This is the week of Apple’s WWDC, and everyone is watching to see what Steve Jobs will say about “iCloud”, Apple’s next-gen network service that might be anything from a simple music streaming strategy to an enveloping cloud concept for the consumer. While iCloud is critical to the future of network services in general and mobile services in particular, it’s not the only issue that’s exploding in the face of the operators. Disney, for example, is going to start streaming content, and more cable MSOs are lining up to endorse the inevitability of usage pricing for wireline broadband. We’re at the beginning of what one of our survey operators (quoting Churchill) said was “the end of the beginning” of the golden age of online content.
End? Aren’t we just getting started? No according to most operators and interestingly to some of the OTT players we’ve talked to. Pretty much everyone will acknowledge (in private, of course) that streaming media in any form is a play on the artificial pricing plan for consumer broadband. It makes no sense to charge zero for incremental usage of something that’s not incrementally free.
Players like Netflix and Hulu and Amazon (and likely soon Apple) are showing us that consumers will pay a hundred bucks a year or so to be able to stream video when nothing’s on TV or when they can’t get to their favorite programs for travel or other reasons. It’s likely that continued erosion in programming quality will generate some longer-term cut-the-cord trend too, though it’s also clear that you can’t keep streaming old stuff to the same consumers; new content will be required.
The near-term consequences of this is a consolidation game. Comcast/NBCU is an example of how a company with a lock on distribution branches out to get a position in adjacent market areas. So’s the interest of access ISPs in CDN services. CDNs are a natural adjacency for access players, after all. But in neither of these cases is the move being made today sufficient for the indefinite future, and the players know that. Apple knows it.
For operators, it’s about getting a piece of this higher-layer pie that matters. Most operators are now of the view that their role in consumer services beyond voice and chat is very likely to be a wholesale one. They’re a platform for success, a way of driving service growth by having players with inherently better marginal-ROI tolerance capitalize the knotty parts of the service infrastructure. If operators can do that, and can do it with the most efficient capital and operations practices in the market, then they can reduce the need for usage pricing and the chilling impact that would have on online services for all.