5G, OTT serve to wed telecom and media
Mobile firms look to integrate content producers as the shift from TV continues.
As 5G and the possibility of high-quality OTT video streaming come to the fore, the links between telecom and media are set to tighten.
With consumers spending more time watching video on their smartphones, media companies and telecom providers are moving closer together than ever before. The US Justice Department recently challenged AT&T's bid to acquire content giant Time Warner (HBO, CNN and TNT, among others) for US$85 billion (2.76 trillion baht).
The deal is the latest in a series of attempts by telecom firms to integrate major content producers under their corporate umbrellas. Comcast, for example, acquired NBCUniversal in 2011 and has indicated interest in acquiring a substantial part of 21st Century Fox.
The stalled Time Warner acquisition comes at a time when AT&T is investing billions in licences for 5G, and two years after it bought DirecTV.
The Justice Department's lawsuit to block the AT&T vertical merger is the first such challenge since 1977. While the lawsuit has been seen as politically motivated, it may also signal the department's conception of the competitive relevance of content to telecom providers.
The acceleration of M&A activity between telecom and media companies is due in part to the increasing reliance of consumers on mobile video as a substitute for TV services, a trend which may accelerate with the adoption of 5G.
According to global management consulting firm McKinsey, mobile video traffic is forecast to grow 50% through 2020, accounting for 75% of all mobile data traffic.
According to Boston Consulting Group (BCG), global revenue derived from OTT video is projected to increase 160% in central and southern Asia between 2014 and 2015. Pay TV, in contrast, saw the exodus of half a million consumers in the US in 2015 alone.
The growing popularity of video streaming is putting pressure on pay TV's business model, and 5G will only accelerate this trend, David Lynn, president and chief executive of Viacom International Media Networks, said at the recent Huawei-sponsored 2017 Global MBB Forum.
"Media companies are seeking exposure by combining with distributors," said Mr Lynn. "At the same time, telecom firms are seeking growth in media and advertising to offset competitive pressures, but find it challenging to develop content themselves."
Mergers like AT&T-Time Warner would allow media companies to move away from the dying cable TV business and toward the growing number of consumers cancelling their TV subscriptions in favour of OTT platforms like Netflix.
It could also enable mobile operators to withhold content from other providers in order to attract and retain customers. Moving forward, which media brands we have access to via a particular provider could play a key role in which mobile operator we choose.
Finally, a closer alliance with content producers would allow telecom companies to move into the profitable mobile advertising sector. Telecom providers have more consumer information than almost anyone else out there, including where we are and when, which they could then exploit to offer targeted ads in video content.
Done correctly, this advertisement could rival that of tech giants Google and Facebook and provide a much needed lifeline to both telecom and media companies. Higher advertising revenues would also enable operators to offer lower subscription prices, an important advantage in the price sensitive telecom market.
For its part, Viacom (owner of MTV, Nickelodeon and Paramount Pictures), has signed over 75 deals with OTT services and mobile operators, and launched a number of streaming platforms offering their brand's content, said Mr Lynn.
Mobile Pay TV and broadband subscriptions are now routinely offered side by side, he said.
The company's first authentication deal was with Singtel, which launched its own OTT streaming service. In Indonesia, Telkomsel agreed to take on Nick Play and Nick Junior as part of their bundle. In Japan, the company is collaborating on a linear service with NTT DOCOMO, which brought Nickelodeon there for the first time since 2009.
Telecom operators with an integrated content strategy have much to gain in developing markets, where the foothold of legacy services like pay TV is smaller, and a consumer base for mobile pay TV subscribers can be rapidly obtained.
In India, Viacom entered into a joint venture to provide an OTT service called Voot, which now has upwards of 25 million users, 80% of whom use it only via mobile.
"Mobile will become a mainstream platform for pay TV," said Mr Lynn. "Perhaps mobile streaming will not come of age until 5G is fully established and can support reliable ultra-high-definition content. Mobile video will also have an important part to play in selling the benefits of 5G to mobile subscribers."