Thursday, December 15, 2005

Telcos will and should not dominate content

My Dutch-Australian friend Paul Budde is driving home a point: “Telcos are arrogant on content industry", he says. "The telcos talk like they can dictate what happens with content in the triple play networks (fixed lines and mobile networks).

One of the reasons why the mobile content industry is hardly able to exploit its potential can be blamed on the primitive business model of the telcos with regard to the content providers. The content providers are being forced to relinquish almost 50 per cent of their revenues for the use of the mobile network; it should be less than 10 per cent).

The concept of broadband portals, where telecom companies want to monopolise certain content in exclusive models, is one of the examples of their dismissive and despicable attitude towards the more successful business models, which have been in use by the content providers for many a decennium (radio, TV, press, games, music, video etc.) The same disapproving attitude they convey towards clients who want to use access to content without paying twice (once for access and one more time for content).

Eventually the telcos will have to limit themselves to the distribution of services and naturally to the activities regarding the networks they use to do so.

Some observations:
- IPTV will be delivered by internet service providers and not by telcos;
- Tele-presence will be the application of the future;
- Triple play is an access product;
- Triple play means access to all kind of content and services;
- Content providers will fight back;
- The industry still does not deliver proper services to clients;
- Will internet service providers acquire telcos?”

Paul takes on a lot of content questions. But his basic observation that telcos are arrogant in having clients pay twice for content, is an interesting, but not a new situation. During the Stone Age days of online, light-years before the World Wide Web, the information providers - content providers these days - were forced to be happy with a small percentage. The host – ISP these days – took the lion’s share from revenues. Especially syndicators built up a comfortable margin in this way.

I still remember that the Dutch financial daily Het Financieele Dagblad started its database service and sold it directly to Dutch clients and through syndicators to foreign users. The revenues from the syndicators were minimal. Till a new manager made his way, stopped the agreements and demanded a higher percentage. And he got it. Eventually he ended up with more than 80 per cent. And this is the way it should be.

Of course there have also been other business models. The French minitel system demanded only administration costs from the content providers. So did the Dutch videotext service Viditel (5 per cent). And presently the i-mode service demands a small percentage: the Japanese service asks for 9 per cent, while the European i-mode services demand 14 per cent. These per centages leave a substantial part of the revenues for the information provider and make him more eager to explore more services.

It is clear that the content providers should be more demanding on telcos and rather hold back on offering their services if not properly rewarded. Telcos should start to valuate content properly.


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