The movie industry, recognised around the world with the names of Hollywood and Bollywood, has brought with it glamour not seen in other industries, including the communications industry. Mega stars, Box Office hits, suspense thrillers, make-believe special effects known as ‘FX’, glittering Oscar ceremonies and the sheer entertainment from exaggerated comedies all add to the glamour.
The movie industry, recognised around the world with the names of Hollywood and Bollywood, has brought with it glamour not seen in other industries, including the communications industry. Mega stars, Box Office hits, suspense thrillers, make-believe special effects known as ‘FX’, glittering Oscar ceremonies and the sheer entertainment from exaggerated comedies all add to the glamour. As traditional theatrical “movie release windows” collapse, paving the way for multi-fold increase in revenues for DVD sales / rental, pay-per-view and video-on-demand, the attraction and glamour of video further increases.
On the other hand, the communications industry that provides connectivity between people and /or machines using wireless and wired networks; carries voice, video and data traffic is often considered the ‘dumb pipe’ carrier. Moreover, with the ubiquitous availability of broadband and the attractiveness of the rich multimedia content provided by the internet service providers and enabled by the freedom of the Internet, customer behaviour is transcending a network controlled by the communication service provider (i.e. Managed Network) to the “unmanaged” Internet (also known as Over-The-Top). As a consequence of the changes in customer behaviour, customers are more likely to churn Communication Service Providers (CSP) further exasperating the problem with CSPs’ diminishing revenue streams. It would seem that content is ‘King’ and the movie studios, with their glamour of rich videos, would make a dent in the revenue streams of the CSPs!
Not so, says Andrew Odlyzko of AT&T Labs – Research In his paper titled “Content is Not King”, Andrew argues that the entertainment industry is a small industry compared with other industries (notably the telecommunications industry); people are more interested in communication than entertainment; and therefore entertainment ‘content’ is not the killer app for the Internet. He goes on to say that the revenue the telecom industry collects in just two weeks; is equivalent to the movie theatres takings for a whole year.. Hence, he contends, the movie industry will not be able to pay for the communications infrastructure required for the internet to sustain its existence.
I tried to test Odlyzko’s theory by comparing the revenues reported by the largest communications company in Australia, Telstra and the broadcasters in Australia. According to the Australian Bureau of Statistics , the commercial Free-To-Air (FTA) broadcasters’ revenue which represents a large part of the entertainment content was A$4.5 billon in 2006. In addition, the government funding for Australian Broadcasting Corporation (ABC) and Special Broadcasting Services (SBS) amounted to A$1.39 billion which approximately equals the revenue earned by them. Besides, the subscription television (i.e. Pay TV) sector collected A$2.28 billion in revenue. In all, about A$8.17 billion revenue was generated by the broadcasting industry. What is interesting is that the Free-To-Air broadcasters derived 80% of their revenue from advertisements with 19% profit margin and the Pay TV received 86% of their revenue from subscription revenue while the Pay TV industry was in operating deficit by 8%. This suggests that although entertainment content is attractive and has its glamour, people are not willing pay for it to make it a profitable business! In comparison, Telstra alone generated A$23 billion in revenue with a sizable profit margin in excess of 40% EBIDTA.
Editor’s note: Sundara Raman is an employee of Teradata, a sponsor of The Smart Data Collective.
Revenues from other communications service providers such as Singtel Optus, Vodafone Hutchison Australia and several internet service providers is estimated to be at least an addition of A$15 billion per annum. The Australian Bureau of Statistics further identifies that the cumulative household expenditure on culture in 2004 was A$14.69 billion that includes expenditure on newspapers, books, magazines, video rentals, arts, drama, sports, games etc. denoting that expenditure on entertainment content is much smaller than expenditure on communications and connectivity.
While communications and connectivity appears to be the ‘King’ from relative revenue and profitability perspective, the CSPs recognise that the traditional communications market is being rapidly disrupted and that may affect their revenue streams – Cable TV providers are offering voice and high speed data; Internet Service Providers (ISP) are providing Voice over IP (VoIP) and IP video services; telecom service provider are expanding their broadband DSL network to FTTH (Fibre-To-The-Home) to offer triple-play services; and broadcasters are partnering with ISPs to offer video content to PCs and TV screens on demand.
Furthermore, increasing availability of next generation networks, smart phones, Android tablet PCs and rich multimedia content and the complexities involved in delivering communication and entertainment services blur the distinction between content and connectivity. Daniel Tehan mentions in his blog how the integration of your Twitter message follows into your TV signal, so that you can talk to your friends about the content you are currently watching suggesting that communications will coexist with content. The instant gratification and moment sharing plays a key role in inspiring use and adoption of mobile phone as a multifunction device. Today, the digital camera, an inherent part of the mobile phone, is used for an entirely different purpose – customers use the mobile phone camera to capture events and communicate the photos and videos of the event instantly with their social network of families and friends in any part of the world in a few simple keystrokes. Mobile phones are also used as a payment device for ordering anything from a movie ticket to purchasing their favourite CD or books by simply selecting a convenient payment method, such as charging to their phone bill.
I contend that Communication Service Providers will never be the “dumb pipe” as long as they can provide and charge for value-added services (VAS) that they – and only they – can provide (see figure below).
CSPs must shift their discipline from connectivity management to data-driven service management, with data relating to anything from a customer device to an application, web page, entertainment content, or message that spans across the network. CSPs will also need to advance the concept of “subscriber” to “integrated view of the customer” across networks and devices. I believe that better analytics and enterprise intelligence will lead to context aware and personalised customer experience that can deliver powerful and lasting competitive advantages for the service providers. My whitepaper titled, “Analytics in Next Generation Telecom Services: Competing in Adjacent Markets with Data-driven Analytics” explores these concepts in detail. The whitepaper can be requested by sending e-mail to firstname.lastname@example.org.