The media market is on the verge of massive changes. Driven by technologies numerous developments are taking place at once. Broadband-based infrastructure is going to make the need for separate telecoms and broadband infrastructure obsolete. The consumer electronics (CE) market is pushing for changes driven by plasma screens and digital video recorders (DVRs), so increasing market demand for more and better entertainment services. There will be casualties, especially among traditional broadcasters, and new leaders will emerge on the telco side of the business.
Australia missing out on media market dynamics
While much attention has been given to the incredible changes that are occurring in telecommunications, in Australia many of the changes that are currently taking place in the media world don’t receive the same degree of attention. This is a clear indication of the absence of dynamics in the Australian market.
In the USA, in particular, developments are mind-boggling. The competition between the telecoms and cable TV companies has resulted in the latter group rapidly evolving in a totally new media direction. For example, there the cable TV market dominates the broadband market with a 60 per cent market share. Since the mid-1990s they have upgraded their networks to allow for a range of digital and interactive services.
In Australia the traditional broadcasters are dominated by the Nine Network, and while they are successful they also take a somewhat laid-back approach. They are getting rather lazy and are certainly not driving change in the market. Channel 7 has been bruised in the various new media deals so we can’t expect a great deal of leadership there. And Network Ten operates in a niche market that it will develop further so there will be no national media leadership from it either.
Austar is, content-wise, a copy of Foxtel and is more interested in selling the business. As a matter of fact the pay TV market is a de facto monopoly since the two operators don’t play in each other’s market. Because it will bring together the most powerful media and communication companies and personalities, the battle over control of Austar and Foxtel will be one of the most exciting events of the year.
Forget about the regulators, the media reforms will be handled by the Prime Minister himself. For the last 40 years or so this has been a personal pork-barrelling game between the Prime Minister of the country (Labor or Liberal), Kerry Packer and Rupert Murdoch. So much for democracy. However despite this the digitalisation of pay TV has certainly brought some interesting new activities into the market. While I am not impressed by the very limited Video on Demand (VoD) service on offer here, I do like their interactive news service and am using it myself several times a week. In other parts of the world, however, led by the telecom giants, broadband TV is currently doing a much better VoD job. Additionally, here in Australia there is no dynamic as Telstra owns 50 per cent of Foxtel - yet another conflict of interest.
Separation and integration
Because of all these developments it is my firm belief that many of our companies will need to be reconstructed before they can realign themselves with these new trends. In telecoms’ infrastructure, content-related activities need to be separated. In the content dominated broadcasting market the infrastructure needs to be separated. In appliances there is a need to both separate (plasma screens from set-top boxes) and integrate (telecoms and IT). After separation more integration needs to be undertaken - that is, converged:
- telecoms and broadcasting infrastructure;
- video, photo and printed content; and,
- passive and interactive options in CE.
Companies with the right vision can begin planning their future activities along these lines.
Structural separation is inevitable
Cable TV operators are struggling with their infrastructure. Their technical skills are not of the same calibre as those of the telcos. In the USA the cable TV companies are, technology-wise, all over the place. They operate a range of non-standardised technologies thereby making it very difficult in the long-term to compete with the more disciplined and standardised telco infrastructure operators. Also in other countries, cable TV companies remain decidedly behind in infrastructure developments. They are even more in need of fibre-to-the-home networks than the telcos - yet it is the telcos that are leading the developments there.
This clearly shows the opportunity that exists for telcos to become the infrastructure developers, and for the broadcasters (which is what cable TV operators really are) to become the content and service providers.
The same will apply to satellite operators. It makes sense for infrastructure-based companies to take a “technological-agnostic” position in their overall infrastructure planning. Satellite networks play a role in this, but again content is a different matter, and companies such as DIRECTV are mainly content players. The close relationship between telcos and satellite operators is definitely going to deliver some fireworks in this respect.
News Limited’s Foxtel model for interactive TV is certainly going to be delivered in the USA and it will be interesting to see how this develops in a market that is many times the size of Australia.
Media Reforms: Another big ticket item for 2005
The jockeying for position has begun. Telstra will emerge as a new media player, perhaps the only new player that can challenge the other barons and mini-barons in the market. The John Fairfax-10 combination is certainly also going to create a more interesting market place. Sensis will be floated, but I am disappointed that Telstra has kept Foxtel out of this company. This will certainly make for further political and regulatory conflicts during the year. The ACCC, Productivity Commission and National Competition Councils have all flagged their concerns about Telstra’s possible position in the media market - nothing less than a fully-divested media company should be countenanced.
The other company to watch is News Limited. It certainly has a “converged future vision” and sees Telstra as its major threat. At the same time it would also love a monopoly and is using Foxtel to position itself in the emerging Digital Video Recorder market - trying to make itself the gateway to all media entertainment in the country. With the rapid demise of traditional broadcasting the company is well positioned to become that gateway, at least for the other broadcasters in the country, and there is no doubt in my mind that News Limited will take it from there.