find local news and services, improving awareness of real conditions in countries where established news channels work inefficiently, and, of course, accessing entertainment of all types for free. Pricing at marginal cost is of course having a major impact on the fortunes of content industries, particularly in an environment where physical distribution media is rapidly becoming a thing of the past. The music industry is the most obvious example of an industry that has failed adapt to this new paradigm by failing to protect its IP - or more accurately failing to encourage and support the development of content distribution platforms that will protect and monetise that IP for it. News and subscription magazine services have taken steps to place content behind paywalls (although as The Independent argues, the jury is out on the success of this move http://ind.pn/flk2jW ) , and to prosecute those who seek to exploit copyright material for commercial gain (for example the NLA taking on Meltwater, http://bit.ly/gw04Fc). With the introduction of internet connected TVs’ ,TV content is next on the block on 2011. However, there are signs that the TV and film industry may fair better than their counterparts in music and news publishing. For a start, while music listeners and news readers switched devices to consume digital versions of their content, TV viewers will have to simply continue to watch their TVs. That means that the pay paradigms and behaviours established over years of payTV development need not change even although the service and the underlying delivery mechanism may. Consumers should be able to get whatever new services are on offer from their existing provider of TV. Moreover, if premium content creators such as ABC, NBC, NFL etc continue to ration the licencing of that content to those platforms with paywalls, consumers will continue to be drawn to those platforms. Any new player such as Google TV based devices would have to come up with similar compensation arrangements for the rights owners, and hence would need to charge similar prices. Of course, if rights owners choose to give their content away or fail to protect it then all bets are off, but for now by supporting broadband connected TV platform development (e.g YouView), the TV and movie industry seems to heading in a direction that will secure professional content video production (something I argued in 2009 in a report delivered to the UK Government in support of Digital Britain http://bit.ly/ieTX1F). Other content creators should watch developments on internet connected TV platforms closely and look to find ways to monetise scarce and valuable IP appropriately.
- “For consumers, seamless is good.” As an industry, we invest a huge amount of time and energy creating new content, and new feature sets around the services and devices we deliver to consumers. In addition in what is ultimately a self serving exercise, the industry is one which consistently seeks to promote vertical fragmentation of the value chain - one company developing an OS, others applications running on top of the OS, yet others providing applications that run on top of other applications. One of the secrets of Apple’s success has been to dumb down otherwise complex problems and make it easy and seamless for users to make a video, or take a picture and save it onto a computer, or post it to a website. Other successful services (in the sense that many consumers have bought those services AND they are highly profitable for the providers) include games consoles, cable TV, satellite TV, all of which have a high degree of vertical integration. Bloggers such as TechCrunch http://tcrn.ch/eomTyw recognise vertical integration is developing rapidly while still espousing the eventual return of open software development. While open software certainly has its place, will 2011 be the year the industry recognises that in consumer markets at least, software fragmentation is something that serves only the engineers who create that software, and not the consumers who have to use it?
- “Device fragmentation is both a blessing and a curse”. One of the least discussed dynamics of convergence is the inherent tension between the needs of device manufacturing businesses and the needs of content producers. Manufacturers on the one hand have built their businesses (and cashflows) around shifting unit volumes. The greater the number of products they shift, the more money they make. Innovation in device form factors and feature sets underpins the marketing strategies that maximise unit sales. However, what has been known in the mobile content industry for nearly ten years, and what is about to hit the TV production industry is that innovation in form factor and feature sets also fragments the content markets that serve those devices. Hence, while manufacturers see higher revenues through device variation, content producers see higher costs as they create different versions of the content to deliver to different device types. Just ask Netflix, the BBC or Blinkbox how much it is costing them to reach their customer base in todays environment? Each organisation is spending six figure sums per device type to establish playout mechanims tailored to that device. As Michael Comish, Blinkbox CEO said in a recent Westminster Media Forum conference in London, with over 40 platforms already being supported by services such as BBC iPlayers, any internet video player needs to invest tens of millions up front in order to deliver a competitive ubiquitous services in the UK alone. As we move forward into software driven programming, where TV content starts to include programmatic features to support dynamic graphic overlays or real time social networking feeds, content producers will start to see production cost rising along a similar trajectory. In a world with falling content revenues, rising creation and distribution costs will be a major issue. As broadband connected TV starts to roll out through 2011, and a tens of new device types come to market expect the howls of protests from broadcasters and application creators to grow. Expect also to see some innovative solutions to this problem ... but, as Eric Huggers has already indicatedhttp://bbc.in/hdu7hS, don’t expect HTML5 to solve all the problems.
Mike
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