(Published in Businessworld Online on April 3, 2008 under the Openhouse column of itmatters.com.ph, see link)
High growth in digital content offers significant opportunities for telecommunications service providers.
But their ability to capitalize on this potential is a point of contention and debate. Telcos clearly need upgraded networks and technology platforms to handle more sophisticated content and to extend their market.
And, equally important, they must begin delivering value beyond just access, providing a change in consumer experience and grabbing their share of emerging channel advertising revenue.
The market for digital content is growing rapidly and is forecasted to reach $135 billion by 2010. Naturally, the telecommunications industry is focused on gaining a sizeable share of this market, as voice telephony revenues decline. With digital convergence blurring the boundaries of telecom and media, service providers can now expand their market to include areas of media and advertising -- creating a new “telemedia” industry.
As cable companies, satellite broadcasters, ISPs and telecom providers fish in each others’ ponds, the convergence of formerly separate services is creating both new opportunities and risks for participants throughout the “telemedia” value chain.
Looming bandwidth crunch
The most promising areas of advanced content services are television and video.
However, delivering all but the most basic digital content services over networks is challenging. Even with higher compression technology like MPEG-4, delivering HDTV, multi-room TV and the like, as well as voice, gaming, Internet surfing and other communication services means that every home must have a bandwidth of 20 M/bits or more.
Delivering additional HD streams into the home will require even higher bandwidth which is not easy to deliver over an access network originally designed to carry narrowband voice.
As demand for high-definition television (HDTV), real-time video-on-demand (VoD) and other next-generation services increases, we are heading toward a bandwidth crunch in many countries with the possible exception of parts of south-east Asia including Singapore and Korea, where 95 -100 percent of households can obtain very high speed access.
To deliver bandwidth-intensive content services and the experience consumers’ demand, telecom providers will have to make major investments in upgrading their networks with returns that are highly uncertain and likely to be positive only in the long term.
IBM’s model of the economic implications for investing in the two alternatives to ADSL -- fiber-to-the-cabinet (FTTCab) and fiber-to-the-home (FTTH) -- shows that additional revenue from content is critical to the business case.
However, the investment case for upgrading existing networks is also critically dependent on achieving high penetration rates -- in the range of 30%-50%, depending on the option chosen.
Differentiation beyond access
Consumers are demanding more flexibility, choice and control. The young and technologically savvy, in particular, do not want to be passive consumers -- they want to control their own schedules, produce their own content and share it with their peers.
Thankfully, the telecom industry can address this demand for flexibility, choice and control.
One way is by extending scope of services which involves augmenting content services and create new interactive services that were previously not feasible. Examples include interactive multiplayer gaming, instant conferencing and even interactive television.
There is evidence that such interactive services increase loyalty, but more critically, they drive non-content revenues such as voice and messaging from which telecom providers derive significantly higher margins.
Another is by delivering a convenient user experience by making content accessible from any device (PC, handheld, television) across any network (wireless, wireline) at anytime and by anyone. This will require telecom providers to resolve the complexity of rights management, content portability and charges across platforms.
Crucially, it also involves delivering and managing end-to-end service quality and the consumer experience regardless of the device or network over which content is consumed.
Empowering individual users and communities involves stimulating the consumer experience in the “walled garden” of a telecom provider for both IPTV and mobile whilst enabling access to telecom services from applications in open distribution platforms such as MySpace or even Second Life.
In IBM’s most recent Media and Entertainment point-of-view, we identified four emerging media business models:
- traditional media of professionally produced content within a conditional access environment;
- new platform aggregators (e.g. YouTube, MySpace and Second Life) that rely substantially on user generated content in open distribution environments;
- walled communities that embrace user and community contributions but within a walled environment; and
- content hyper-syndication where professional content owners bypass traditional distributors and make content directly available to consumers in open distribution platforms.
Telecom providers will have to be careful to avoid becoming clones of traditional media distributors when incumbent media companies are themselves grappling with disruptions caused by new platform aggregators such as YouTube and Myspace.com.
Reinventing “walled garden” involves:
- leveraging capabilities such as presence and location to enhance collaboration among subscriber social networks;
- providing trusted and third party authentication among participants in a social network; and
- encouraging user and community content such as college sports and community programming over IPTV.
Telecom providers can also provide a “white label” content distribution service to third-parties to distribute branded content to their subscriber base without having to invest in building their own infrastructure. These virtual branded content distributors within a “walled garden” could become the digital content equivalents of Mobile Virtual Network Operators (MVNO) and could also bundle other telecom services (such as voice and broadband) in their offerings.
Telecom providers can also collaborate with new platform aggregators by enabling the integration of network capabilities such as location, presence, voice and conferencing in Web 2.0 and virtual world applications such as Second Life.
Finally, as professional content owners bypass traditional content distributors and deliver content directly to consumers, telecom providers can lower their entry costs by providing them with managed open content distribution platforms with end-to-end service quality and management and multi-channel capabilities.
In short, telcos must look to combine their investment in service delivery platforms and Information Management Systems (IMS) with new digital content services; invest in service quality management to enhance the end-to-end user experience across multiple networks and devices; and enable users to control their content experiences.
Advertising
As with traditional media, advertising will be a critical component of digital content revenues. But telecom providers still haven’t figured out how to attract ad share.
However, telecom providers have a number of unique capabilities that should make them attractive as an advertising channel, especially as the proliferation of digital channels and audience fragmentation impels advertisers to seek new ways to reach consumers.
Interactivity, presence, location, customer insight, control of more than two billion mobile devices and, in some cases, close relationships with local advertisers from the yellow pages heritage have the potential to make telecom IPTV and mobile attractive channels for a share of future advertising revenues.
The future
The digital content market offers traditional telecom operators significant opportunities for adding value, but it also carries perils -- not least of which are the scale of the capital expenditure required to deliver advanced video services.
Bundling rich content with combinational interactive services, delivering on the “4A” vision of content accessible, anywhere, anytime, on any device and by anyone and investing in end-to-end service quality management, offer opportunities for differentiation.
Advertising will be important, but above all, telecom providers will have to undergo organizational, cultural, technological, operational and business model transformation as they transition from being providers of network connectivity to enablers of the consumer’s digital experience.