This article was authored by Jouko Ahvenainen, and was originally posted on telecomasia.net.
The media industry illustrates the complexity of finding a sustainable long-term strategy. There have been moments when distribution companies have dominated the business, because they ‘own’ the customers.
But then a content owner or distributor has created such appealing content that all customers want it, and they have started to dominate the value chains. In the next phase production studio and content creators are developing totally new offerings that everybody wants. Then it is maybe the turn of the distributors. Whenever you think the roles are clear, they change.
This discussion is relevant again. Netflix and Amazon are becoming important distributors, but they also have started to produce and own content. This has put traditional content owners and producers into a new position. Disney’s deal with Fox is linked to this. Disney wants to ensure better control in the value chain.
Disney also got a bigger stake in Hulu as part of the deal. Disney plans to launch its own streaming service in 2019. It is quite clear that Disney targets to have the most of attractive content offering and then start to offer it directly to consumers. Who could compete with that offering?
But real life is not so simple. We have seen many cases in many industries that an actor has the best ingredients and resources, but still cannot create and be successful in a new business proposition. In media as in many other industries the disruption is caused by new, especially internet, technology.
It is extremely important in those situations that the company has the needed technology competence, and also competence to handle business models in the new environment. A lack of competence in those areas have made many significant companies fail.
Now the question is, although Disney will have a dominating content offering, is it able to create a competitive distribution business? It requires technology and solutions that can compete with Amazon, Netflix and Apple. It also means its business models and pricing to consumers must be attractive enough.
Amazon has excelled at expanding into many businesses from books to cloud computing, food and whatever e-commerce. It has also built an attractive offering for TV series, movies and music that is also linked to physical goods. Amazon Prime offers order delivery and a lot of content. Amazon also seems to be the mastermind to offer new service to consumers and use its existing resources.
Disney’s streaming business will be an interesting case study for parties that want to analyze business strategies, competition and disruptions in businesses. The case has been linked to competition laws too, when the US Department of Justice would like to block the merger of AT&T and Time Warner. It would be a merger between distribution and content. One could ask, how it is less bad to have a content powerhouse that plans to have a streaming service? Is the answer that AT&T could bundle network connections and content?
The evidence from many industries indicates that if a ‘new-technology-native’ company and a traditional industry company start to compete in the disruption, often the tech company wins. Based on these experiences, we can be skeptical with Disney’s success and Amazon and Netflix will also likely do well in the future. We can also consider the same lessons for other industries with an early phase disruption, such as FinTech and automobile/mobility services.