Why isn't there more controversy over mobile media?


Josh Martin Strategy AnalyticsWhile I may never have owned a Victrola or a record player, I have the scars of many a media war. When I was a young associate analyst many years and companies ago, one of the first areas I investigated was the HD-DVD and Blu-ray battle. To say this was a heated controversy would be an understatement. There were billions of dollars at stake and every studio and a host of technology companies were jockeying for position. The long gestating resolution gave way to the immediate controversy around broadband video and cord cutting. Connected devices only further complicated the scenario as broadband content was making its circuitous trip back to the TV threatening Pay TV and broadcast revenue.

The battle for the TV continues to wage but a new battleground has emerged: the smartphone. Android will soon reach version 3. iPhone is on its fourth iteration. BlackBerry is becoming increasingly consumer focused with its 6.0 software. Microsoft is on the precipice of launching its new beachhead platform Windows Phone 7.

Yet despite the massive adoption of smartphones studios have been slow to act. Netflix literally just arrived on the iPhone. Hulu Plus has just launched in Beta with limited content. No US studios have native smartphone apps for streaming content and many of their mobile sites are an afterthought.

The question is: Why are studios so ambivalent. Why are studios so slow to act? Why are studios not seeing mobile as a threat or an opportunity? Why is there no dagger throwing, war mongering, battle posturing over the future of mobile media?

For companies hoping to reduce or eliminate Apple's ever consolidating power in the mobile media space the studios are certainly taking a long time in determining a strategy. So, as I mulled this question I came to a few possible conclusions:

The studios have grown gun shy

The launch of broadband content allowed for the rise of cable cutting. While this is an oft discussed threat it is still an act infrequently engaged in by consumers. However, the combination of DVRs and broadband content has reduced the number of consumers watching live programs and thus result in viewer ad views. This behavior impacts ad revenues which in turn limits a network's available money to pay for programming. Broadband is not positioned to replace the billions of dollars broadcast brings in and this paradigm has broadcasters and content owners scared.

Studios see mobile as a way to correct past mistakes of giving away content and then being unable to charge for it. The horse has left the barn on paying for content online but studios are extra cautious to avoid doing so in mobile. So they are all waiting. Waiting for Netflix. Waiting for Hulu. Waiting for iPlayer. Everyone is waiting instead of vying to be the first company and use mobile to create a halo effect around content. This waiting has inherently limited controversy and innovation.

Studios think no current revenue is at risk

The next generation DVD battle was so heated because billions of dollars were at stake. Studios felt they could re-sell their libraries to prop up slowing home movie sales. The revenue picture is less clear for mobile. Studios are left wondering if it is additive or cannibalistic. Spoiler alert: It's additive. Mobile video consumption takes place in the absence of alternatives creating a new opportunity. But if Warner Bros. or NBC get to the handset first it doesn't give them a competitive advantage so why bother being first? Because...

Studios feel there is nothing at stake if they take their time

Thinking that time is on their side is the biggest mistake content owners/networks/studios can make. In fact, there is much at stake when it comes to the future of mobile media and failure to act quickly will have deleterious results.

Here are some possible results:

  • Aggregators will consolidate power. Apple has already put itself in a dominant position in music and labels are desperately trying to prop up competitors to generate leverage in contract negotiations. Unfortunately labels waited too long and now Apple is the biggest game in town. While movie studios have a handful of other viable digital avenues such as Amazon, CinemaNow and VOD to generate revenue they will lose negotiating power in the mobile space if they fail to act quickly and won't be able to control how much they charge for their own content instead yielding to the demands of their partners.
  • Studios will lose a direct to consumer revenue stream. Perhaps studios prefer to partner with aggregators as the ease of working with a handful of partners is better than creating a site, hosting content, developing DRM, etc. But by doing so, partners are taking over the end user mobile experience. Pay TV providers content on mobile devices from iPhones to iPads to Android devices and more. If consumers can get much of the content they want while on the go from their pay TV provider why would they pay more to a studio to rent a film, download an ala carte TV show, or more.
  • Waiting eliminates the ability to lead the way. The New York Times was one of the first newspapers to fully invest in mobile and as a result not only do they reap subscriber/reader rewards but they have created a platform they will sell to other newspapers. Studios can follow a similar model. Since studios are unlikely to fight for viewers in the mobile space (consumers are unlikely to simply browse in mobile but instead seek what they want) empowering other studios is not a risk but a business opportunity for the first mover.

In conclusion, perhaps there is no controversy over mobile video because the studios think they win regardless. In an industry with convoluted rights where some own TV rights, others internet rights, other small screen rights, perhaps content owners would prefer their partners get bloodied fighting the battle and the studios will collect the incremental income from licensing content to the mobile environment. This is a tried and true business model for content owners but failure to take control of one's own fate often allows others to control it for them.

Josh Martin is a senior analyst for wireless media services in the Global Wireless Practice of Strategy Analytics.