I have been truly fascinated by the operators reaching into the world of media, with acquisitions of expensive content rights or acquisitions of large media companies, in an effort to create a unique offering on the market to be able to compete better.During the pandemic, it’s been clear in many ways that the synergies are not really there to justify these investments. Operators with expensive sports rights or ad-funded media businesses have been forced to focus efforts to restructure or improve media businesses, which have seen unprecedented change. At the same time, it’s in many cases clear that the large incumbents are unable to use their content rights exclusively for their platforms due to anti-trust regulations in most markets. We’re now seeing the inevitable development that operators are reassessing their strategies. The biggest example of this right now is the announcement from AT&T, which is merging WarnerMedia with Discovery and spinning out the unit. While it’s definitely too early to say whether this is the right strategic decision, it seems obvious to me that there are more synergies between WarnerMedia and Discovery than between WarnerMedia and AT&T.So, if the operator is not the best owner of media businesses, what is the role of the Operator in the future? All operators that I know are desperate to not simply become “bit pipes” and part of a race to the bottom, where the winner is the company which buys, deploys and runs networks most efficiently. While I would personally not see any problem with such a strategy, it is clear that revenues would stagnate or even decline over time, which is not a great position to be in.The operator would of course have many different roles in other industries, but in this blog piece I only focus on the media industry. I believe that there are four areas where the operator can deliver significant consumer value. I’m no longer including distribution quality, which is more of an expectation than a differentiator in most parts of the world.
We can all agree that consumers are confused. In just ten years, the world of media consumption has changed dramatically. It’s rare to see a consumer industry change this rapidly. As a comparison, retail started to change with the emergence of e-commerce 25 years ago, and to this day, not even 50% of retail spend is online. With that speed of change, consumers can gradually adapt to a new way of consumption. The operator is a well known entity for consumers, and can offer unbiased advice and ensure a quality assurance of the vast plethora of new media services on the market. With many of the platforms (Amazon, Apple, Roku) no longer being truly independent, the operator can offer a video service where a modern aggregation of other video services are included and presented in an attractive way to consumers.
Data privacy and cyber security are becoming ever more important. We’re seeing almost daily data breaches in many different industries. Consumer trust in information not being leaked is at an all-time low. Operators have been managing large amounts of consumer data for decades, while media companies have historically never had access to personal consumer information. It’s reasonable to assume that operators are better positioned to scale with increased requirements from regulators and consumers while still being able to make sense and analyse the immense amount of data from millions of consumers.The operator's ability to securely and attractively make it possible for partner companies to access their platforms to deploy modern video services would be an extremely interesting competitive advantage, not only for media, but for many different consumer services.
The main argument for many of the media/operator mergers has been the ability to cross-sell and bundle, which can potentially generate huge new revenue streams. The operators typically have existing customer relationships which can easily be used. They would literally be kingmakers for any video service in the market. However, due to anti-trust legislation this has been difficult to do in practice unless the same possibility has been offered to other media companies.I believe that operators can still be a great go-to-market channel for media companies. Combined with their ability to aggregate many services and with an existing online presence as well as potentially a good retail network, this can be an important revenue source for the operator as well as a value add for the video provider.
My personal favourite is the operator’s ability to help shape the future and drive industry developments that will generate value for them not in one or two years but in five or ten years. It’s in an operator’s DNA to think long term. Compared to e.g. a media company, revenues and profitability are very predictable and internal governance models are very suitable for long term thinking. This ability should not be underestimated, and I believe that operators have an opportunity to lead innovation efforts.However, historically, operators have been very inward focused on their innovation attempts, maybe looking for a technical advantage to their competitors. That may still be important in other industries, but for media, I’m convinced that the way forward would be for operators to drive innovation with other players. Together with media companies, technology vendors or market enablers, operators can offer access to test markets, consumer research and resources to secure rapid innovation. Their reward will be a long term growing market, an improved market position and early access to new ways of monetizing media.At Accedo, we strongly believe that the operator has multiple important roles to play in the media industry, even if ownership of media companies isn’t necessarily one of them. Together with our customers, we’re excited to be at the forefront of innovation, helping to usher in a new era of media consumption into the hands of consumers everywhere in the world.