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| King Connectivity |
| Robert Cyran / Oct 28, 2009, 00:20 IST |
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Media/content: Connectivity is king. As painful as that admission would be for empire-building media moguls, it also looks to be true. Content may be sexy - it’s the driving force behind deals like Comcast’s possible purchase of NBC Universal, for example. But a simple look at market values or the willingness of wireless customers to pay for data services, suggests connectivity is worth more than content.
Consumers have always paid more for connecting with one another than entertainment. Take radio. Broadcasting music has been a big business since the 1930s. Radio technology’s use in wireless handsets is far more recent. Yet US wireless operator sales are now about $150 billion a year - or ten times as large as radio broadcasting revenues, according to Andrew Odlyzko, a professor at the University of Minnesota and former Bell Labs researcher.
On a similar note, the combined market capitalisation of the five largest US content producers - Walt Disney, Time Warner, News Corp, Viacom and CBS – comes to $148bn. That’s $1 billion less than the market value of AT&T, which though the biggest, is by no means the only telecommunications company in America.
The most profitable service by far for wireless operators is texting. Operators get about $1,000 to transmit one megabit of data. The amount they receive for transmitting the same amount of streaming video is about 1 cent per megabit. A collection of messages such as “pls pik up 2 per cent milk, thx” is more valuable to users than a Hollywood blockbuster on a miniaturised screen.
Moreover, movies demand far higher production values than misspelled texts about milk, so costs are higher.
Now technology threatens both Hollywood and operators alike – for starters, digital movies are easily pirated, and free internet calling is supplanting the paid variety. Yet the historical pattern seems to be the same. Facebook pages aren’t nearly as slick as the movies and television on entertainment site Hulu.com. Yet Facebook’s value appears higher – it has now turned cash flow positive and growing quickly. Hulu is burning cash and trying to figure out whether it can charge for its content.
Of course, content is king when it comes to attracting attention and dinner party invitations. Being a media mogul is simply more interesting than running a plumbing business for social connections. As long as this is the case, expect the heads of connectivity firms to continue making overpriced acquisitions justified by the claim that “content is king”.
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