The traditional telco business model is being commoditised, this is not new news, but with more telcos seeking to drive value through content, do they understand the nuances of consumer behaviour?
Once again at IBC in Amsterdam, it is an OTT which is grabbing attention. This should come as little surprise considering the disruption which this fraternity is thrusting on the world of telecoms, media and technology, though here it is more than gratuitous. Cécile Frot-Coutaz, the head of YouTube’s EMEA business, outlined why these companies are leading the way; a fundamental and intrinsic understanding of today’s consumer and the consumer-driven market trends.
This is perhaps why the telcos and traditional media companies are struggling to adapt to a world dominated by millennials, generation Z and digital natives. They appreciate society is changing but have perhaps not correctly balanced the formula to fit cohesively and efficiently into the new paradigm.
This conundrum is most relevant in the content world. Telcos need to factor this complex and nuanced segment into the business model, but how, where, why and when is a tricky question. Many telcos want to do something completely new and very drastic, but the simplest ideas are often the best ones; how can connectivity be used to augment and enhance the fast-growing, fascinating, complicated and profitable content space?
From our perspective, telcos need to diversify, but the best way to do that is figure how connectivity can enhance growing businesses and segments. This might sound like an obvious statement, however the evidence is the nuances are being missed.
Take AT&T for example. This is a company which desperately wants to diversify to take advantage of the digital economy. One way in which it feels it can do this is through the acquisition of Time Warner, a $107 billion bet to own content, create a streaming platform and drive another avenue of engagement with the consumer. Sounds sensible enough, but why take such a risk when there are opportunities closer to home.
Another strategy is more evident in Europe where telcos are attempting to create partnerships with the streaming giants to embed the distribution of these services through their own platforms. See Sky’s integration of Netflix or Vodafone’s work with Amazon Prime. Again, it is a perfectly reasonable approach, but does this future-proof the business against the trends of tomorrow?
These are two approaches which will attract plaudits, but we would like to take the strategy closer to home once again.
During her presentation, Frot-Coutaz pointed to several trends which could define the content world of tomorrow, and it is a perfect opportunity for the telcos to add value.
Firstly, let’s have a look at the consumer of today and tomorrow. Millennials and Generation Z have fundamentally changed the way in which the media world operates, and content is consumed. Not only is it increasingly mobile-driven, but there are new channels emerging every single day. Technology is second-nature to these consumers, and this is shaping the world of tomorrow.
Another interesting point from Frot-Coutaz is the fragmentation of content. One of the objectives of YouTube is not only to own content channels, but to empower the increasing number of content creators who are emerging in the digital world. If the content creators make more money, so does YouTube.
Frot-Coutaz claims that the number of YouTube channels which generate more than $100,000 per annum has increased 30% from 2017 to 2018. These trends are highly likely to continue, further fragmenting the content landscape.
This is where owning content or embedding popular streaming services into platforms becomes problematic. Consumer trends suggest the variety of channels through which the user is consuming content is increasing not decreasing. Embedding Netflix into a platform is an attractive move, but it is only attractive to those who have an interest in Netflix. If connectivity solutions can be offered to consumers to simplify and enhance the consumption of content, agnostic of the platform, there is a catch-all opportunity.
Although Netflix and Amazon Prime might be the content platforms on everyone’s lips for the moment, the number of ways in which consumers engage content is gathering significant momentum. There are new challengers in the streaming world (Disney+ or Apple TV), traditional social media (Facebook or Twitter), challenger social media (Tik Tok) AVOD channels (YouTube), traditional conversational websites (Reddit), messaging platforms and who knows what else in the 5G era. What about the VR/AR platforms which could potentially emerge soon enough?
This is a nuance, not a drastic change in thinking, but it is an important one to understand. Do telcos want to be the owner of content, the distributor or the delivery model. Admittedly, the delivery model is not the sexiest in comparison, but it might hold the most value in the long-run.
Another way to think about this taking the example of Killing Eve, the BBC spy thriller. Is there more long-term value in the eyes of the consumer in owning the content, owning the distribution channel or owning the connectivity services which fuel consumption and engagement through all channels?
The best means of differentiation have always been the ones which are closest to home. If you look at the likes of Google, Microsoft and Amazon, these are future-proofed companies because they are taking their current services and creating contextual relevance. There might be examples which undermine this point, but the general claim holds strong.
At Google, the team diversified their business through the acquisition of Android. This evolution took Google from the PC screen and onto mobile, but it is an extension of the advertising business model in a different context. The same could be said about YouTube. A video platform is drastically different from a search engine, but the underlying business model is the same; identifying the needs of the consumer and serving relevant commercial content.
The telcos are looking to do the same thing, but perhaps there needs to be more of a focus on a proactive evolution of the business rather than reactive. The telcos are playing catch-up on the consumption of video through mobile and a shift to OTT distribution, but the current approach is perhaps too narrowly focused. Focusing on the core business of connectivity delivery is more of a catch-all approach, factoring in future trends and the increasingly fragmented digital society.
This is a very easy statement to make, the complications will be on creating products which encapsulate these trends and offer an opportunity for telcos to grow ARPU. We are sitting very comfortable in the commentary box here as opposed to in the trenches with the product development teams, but the nuances of content are there to be taken advantage of.