Capitalizing on Convergence: The Rise of Telemedia Powerhouses The movement of media companies into wireless and the telcos pushing into all forms of media will mean that by 2007 the United States will be dominated by two powerhouses: the new telemedia titans; and the reenergized RBOCs, offering a host of new entertainment services. Growing ties between wireless and wireline services portend an imminent convergence-and, yes, possible clash-of the titans of communications and media industries. The result will be new telemedia companies and a market that blends services from both camps. In some cases, cable operators will have a natural advantage in these shifting industry dynamics. Their potential to quickly offer end-to-end IP via IMS SIP to include wireless, for example, gives them a clear edge. Also, cable operators’ ability to develop differentiated service bundles (based on their IP-driven integration) is profound-and of concern to the RBOCs. But to be successful, the new "cablecos" will need to parlay the following into solid competitive advantage: Control The Market by Controlling the Home: Consumers are frustrated with islands of technology. They not only want their separate communication pieces to be compatible, they want the interaction to be easy. Looking ahead, winning companies will control home communications services. The early advantage goes to cable operators and their media parents, which have long been posturing to become the centerpiece of home networking. Many cable players, CableLabs for example, are developing telecommunications technologies and business applications for their members. The focus is on establishing new protocols, standards and hardware that facilitate home-based communications services such as cable TV, wireline and wireless telephony. A multi-product and service bundle within the home-similar to what Apple developed with iPod-could be one of cable’s best competitive weapons against the slower RBOCs. Deepen Customer Relationships: Today’s telecom and media companies seek as many customers as possible, choosing quantity over quality. As sustainable revenue becomes more crucial, they will focus on building deeper customer relationships with higher revenue streams per customer. Since they own the customer, the RBOCs have an advantage. However, customer-focused cable players, such as Cox Communications, are bound to be formidable competitors. Comcast’s strategy of offering existing subscribers a host of new services including video on demand and video email is paying off: In 2004, revenue rose 10 percent, and it expects the same for 2005. Deliver Media to the Masses: In terms of developing content and distributing it, media companies have the obvious advantage. They will focus narrowly on distributing varied and deep media along with wireless and wireline services directly to their core users while still widely distributing their content. Over time, however, it is likely that the ever- deepening customer relationships developed by the telemedia titans will be just as effective as distributing media to the masses. Sometimes Convergence is Real Given the many false starts in other industries, skepticism about convergence is understandable. But the tectonic plates of media and telecom are indeed shifting. For consumers, the implications are a dizzying array of tightly integrated telecom and entertainment services at lower prices. For successful providers, the result will be deeper customer relationships and greater profitability. Andrew Cole is a vp at A.T. Kearney, a consulting firm.

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