In a matter
of days, Verizon will likely add to its inventory of content by acquiring much
of Yahoo. This deal and the earlier
acquisition of America Online confirms the trend that deep-pocketed incumbents
see the benefit in acquiring content, rather than growing their own.
Many years
ago, soon after divestiture from the Bell System several Regional Bello
Operating Companies threw millions of dollars at becoming content creators,
with little to show for it (pun intended).
Now incumbent telephone and cable television companies see the benefit in
overnight vertical integration. You can
call it defensive, in light of declining margins and revenues for core, “legacy”
business lines. Alternatively, you can
call it prudent recognition that in-house talent might not have necessary mindset and
creative skills to flourish in Hollywood.
The
billions of dollars recently invested by companies such as Comcast, Verizon and
AT&T confirm that regulatory uncertainty and the “scourge” of network
neutrality have not and will not stop investment and capital expenditures. No company will invest in content if its
managers conclude that they should not also make the necessary, concomitant
investment in the physical plant needed to deliver content to consumers. The new, or upgraded infrastructure will exploit
technological innovations, such as the fifth generation cellular radio. Some desirable technologies will not become ubiquitous
simply because a profitable business case cannot be made for rural market
penetration.
Let us put
to rest the red herring that today’s regulatory wingspan stymies investment in
telecommunications. Ask any senior
executive—off the record—and she or he will acknowledge that the regulatory
climate falls well below key financial and marketplace variables. When regulation enters the calculus, too
often incumbents use it as a vehicle to stymie innovation and competition.
I still do not understand how choice in set
top box interfaces with broadband networks somehow hurts consumers and
competition. It does not, but incumbents
can cast themselves as victims of bullies like Google and throw sand in the
works. Meanwhile managers at these very
same companies proceed with multi-billion dollar acquisitions. They seem quite optimistic about their
staying power and ability to identify and capture new revenue streams.
