Another day, another
multi-billion dollar merger in the telecommunications marketplace. See http://www.wsj.com/articles/at-t-reaches-deal-to-buy-time-warner-for-more-than-80-billion-1477157084. Despite the disinformation about how incumbents have closed
their pocketbooks to investment because of network neutrality and assorted
regulation, AT&T appears ready to push the antitrust envelop with yet
another massive $80 billion acquisition.
Not content to acquire more than 50% of the satellite television market,
with its $49 billion acquisition of DirecTV, AT&T has its sights on the
content Time Warner creates.
AT&T
has a business plan to integrate vertically throughout the information,
communications and entertainment (“ICE”) ecosystem. Acquisitions provide the fastest way for the
company to move up and down the ICE “food chain” of content creation, syndication,
distribution and delivery to consumers.
Vertical
integration can achieve operational efficiencies as a single company can achieve
savings through scale and a wide footprint of related business ventures. On the other hand, it takes remarkably talented
and nimble management to handle different components in the food chain. Companies like General Electric have
succeeded, but ironically this company has launched a campaign to divest itself
of non-core business lines. Other
companies have failed even when they thought consumers would welcome having a “one
stop shopping” opportunity, e.g., one call to book air travel, rental car and
hotel.
Depending
on how your rate AT&T senior management, the company has wisely invested in
the convergence of content and conduit, or it has unwisely deviated from its
true competency. Bear in mind that at
divestiture from AT&T, companies like Verizon (then Bell Atlantic) invested
heavily in content creation. Verizon
failed, because it did not ascend the content creation learning curve quickly
enough.
Simply put,
the ICE marketplace has Bellhead, Nethead and Contenthead players with core competencies
in legacy network conduits, next generation, Internet carriage and content, and
core expertise in entertainment content. The Bellheads historically have concentrated
on installing and managing the networks needed to deliver content. Incumbent Bellheads see the conduit business
as having declining profit margins coupled with substantial capital expenditure
requirements in new distribution technologies.
Bellheads have a twin mission to eliminate the need to maintain the fast
becoming obsolete copper wire telephone networks, but also to invest in 4th
and 5th generation wireless infrastructure. Additionally, they hedge the network bet by
moving up the food chain into content.
Bellheads envy
the profit margins Contentheads sometimes achieve and the business plans of some
Netheads who use software to achieve unicorn status (multibillion dollar
valuation with miniscule staff and investment) by using Bellhead networks for
value added content delivery.
Can you
teach old dogs new tricks? Bellhead
telephone company senior management have to acquire the skills and understand
the culture of Netheads and Contentheads.
Companies like Verizon and AT&T have made the transition into the
Nethead world through acquisitions of companies such as MCI and UUNet. Now comes an even harder challenge to embrace
the Contenthead culture of Hollywood.
Good luck with that!
No comments:
Post a Comment