“There is nothing so horrible in nature as to see a beautiful theory murdered by an ugly gang of facts.”
Benjamin Franklin
In my recent hunt for value in networks, I've covered the roles of connectivity, reliability, and capacity, but I would be remiss if I didn't consider the theory that content plays a primary role in creating network value. For today, we'll consider those that believe that content actually is a prime driver in the creation of network value, and poke some holes in their arguments.
In his paper "Content Is Not King", Andrew Odlyzko quotes several industry leaders on the role of content in creating network value, including this one from Leo Hindery, who led Global Crossing for a time. His strategy was
...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" [Baker].
What are these leaders really saying? Are they saying that their networks need to be capable of distributing content, or are they saying that they need to own (or have exclusive distribution rights for) content? I believe they are saying that networks need to be the sole distributor for selected content, and without it, their networks are commodities.
So, the theory is that without content, your network is nothing more than a dumb pipe, a commidity, and worthless, or at least "worth less" than it would be without captive content.
There is no question that content is valuable. Just look at the $44B+ bid that Microsoft made for content-centric Yahoo, or the $1.65B acquisition of content-centric YouTube by Google. The question, though, is whether captive content has anything to do with network value.
I don't believe that captive content imparts any value to networks. Here is a prime example: the "old major" television networks, ABC, NBC, and CBS, for many years operated their businesses as if the captive content was the crown jewel of their network. In the past, though, these television networks used "free" public airwaves to broadcast their content, and over the past thirty years or so the content has migrated to wireline cable networks, and the wireless spectrum formerly used for broadcast television is being auctioned off, presumably for use in wireless Internet access, or for connectivity-centric wireless phone applications. The bidding for the spectrum has reached over $19B so far...and that is for raw spectrum without any capital equipment, and without any captive content. How is it that now that the spectrum will be used to distribute open Internet content, it is worth more than it was when it was used to used to distribute captive television content?
A good test case is going on right now, with Time Warner Cable's decision to distribute HBO on the Internet, but only if the subscriber also bought a bundle of cable high speed internet and digital cable television. Time Warner owns HBO, and they clearly think that part of the value of their network is their exclusive access to content.
My prediction: Time Warner will find that their captive content adds little or no value to their network.
This is a fun topic!
Quote from P2P Next's website:
"Content is King, But Distribution is King Kong"
The completely changing nature of distribution is having a major impact on content. Youtube, the writer's strike, bitorrent, joost, 3G video phones and qik.com and now P2P-Next. The next 5 years are going to be quite a ride.
Posted by: Darren Loher | February 22, 2008 at 03:50 PM