dual revenue streams: the opportunity for carriers and content companies
June 25, 2007
By Tom Wheeler
Managing Director, Core Capital Partners
“What the Internet did to wireline phone companies must never happen to wireless” — if I’ve heard that comment once from mobile operators, I’ve heard it a thousand times. The Internet made telcos “dumb pipes.” In their effort to avoid such a fate, wireless carriers set out to control what went on their network and participate in its economic return. It is an understandable goal, but probably the wrong solution to the ultimate challenge of how wireless carriers can keep from being commoditized like their wireline brethren.
The problem with wireline carriers is that when the Web was young they allowed someone else to own the revenue stream. Wireless carriers are right to resist such a fate, however, there is a much cleaner solution for wireless carriers than walled gardens or controlling access to the home deck. But, the window on this opportunity is closing fast.
For precedent, look at how cable operators developed two revenue streams for their TV programming. Like wireless carriers, cable companies have subscription revenue but unlike wireless carriers, cable companies also sell advertising on the television content they deliver even though that content is owned by someone else. Sure CNN sells national ads, but cable operators insisted on the right to insert two minutes of ads they sell into every hour of network programming.
In the wired world, Web content companies like CNN own their entire advertising inventory. No wonder the telcos are called “dumb pipes;” they did not leverage their transmission capacity as creatively as the cable companies did for TV.
When cable began delivering Web content they couldn’t impose the dual revenue model; the “dumb pipe” model for wired distribution was so ensconced. But where is it written that the same mistake has to be made with wireless?
The opportunity for wireless carriers is the television model’s dual revenue stream. Let content companies like CNN sell 90 percent of their advertising inventory, but set aside 10 percent for the carrier to sell. It’s a revenue model that will work for both parties: the content company owns almost all the ad revenue opportunities, but a small portion of the ad spots are for the mobile company to generate their own revenue. A small percentage of a lot of content equals a large ad inventory (and large revenue potential) for carriers.
Suddenly the economic incentives for the wireless carrier switch from controlling access to content to open access. When lots of content providers make a little bit of their ad inventory available to the wireless carrier, the riches of the Long Tail come to mobile companies. Content companies would benefit under such a plan because of ready access to an open wireless network. Consumers would benefit as a result of all the new services. The economic pie would grow larger and the wireless carriers would enjoy a slice of that constantly growing pie. As an added benefit, all the talk of net neutrality and other government access sanctions on carriers would be rendered moot.
Question is, how would the wireless carrier pull this off? In my past posting, I wrote about how datacasting — the one-to-many delivery of data — changed the economics of advertising (and content) delivery. By marrying the efficiencies of datacasting with the economics of advertising, wireless carriers can transform their business with the Holy Grail of a dual revenue stream.
Think about it. Using datacasting, ads are sent to consumers’ handset where they are cached. Unlike the current one-to-one unicast delivery, such one-to-many makes the delivery of each ad almost costless. Once the ad is on the handset, the mobile carrier controls it. When the consumer calls down a piece of content from the wireless Web, the carrier simply inserts into it an appropriate piece of advertising on a pre-scheduled basis (e.g., a pre-agreement with the content provider that every tenth screen would have a carrier-sold ad).
The half life of this solution is short. Carriers need to take advantage of the idea now before everyone gets set in their ways. As wireless broadcasting networks using MediaFLO and DVB-H come on line, they open the door to this datacasting opportunity (at least for their handsets). In a rather simple and direct agreement, wireless carriers can say, “The walled garden and everything else I do to avoid being commoditized are gone for every content provider who gives me a chance to sell a few ads.”
Content providers get better exposure. Consumers get more content. The government has no reason to impose access regulation. Carriers make more money. It’s a win for everyone… why not?
Tom Wheeler is a Managing Director at Core Capital Partners, a venture capital firm whose investments include Roundbox, a datacasting platform company. He has been CEO of both the Cellular Telecommunications & Internet Association (CTIA) and National Cable Television Association (NCTA (News - Alert)).