The partnership between Reliance Jio Infocomm Limited and Facebook as well as the reported interest of Google in Vodafone-Idea and Amazon starting early investment talks with Bharti Airtel (although both telecom companies denied the reports), are developments poised to blur traditional boundaries between technology, media and telecom companies to create unique new and disruptive business models in the media and entertainment industry.
This convergence of Technology-Media-Telecom is termed a natural order of evolution of the industry. A technology company which is well funded can extract more revenues, market-share and share of mind by actively participating in more than one part of this convergence chain, while the telecom firms are keen to build an ecosystem of services to engage, retain and derive value from their existing customers.
What better battleground can these strategic investors find than the burgeoning Indian telecom market with around 600 million Internet users? In the last few weeks, RIL’s Jio Platforms received 11 investments from 10 global technology investors. As of June 18, 2020, RIL had divested 24.7% in Jio Platforms for Rs 1,15, 693.95 crore.
“Jio’s blitzkrieg launch in 2016 fostered the growth of online video in India. The late 2019 foray into home broadband is already altering the dynamics of the traditional pay-TV business in urban India. With e-commerce and a suite of scaled digital services (housed under Jio Platforms), the telco major will soon make a big splash in the vast digital advertising arena,” says Mihir Shah, Vice President, Media Partners Asia.
WHAT THE DEALS MEAN
- Financial integration of value chain
- Deep pocketed giants will bring
- liquidity for telecom players
- Consolidation will help larger players
- Can freely invest into content
KEY STRENGTHS OF BIG TECH COMPANIES
- Backend technology driven by AI/ML
- Data Analytics
- User adoption
PIGGY-BACKING ON TELECOM
The telecom companies have access to consumers, so the handshake is actually happening through them and with the concept of net neutrality, telecom operators are obligated to provide equivalent services to the consumer. The advantage that some of these big technology platforms bring by partnering with telecoms is that they will be able to get a better understanding of the customer. And depending on usage patterns, demographics, the geographical dispersion of the audiences they can define and customize better products to appeal to those audiences.
So, there is a value proposition in many segments like digital e-commerce, physical commerce, entertainment and news content consumption, where big technology companies can gain by actually riding piggyback on the telecom network.
“There is an opportunity to disrupt a lot of existing business models, in logistics, distribution, pure play content consumption or even creating new forms of content that can be consumed by audiences in different ways. For example, a news app similar to TikTok, which provides 30-second bytes of news as a stream, continuously on a channel. It could be around sports, entertainment or music,” says Pradeep Dwivedi, CEO-India, Eros International Media Limited.
“It also provides a brilliant opportunity for a very large start-up ecosystem to flourish, because even though this combination provides a lot of vanilla services to the consumers, there will be opportunities for specialized solutions to emerge,” adds Dwivedi.
Also, telecom companies in India are under various adjusted gross revenue (AGR) obligations and struggling due to huge financial liability. Investments in new business models could also allow them to perhaps defray and pay off some of the existing obligations and ensure their own survival and sustainability in the long run.
CONTENT WITH CONNECTIVITY
The more content that each of these combined entities will have within their walls or gateway, the more successful they are likely to be. While the entire focus of the content right now is primarily entertainment content, it is going to go to the informational and educational learning content very quickly.
“Content will become a baseline for these Tech-Telecom behemoths, like connectivity. The more subscribers a network would have, the more will be its likeliness to take those subscribers to the five Cs of Community, Content, Commerce, Currency and Capital. Customers slowly will start expecting content alongside connectivity and companies will need content to attract new customers and keep them. It is going to be a powerful combination,” says Sanchit Vir Gogia, Chief Analyst, Founder & CEO, Greyhound Research. “The only difference right now is that a lot of these players haven’t explored content out of the entertainment perspective. But soon, they will go to gaming, learning, music, news, entertainment and educational content. For example, it is only a matter of time that Network18, etc., become premium and are accessible to Jio customers,” he adds.
It is going to be a two-way advantage in terms of content. “If we look at just the OTT content space, big tech OTTs which haven’t seen much success in terms of content, will get access to local and regional content and the local OTT players will get an advantage of technology and money to scale up and invest further in content,” says Karan Taurani, VP - Research Analyst (Media), Elara Securities (India) Private Limited. “However, it will have a negative impact on broadcaster OTTs, which have been struggling to bring in catchy fresh content and much of their success in terms of revenues so far have come from sports and catch-up content. With these deals, they may have to ally their content with partnership of telecom majors and large tech giants,” adds Taurani.
- Content which is focused on entertainment right now will move to educational and informational very quickly
- The big tech companies have been successful all over the world but India is a very fragmented market
- Tech companies may not have the competency to develop content relevant to fragmented and differentiated India
- Local telcos get advantage of tech and liquidity
- Tech giants get advantage of local feel, local content and access to end consumer base that telcos have
- Indian OTTs still lack the user experience that multinational OTTs like Netflix and Amazon Prime Video deliver
‘It’s good to have shared ownership of the pipe’
“Big tech acquiring stakes in Indian telecom companies has some broad objectives. The first one is access to their huge subscriber base. Jio, Airtel and Vodafone all qualify in that respect. Secondly, telecom companies probably are the best equipped on the payment backbone and hence that would be a good asset. Facebook is looking to launch its WhatsApp pay which can benefit substantially with the collaboration. Therefore, there is a definitive leg-up for their content monetisation. Lastly, each of the companies are good investments, though some of them are going through a trying time. If one has the money, it’s good to take that punt. The future is Digital and it’s good to have shared ownership of the pipe if you rely on it for access and content.”
Timmy Kandhari
Founder and Managing Director,
Sapphire Professional Services Pvt Ltd
WALLED GARDENS, EXCLUSIVITY…
Going forward, content partners will naturally have to take a particular side and ally with a telecom-tech player, because over the course of time, telecom players will have a greater say in the entire relationship. “The deals will create walled gardens but not immediately. It may shift power in the hands of the tech giants and would not want local broadcasters to scale up,” says Taurani.
However, Avinash Pandey, CEO, ABP News Network believes that the merger activities will allow broadcasters to achieve scale, acquire technology, talent, and new production capabilities. “Internet will be the new electricity and therefore telecom will not dominate distribution, instead converge with media and technology companies to address the market opportunity holistically. For linear TV, this will be an opportunity to create an absolute direct-to-consumer relationship across multiple screens without the baggage of a linear distribution model. The merger activities will allow broadcasters to achieve scale, acquire technology, talent, and new production capabilities,” he says.
“The big tech companies are consumer tech companies in reality. Their product differentiation strategy depends on the innovativeness and uniqueness of three things - back-end technology driven by AI/ML, data analytics and user adoption. In contrast, pure content companies will always focus on creating news, stories and ideas that impact or influence end consumers’ li
