Should Network Providers Be in the Content Business? Watch This Space Podcast, June 2021

8:55PM May 30, 2021

Speakers:

Jon Arnold

Chris Fine

Keywords:

network

content

people

companies

chris

bit

business

built

big

month

watch

divestiture

office

jon

infrastructure

podcasts

workplace

events

interesting

time warner

Welcome to Watch This Space, the podcast about future of work. Every month, we bring you insider perspectives on how digital transformation, emerging technologies and generational change are shaping the future of work. We are two analog guys finding the groove for all of this in today's digital world. i'm Jon Arnold. And these are my focus areas as an independent technology analyst in my company, J Arnold and Associates.

I am Chris Fine. And I'm an independent consultant and advisor also focusing on enterprise technology, IoT security and the future of work. My company is Integrative Technologies. Hey, Jon, good to join you again.

Yeah, thank you. Yep. Same here, Chris, as always. It's spring, and we're a month into the baseball season, I'd love to talk about my Red Sox. But you know, we got other things, bigger fish to fry today. Right.

Exactly. Or we would think so anyway, although it's great to see the baseball season actually resuming right, it's great to see things opening up a little bit.

For sure. Yeah, signs of life, way more so in the US than in Canada, I'm afraid to say, but I think we are. Everyone wants some return to normalcy. And yes, it's healthy to see it happening in sports. And with mask restrictions coming off a bit. And you know, that is going to bubble down to the workplace for sure. It'll be interesting to see how the summer unfolds. And we'll take a bit of a break, though, this week, I think, this month, I should say that we've done a lot of hybrid work lately. But I think the next time we come back to that topic, Chris, there'll be a lot more proof points about how companies are handling this return to office and hybrid workplace, you know, scenario they're trying to embed,

I think in terms of timeframe, at least in the US, it looks like it's somewhere in between July and September, where a lot of offices are at least scheduled to open. So we should have some real good data points in starting next month. But there certainly is a lot of confusion right now as to exactly what people on both the employer side and the employee and visitor side are really going to want to do, how much of back to where we were, is it really going to be? So it'll be interesting to watch it for a month or two and see what happens. And certainly, if we see any major developments will comment on them. Right?

Mm hmm. Yeah, I mean, a lot of it to me is waiting for a shoe to drop, you know, the big companies in our world, you know, industry events, and conferences are a big deal. And business travel in general. But a lot of big companies still have restrictions on having employees travel and that kind of, the dominoes fall from that right about where they you know, what, how events can be be run until those people can come back. And I'm, my indications are that for the fall like September on, I think there's a lot more confidence in events being planned that certainly when I'm seeing the scheduled events, starting up again, there are some happening now, but I think it's a little, to me it's a little early, and a lot of people are still not allowed to travel. So we you know, virtual events are still the norm for now. But I that's it, it will be interesting to see, after the summer of thing, if people really want to get back to getting out there.

I think it's going to be interesting, because I, I see a real difference between the way event planners are thinking and the way companies are thinking. And what I mean by that is, I think the event planners are super optimistic that because they are going to be able to throw the events, to plan them to schedule them that people are going to run back to the way things used to be that they're going to be so happy to do things in person that they're going to be able to flip the switch back on, you know, with no ramp up. Whereas I think the office type employers are very much more cautious in terms of betting on what they think is going to happen. And so it's going to be interesting to see who proves you know, or something in the middle, or what what side proves to be accurate, because for every voice you hear if it says, you know, workers are going to be great to get back to the office and all the companies like the banks that are basically saying, you need to come back to the office. There's a bunch of polling on the other side that says people don't want to come back to the grind and the commuting. And you know, the nature of work has to change. So with this is definitely watch this space.

Yeah, I mean, the longer these new habits persist, the harder it's going to be to change them. People are comfortable working from home, that they've adjusted their lifestyle to reflect that. It's going to take a lot to get them to go back. You gotta make basically make the workplace environment aside from just being super safe, it's got to be better. They'd have to have a better work environment experience than what they can get at home. Because if it can't match it, you know, it's a little bit like the movies, right? I mean, if you've got a home theater surround sound, you know, you build a big bunker in your basement that is just a little bit shy of being a full size movie theater, what is the incentive to go out to a theater? Right? I mean, if the experience at home is better, you're not going to go. And I think it's going to be the same thing at the workplace, they've got to gamify it, they've got to do goodies and treats and lots of things to make it a better experience, aside from the toys, the tech toys, which you know, are very central to that as well.

I don't know, if I were to think about this, I think there's going to start to become a middle layer, where it's somewhere in between the office and the home, and it but it's a place where you can go locally to the home. So for example, it would not surprise me at all to see some company like Starbucks, make a strategic move. And say, we're going to basically either buy up or start expanding our real estate. So that we can essentially be in the co-working business, you know, take our traditional, we sit at the coffee shop with laptops crowd and make it better for them. And if you see what's happening, even though they've been up and up and down a little bit financially, the new incarnation of WeWork is something to watch, because under the new leadership, they're basically taking a bet that there is going to be this middle layer.

And it's interesting also, at least in the US, if you talk to companies like you know, Toll Brothers and others that are building housing for sort of office worker type people, which again, we always reiterate as far from the full populace, they're building complexes with with spaces where people can work, and they don't have to be in their homes. So they get a chance to get out and have a nice place to go. But not have to get on a train or drive to an you know, a traditional kind of office. So I think I think this middle layer of local neighborhood type of places is going to give office space a run for its money, particularly in metro areas where the transportation infrastructure is crumbling, and under invested and where the traffic, everybody remembers the traffic, and how bad it was. And you didn't have to deal with that for over a year. And so just let's just wait and see, I don't think it's going to be one or the other. Let's say it's going to be an interesting evolution.

For sure. So while we are tackling the big problems of the world, I think we can do it. You know, let's shift gears a little bit to a story you've been talking about Chris, which is also a big story about what are the best models for big tech to have in terms of their place in the ecosystem. And you're talking about this AT&T divestiture, right with Time Warner - it speaks to so many layers about how the economy is, what drives the economy these days.

It's the latest chapter in a saga that's been really playing out for a long time. So I suspect if anybody listens to podcasts, they probably listened to like 10 of them already on this. But essentially, AT&T announced that they're spinning off their Time Warner content operation that they had fought so hard, just a couple of years ago to get approved. And if you remember that was fought for various reasons in the anti trust, and then they finally got approval to do it. And they did it. And now they're unwinding it to invest in a new entity. That's a combination of Time Warner and Discover networks. And so the interesting question of this brings up along with the recent Verizon divestiture of the content properties that had bought, namely, the remnants of AOL and Yahoo, a few years ago, is, can you really be I mean, when does what is it going to take to prove that you can't or shouldn't be in the content and transportation slash infrastructure business is just going to keep on being mistakes like this? It just seems to be that with very few exceptions, those are two incompatible businesses, don't you think?

Well, yeah, I mean, I guess it comes from the legacy model of when you own the infrastructure, that's where the value of, that's where the value was, right, that was the asset of having the network. And the content was almost secondary. I mean, you know, the early days of television where you know, the money was in the network, it's always been in the network. But the content now seems to be everything. And but it's been this way for a long time. And that's why those companies got together in the first place. But there's that fundamental issue of, well, if I control the content, I can maximize my return on that content, but only in my network. So if I'm a content producer, do I want to restrict my opportunities by going with by being part of a controlled network, as opposed to being out there available to any and every network that wants to pick up your stuff?

I mean, these are the fundamentals of the whole industry. And it's, it's similar, you know, the way the advertising industry has always been structured around mass entertainment, you know, using, you know, the Nielsen and all these rating services that were based on behaviors of how people watched and consumed content. And it's so out of line, you know, they've obviously evolved to how it is today. But when you, you know, when you base your advertising rates, and the whole industry around that, on assumptions about how people are consuming media, they're pretty, they've always been, yeah, it's a pretty slippery slope of truth to what those assumptions really mean.

But that's what the industry is based on. And today, everything is, you know, once you get two-way, you know, IPTV, when you have lots of information about the viewer, you're no longer guessing, you know what their patterns are. And that changes the whole structure of the relationship between the viewer, and the products they're trying to be pitched to. And the internet model has evolved to be a far more efficient way of doing it. It's not a very good experience, but in terms of efficiency, it's pretty, it's pretty, very different model than mass media market has been diverging a little bit here, Chris. But I think that idea of the content and the and the network, I do agree with you, I've always felt they should be separate.

I have always felt so too. I have always felt that there's profit to be made in being a good network. And being a real, a top notch infrastructure supplier that's more reliable, more broad, more available. And I think 5G is going to, you know, it's not the panacea, perhaps that many say, but that, combined with other newer stuff, continues to make the network's more valuable than where they reach out, and is. So there is, you know, it's possible by adjusting your cost structure, and all, a lot of other things that the big carriers have done over the years to be in that business, and have it be a good business and make your shareholders who tend to be, you know, steadiness and dividend focused, happy. And I also think that nowadays in the media business, or the content business, you're competing against the likes of Amazon, who has more capital than you do to deploy it the problem. And, and Netflix, who've proven to be extremely adept at the modern media scene, and anything, everything in Disney, who's been in genius at this, so you're not even, it's not even phone companies versus cable companies anymore. It's you, infrastructure provider, whether you are phone or cable, versus players who are highly optimized for an extremely wealthy and highly optimized toward really the direction where content seems to be going and can you would, can you? Or would you want to compete with that versus being part of the picture of enabling that success, you know.

And it's also again, the value of the network, was built at a time when people didn't have alternatives. So the networks had an inherent value because of the cost to build the physical infrastructure, which was also a high cost of entry or barrier to entry for competitive players to come in. And so before the internet, consumers didn't really have choice, which again, allowed advertisers to set their rates because they had a relatively captive audience. So even if those assumptions about viewing habits weren't that accurate, they were good enough to create a set of value, a table of value that they could charge for advertising, which allowed the network's to make money. And, but as soon as the internet comes in, you have two-way TV and all these other things, consumers have other choices beyond what those networks offer.

Now, that infrastructure doesn't - and that whole model it's built on - becomes less valuable because people have other ways to access content that's very good. That's not dependent on that kind of semi closed, you know, environment where the networks are controlled by a handful of companies. And now we can consume content anywhere anytime. It's been similar in Canada, Chris, in our own little parochial way, you know, hockey is the big thing in Canada. And a few years ago, the Rogers and Bell had made, they made these exclusive tie up deals with the NHL to kind of centralize all of the content of games from one provider. And that was a very big risk that Rogers took to invest in saying, we're going to control all the hockey. That's great if everybody's watching it. But you know, guess what happens, guys, when all the Canadian teams get knocked out of the playoffs early, nobody wants to watch. That deal, all of a sudden doesn't look so good, because now less people are watching. It's great when Canadian teams are in it, and we're all glued to our TV sets. But as soon as June comes around in the playoffs, where we want to watch baseball and play golf all of a sudden hockey's not that interesting. That becomes a riskier deal. So there's a lot of risk to having that network provider, control the content as well. Right?

More Yeah. And it's also potentially, you know, always decreasing business rationale for doing it. So I would make one more point. And then I think we probably have to close it for this month. But we made this point when we taught this little communications course we did last last month about voice. You know, a lot of people think that when the phone companies, which are really the ancestors, and still still a lot of residual thinking in the service provider business, when they built the networks, the networks were always in subjugated to the goal of providing the service. Right, so the Bell System in in the US was about phone calls, not about inventing the transistor. And so even though ultimately, where they ended up with a lot of value was all the science that they invented an engineering to deliver phone calls.

And, you know, they were restricted by monopoly for so many decades, from diversifying into so many other areas that they had expertise in. They had, they got all the consent decrees, they had to divest so much stuff, that they really stayed to that. So once the world switched to IP, which disrupts everything, as we know, makes changes, moves the wealth from point A to point B - once that happened, and they were they they became the post breakup AT&T and equivalent in Canada and everywhere else post PTT, you know, they still have that mentality of our whole network is really in the service of providing services defined at an application level, because a phone call is basically an application, right? And that metamorphosed into a long running, sticky tendency to want to own content, because you couldn't accept the fact that you're basically built this fabulous infrastructure. You don't want to view it as dumb pipes. And that has taken now full circle 20-30 years to start getting chopped away. But it's going to be interesting where it goes.

Very well, Chris. sure will. And you're right, we are on time. So we got to wrap up for today. But I hope there's some good food for thought out there. And, you know, we'll see how this divestiture thing plays out. Chris may be worth revisiting next couple months, ah?

Yeah, we, I know we had a bit of a mixed bag this month. But hope all our loyal listeners don't mind us talking about a few different topics. And we'll probably get back into more of our focused group next month. Right, Jon?

For sure. And for what it's worth, no, we're not wearing masks right now.

But we're also each in our own little bubble!

Yeah, sequestered away here. Ah, okay. On that note, we will wrap. So that brings us to the end of our time today. So we will thank you for listening. As always, we hope you enjoyed our podcast. And they will continue. as we explore the future of work here and Watch This Space. You can access all of our episodes at triple w watch this space dot tech, or wherever you subscribe to your podcasts. And if you like what we're doing, please leave us a review or rating - we'd love it. And finally, I can provide, if you're interested, real time transcripts of our podcasts and you can find those on my J Arnold Associates website. But for now it's time to go. So I'm Jon Arnold.

I'm Chris Fine. Thanks very much for listening. Jon, thanks, always great to be with you again. And we'll see you next month.

Over and out. same year, Chris. Okay, I'll take care for now.