Wireless world (Race for the platform)

Wireless carriers have the combined strength of bundling, mobility and low marginal costs, affording them a distinct advantage in becoming the platform of choice for pairing mobility and premium video access.

In our introductory paper, Race for the Platform: what’s around the next curve? (June 2017), we examined the evolution of the premium content business and, specifically, the possible maturation of over-the-top (OTT) business models. We considered various outcomes for this evolution, and believe that ultimately a platform will arise that will become the new aggregator of content, as the traditional video distribution ecosystem over cable, satellite, and fiber optic becomes challenged.

The resulting platform model would be significantly different than what is currently in place. It would cater to the needs of the customer in ways that traditional cable and numerous OTT offerings don’t. Rather than forcing TV viewers to juggle several devices, remotes, and subscriptions, a platform model would essentially create a one-stop-shop for OTT, network, and premium content, delivered through one access point (that is, one subscription and one bill).

In the rapidly shifting content delivery ecosystem, which players are likely to win the race for the platform? In this paper, we look at the possibility that the wireless providers will become the dominant platform for consumers to obtain their premium content.

Market advantage: connectivity

The smartphone has become the control center of our lives. In the U.S. alone, the number of smartphone users is expected to reach 224 million by the end of 2017, and projected at 271 million by 2022.1

One outgrowth of our reliance on smartphones is a major shift in content consumption preferences. Mobility has changed the game in terms of where and when people consume content. In this mobile first landscape, when virtually everyone has a smartphone and they all need connectivity delivered to those smartphones, the wireless carriers have a significant market advantage. With the trifecta of smartphone adoption, constant connectivity, and the promise of 5G, they are well-positioned for the future.

The wireless carriers have three distinct advantages that lay the foundation for them to become the platform of choice for pairing mobility and premium video access.

  • Connectivity – With our growing dependence on smartphones and need for constant connectivity, combined with the promise of a 5G future, the wireless carriers provide the clearest path to a single network provider that meets all the connectivity needs of the consumer.

  • Bundling – The consumer will likely move to an option where they can get cost savings from a bundled offering of connectivity and premium content (whether in an a la carte or pick-a-package environment). This is not simply about pricing, it’s about crafting a reimagined bundle that doesn’t exist today. Regardless of provider, the optimal combination of content and delivery will gain market advantage. The wireless carriers own the pipe for connectivity, and have the existing relationship with the customer, but they currently lack a compelling content offering.

  • Low marginal costs – Wireless carriers have a massive economic incentive to monetize the content going over their networks, especially as they continue to invest large amounts in network upgrades. Ultimately, monetization of the bundle will rest with the content provider, whether inside or outside of the wireless provider ecosystem.

No longer business as usual

The traditional bundling of premium content with the underlying delivery network has been the primary business model for decades. The seeds of change began with the offering of the network separately, via the sale of broadband service without bundled content. This movement intensified with the shift to mobility where the out-of-home experience was just as important as, or maybe more important than, the in-home experience. This explains the move by many content players to try and shift to a more all-encompassing experience, while still maintaining the existing business ecosystem that pays the bills.

There are important elements putting pressure on the existing ecosystem. It’s clear that with the increasing importance of mobility the wireless players are in an interesting position to take advantage of these changes. The fragmentation of viewing, the increasingly high price of pay television subscriptions the increasing number of alternatives to standard bundles, and millennial purchase and viewing patterns are just a few of the changes simultaneously in play. These pressures are slowly starting to impact how share of wallet is allocated to viewing choices, and there is evidence that people are increasingly foregoing pay television.

Cord-cutters and cord-nevers are on the rise

There are other factors to take into account when considering the wireless providers as the primary platform in a new premium video ecosystem. Mobility is a necessity that has put certain traditional in-home providers—such as cable and satellite—in a difficult position. The consumer clearly expects a fully mobile experience for their entertainment options, and access to a superior wireless network is fundamental to success in the new video ecosystem.

“The providers that opt to conduct business as usual to protect themselves from the economic hit of transformation will be left by the wayside. Creating a competitive bundle with a compelling video offering is not only essential to compete against other industry players but also against other wireless providers,” said Paul Wissmann, KPMG’s national sector leader for media and telecommunications.