Wednesday, October 5, 2016

AT&T Eventually Will Want to Own More of the Content it Delivers

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It has been a staple of strategy for the leading U.S. cable TV operators, for more than a couple of decades, that a distributor has to own at least some of the content it delivers. That is why the leading cable TV companies own programming assets.

Keep in mind that some questioned whether distributors (cable TV companies) would be “good” at operating programming entities. That has not proven to be a general problem, though execution always is an issue.

AT&T, already the largest U.S. supplier of linear video, and moving to become a major provider of “over the top” content, is likely to be subject to many of those same objections, much as telcos once were questioned as providers of linear video entertainment services.

That should logically lead to AT&T becoming an owner of content assets, for the same reasons cable TV operators made the move into content asset ownership: access might be a commodity; content is not.

If you want to know how it is that gross revenue for content services can grow, while gross revenue for other services declines, it is the difference between what is scarce, and what is not.

Simply, network access, plain vanilla voice and messaging are largely commodities. It is difficult to differentiate, there is lots of competition, many product substitutes and suppliers. But video entertainment is not an “access to the network” service.

Customers buy the content, not bandwidth; experiences they want, not minutes of use. Network access is simply part of the product, not the reason any consumer buys the product.

Given its commitment to content revenues, it is not a stretch to suggest that AT&T likely will follow the clear strategy followed by cable TV companies: own at least some of the content delivered by the content service.

That is among the antidotes for ever-declining average revenue per unit, per account or per user. Access, computing and transport follow Moore’s Law, in terms of price-per-unit of capacity. Content does not.

At least historically, content assets--where consumers perceive value--appreciate where it comes to price. Profit margins are easier to defend, as well.

So look for AT&T to make big moves into content ownership. It is a proven strategy for many tier-one video services providers.


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