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1. Convergence Dreams Disturbed by Turbulent Content Market
Posted by Tony Brown (Guest Blogger)
When it comes to finding out which way an industry is headed there is one sure way to
get it right: Follow the money. You won’t often go far wrong.
That being the case then the recent news that UK-based global mobile operator giant
Vodafone had bid a stunning US$10 billion for Spanish cable operator ONO – coming
on top of its US$10 billion acquisition of Kabel Deutschland last year – is a very telling
sign indeed of where the industry is headed.
Industry folks have long talked about the importance of the quad-play – that is offering
mobile services alongside the classic fixed-line triple-play – not to mention the throwing
around of buzz-words like convergence and fixed-mobile convergence - and now the
industry is finally embracing these trends en masse.
The ‘quad-play’ scenario has become crucial for operators in many developed markets
because it enables them to provision multi-screen services that provide the ‘content
anywhere’ scenarios that subscribers are demanding.
In addition – as is being proven by operators such as Orange in France with its Open
quad-play platform – high-quality fixed + mobile offers bundled with the right content
and applications can help to defend high-value subscribers and keep them out of the
clutches of cut-price competitors.
However, whilst the trend towards quad-play is clear there are clear risks attached to
what Vodafone is doing in terms of acquiring major cable operators.
The biggest risk surrounds the increasing power of Over-the-Top (OTT) players in the
pay TV market – a threat which has resulted in a clear trend towards ‘cord cutting’ in
major cable markets such as the US.
Whilst it is true that cable MSO’s in the US are still keeping those ‘cord cutters’ on board
as broadband subscribers – on significantly higher margins no doubt – they are still at
risk of seeing a big chunk of their business disappear.

2. In fact, the cable business is facing a double-whammy of problems that are going to
chip away at its pay TV subscriber base.
Firstly, it looks pretty likely that the arrival of cheap USB-based video-streaming devices
such as Chromecast are going to take the OTT video market to a far higher level of
penetration in the market.
Secondly, whilst the first wave of OTT players were led by the likes of Netflix one can
say with some certainty that the cablecos are about to be hit with a second wave of
competition from new OTT players such as Amazon, Yahoo et al that is going to
squeeze them harder that Netflix ever did.
This means that whilst the quad-play is essentially still a sound strategy with a proven
track record that operators need to think very carefully about the content that they
bundle into their quad-play.
The days of being able to offer – as cable operators have done for so long – a huge and
dominating pay TV package may well be coming to an end with pay TV operators being
forced to adopt a more pragmatic content strategy where they form alliances with OTT
players.
This will not be an easy thing for the cable operators to swallow but the technological
tide is changing the consumer market so quickly that they will need to adapt to the new
environment as fast as possible – or face the consequences.
The reality is that whilst it is a sound strategy for operators to provide constant high-
quality connectivity to subscribers that they are going to have to accept – however
grudgingly – that a big chunk of the video content going over those pipes is going to
come from the OTT players.
This is going to be a particularly tricky road for a player like Vodafone to follow given its
lack of experience in the pay TV field - we have seen many examples in the global
market of inexperienced telcos getting their fingers burnt in the pay TV market by being
overly aggressive.
We have already seen signs of cable operators swallowing their pride and working with
the OTT players – with the deal between Virgin Media and Netflix in the UK a good
example – and we will no doubt see plenty more as reality bites.
About the Author
Follow Tony on Twitter @TonyBrownITM