Analyst Angle: Why Do Media Companies Want to be Wireless Service Providers?

Editor’s Note: Welcome to our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Current Analysis’ Avi Greengart, iGR’s Iain Gillot and more.
Why do media companies want to be wireless service providers? They probably don’t.
We lost another high profile MVNO last month-Disney Mobile. Like Amp’d Mobile and Mobile ESPN, Disney Mobile brought a lot of innovation and energy to the industry, but failed to make the economics and operations work.
It has me asking myself, what is it about the wireless industry that is driving media companies to attempt to do it themselves? Why do brand extensions fail when it comes to media companies providing wireless service? I didn’t know until doing a bit of reading that most brand extensions fail. The basics of marketing tell us that in order for brand extensions to work, the new products need attributes similar to those of the original brand. One of the challenges today when it comes to wireless service is that it’s still about communication for the vast majority of cellphone owners. The cellphone is evolving into a portable media device, but it’s not yet there in the mind of most cellphone users. The media companies know this, but yet they still try. There is a fascination with the notion of controlling this connected device that we have with us 24×7.
The conclusion I reach is that the media companies want a richer platform and set of options for interacting with cellphone users, and they are dissatisfied with their options today.
The wireless service providers are pursuing a strategy today that focuses on their core values of providing communication services-a reasonable plan given that this intense focus on quality of service and minimizing churn has delivered tremendous value to their shareholders. Subsidizing phones with high-quality screens, fast processors and lots of memory doesn’t meet their core objectives unless the content is delivered over bandwidth not being used for their core communications business. Delivering media over their networks isn’t the most profitable use of their spectrum.
Owning the customer experience end to end provides one of the best experiences today. Apple has set a high bar for customer experience with the ecosystem of content partners they’ve assembled for their hardware and services. Realistically, not everyone can own the customer. Apple may. Google may. Others may. Wireless carriers do today. Can there be co-owners of wireless subscribers?
Wireless service providers have chosen to focus most of their attention on customer acquisition, with marketing dollars allocated to messaging focused on quality of network and value (e.g., family plans). This strategy has been extraordinarily successful to date in terms of growing the customer base, but likely doesn’t have the legs to carry them beyond the next few years. As quality networks become a given, consumers will look to criteria such as handset selection and entertainment options, which are secondary or tertiary in their decision-making process today.
It’s clear that the goals of all of these entities are not well aligned today. I think the open question is-will they ever be?
Wireless carriers are moving toward a model of live video, for example, at a time when consumers have more on-demand choices than ever before. Over-the-air downloads are a bit like channel surfing, which I don’t do a lot of anymore. I have my TiVo programmed for the shows I like. When I turn on my TV, I immediately browse my library of saved content. Twenty-four hours of programming from 200 channels offers a lot of options. I do the same with my iPod-I have subscriptions to podcasts or TV series that I sync to occasionally, but I’m at the point now with music that I’m irritated that my car stereo doesn’t have pause, rewind and fast forward.
Handset manufacturers are optimizing devices for voice talk time because their customers-the carriers-need to sell airtime to drive 80% of their revenue. A large color screen for watching videos, Wi-Fi for music uploads in Starbucks and similar options consume battery life but don’t help the carriers with their core business.
I’m also wondering if a scenario can be worked out where the customer comes first. I had the chance to speak to a number of senior executives in the wireless industry last week, and there seemed to be more discussion around their needs (e.g., minimize cost, grow subscriber base) than those of the customer. There is a lot of focus right now on how to protect revenues-rather than how to grow by giving consumers what they want. Folks are wrong, also, when they say consumers aren’t willing to pay; consumers will pay if the experience is a good one and provides value.
There are a lot of open questions, I realize. The carriers own their customers today, but they will need strategic partnerships with a larger ecosystem, including media companies, to continue their growth. More options for media companies are in consumers’ best interest, which should also translate into the providers’ interest longer term.
Questions or comments about this column? Please e-mail Julie at jask@jupiterresearch.com or RCR Wireless News at rcrwebhelp@crain.com.