Bear On Business

This is the fourth and last of the series “Is Content the King of the Network?”  My answer was no.  But does this imply I believe Network is the King of Content?  Hmmmm.

Is Warren Buffett more successful than Bill Gates?  Is Google the King of Amazon?  Is Cisco the King of Microsoft?  Silly questions are these.  And silly is the question of whether Network is the King of Content or vice-versa.

A great network business can be inherently valuable in its own right.  If it is a unique platform for delivery of content, it will extract its fair share of the value creation.

Great content, likewise, is a fantastic source of value.  It will command its fair share of the value chain.

The word great is more important than the words network and content.  The key is to understand your company.  What is its core competency?  What makes you great at what you do?   What is a clever way to exploit this advantage? 

Either Network or Content can be a king.  Like Europe in the 1600’s, there is room for more than one king.

If you did, I will admit I was wrong.  Content, I would need to conclude, is King over the Network.  My guess though is you didn’t see a Televentures’ movie, as I doubt they ever produced one.  Nor did it produce a TV show.  Nor did Televentures launch a CATV station.  Disney Televentures did spend a whole lot of dough.  Where did the dough come from?  — those bland telecom networks.

Tuesday’s post was the second in a series about whether Content or the Network is king.  I traveled back in time to the early 1990s and shared a story from my Ameritech days.  How would Ameritech out-maneuver the Cable TV behemoths? 

The answer, I believed, lied within the network.  The RBOCs should focus on what it could do to enhance its in-region network to make it a capable delivery system for high bandwidth.  The potential to create value centered on what to do with network. 

“Nah,” said the elite of the RBOCs.  Content is king.   We need content.  Content is where value is created.   Their proof?  HBO, ESPN, MTV, and CNN.  At first blush, they had a point.  But I didn’t buy it. 

My belief was the monopoly pipe to the home represented the source of CATV’s value.  The biggest Cable TV companies exploited this monopoly network position to create additional value in the form of content.  By giving preferred access to HBO, CNN, MTV, and ESPN channels onto its delivery system, it could ensure these stations would prevail.  Why did these stations get preference?  Well they were owned by the big cable TV companies.  This circular logic resulted in these acronyms becoming household names.

The big cable TV companies were able to reach into the pockets of their smaller CATV siblings and their satellite cousins by earning programming fees.  Over time, the content brands became extremely valuable in their own right.

Ameritech and their siblings arrived at the party late.  They focused on the value of the content.  They under-estimated the potential value in the network they had.  The result–much silly money was spent in the early 1990’s by RBOC consortiums trying to play in the content game.  Disney Televentures, for example, was a well funded joint venture funded by four of the seven baby bells plus Disney.   Though they poured through lots of greenbacks, I know of no meaningful content was produced.  As a consolation prize, RBOC executives did get to shoulder up to the Hollywood elite.  That was certainly more fun than hanging around the Bellcore crowd in New Jersey.

While pining for their own content, the RBOC’s failed to further develop their networks.  I am convinced this set them back many years in their quest to be more than a phone a company to the residential market. No worries though.  That commodity network is still spitting out cash–enough to fund billions of dollars to lay fiber to the home, even if many years delayed. 

Yesterday, I posed (with Ike Elliott’s help) the question of whether Content is the King of the Network.  To explain my views, I need to travel back in time to the year 1991.  I was working at Ameritech Development at the times, alongside names that will be familiar with many bearonbusiness.com readers:  Lynn Refer, Mitch Moore, Jason Weller, Jason Lee, Dan Foreman, Jeff White, and Mike Callaghan.   Though I enjoyed working with these individuals, I am eternally thankful to Kevin O’Hara for rescuing me from what could have been a 20 year career in the Bell system.

One of my last projects at Ameritech was participating in a review of video strategy.  Should Ameritech invest billions in fiber to the home/node?  Should it use Cable TV’s fiber/coax approach?  Would xDSL suffice?  Should it buy CATV companies and, if so, in region or out-of-region?

The team was divided.  Not equally though.  In fact, the vote was about 8 to 2.  I’ll give you one guess which side of the vote I was on.   

The point of contension was the importance of content.  The Ameritech team was convinced content was the key to value creation.  HBO, CNN, and ESPN–these are eons more important than the network.

I postulated a different view.  I agreed that HBO, CNN, and ESPN were extremely valuable franchises in their own right.  The question in my mind is why were these brands owned by cable TV companies?  Was it coincidence?  Was there a cause and effect?  If so, what was the cause and what was the effect? 

What do you think?   I will complete the story tomorrow. 

Ike Elliott in his blog Telecosm wrote a post on whether or not content is the key for networks.  Content: King or Not was posted on February 11th.  I actually began to write this post shortly thereafter but am only completing it now.  Not sure why.  In any case, I encourage you to read the post and to subscribe to his blog. 

Ike started this post with a Benjamin Franklin quote:  “There is nothing so horrible in nature as to see a beautiful theory murdered by an ugly gang of facts.”  Apropos is this quote to the topic, as most pundits are convinced value lies in content. 

“Why are cable companies gonna win against telcos?” is the age-old question.  (Okay, since CATV only been around for a couple decades, age-old might be an exaggeration.)

“Because the cable companies have content,” is the pundit’s answer.  Content is the key.  Networks are just a commodity.

Ike references Andrew Odlyzko’s paper “Content is Not King” and re-prints a few quotes that typify the pundit’s thoughts on the importance of content. 

• Leo Hindery, who led Global Crossing for a time, described his strategy as: “…to turn this global Internet-based network into a mature content distributor. … ‘I don’t want to be anyone’s dumb pipes,’ says Hindery. ‘If all you do is racks and servers, that’s dumb. What we’re doing is melding the network and the content.’

• Norio Ohga, once CEO and chairman of Sony, said that ‘[w]ithout content, the network is nothing.

• Juan Villalonga, former chairman of the Spanish communications carrier Telefónica, said that: ‘[t]he key … is content. Without it, … phone companies risk becoming simple commodity pipelines.’

Is Content the King of the Network?  To provide my answer, I need to travel back to my days at Ameritech, the baby bell of the Midwest.