blog Over-the-top plays have not always gone well for Australia’s telcos and Internet service providers. While the sector’s big players — Telstra, Optus, TPG, iiNet and Vodafone — have proved themselves able at selling telecommunications services, in most cases they have also found it hard to make money from content or services sold over the top of their telco packages. A notable exception would be Telstra’s joint venture relationship with Foxtel, which has proven quite lucrative for the pair. But this doesn’t appear to daunt iiNet, which tells the Financial Review this week that it has a war chest for just this purpose. The newspaper reports (we recommend you click here for the full article):
“iiNet chairman Michael Smith says the Perth company will use a $350 million war chest to make media and internet acquisitions as part of an “aggressive” campaign to avoid becoming a so-called “dumb-pipe” broadband provider.”
I’ve written a great deal about this issue previously, most of it negative. For example, in May 2012, as Telstra, Optus and iiNet were gearing up to conduct further content plays, I wrote a piece entitled Reality check: ISPs do not understand content. Some sample paragraphs from the piece:
“Over the past few weeks, an old dream has begun to resurface strongly in the ongoing conversation around the future of Australia’s telecommunications industry. In this dream, ISPs and telcos are able to diversity beyond their roots providing telecommunications services such as broadband and telephony to customers. Under this so-called ‘triple-play’ vision, ISPs would add services further up the networking stack, providing video services such as films and television episodes on top of their network infrastructure.
But providing content isn’t about getting a network right and bundling content onto it. It’s about making that content available wherever a customer wants it, in whatever format they want it; no matter what underlying network may deliver that content. The birth of the Internet has ensured that content has become disaggregated from the network layer that delivers it; and very few customers want to go back to the bad old days where the two are tied irrevocably together, as they are with Foxtel.
Now, I don’t want to argue that the content industry is getting this right either. It has been exhaustively documented right now that Australians are getting a rough deal when it comes to obtaining TV and film content on-line, on-demand and in a timely and affordable manner. But the answer to that problem is not going to come from Australia’s ISP industry.
As the US and UK have also exhaustively demonstrated with companies like Netflix, Apple and Amazon, the solution to that problem will come from a new category of companies which sit in the middle between content owners and consumers, with their service to be provided on top of telecommunications networks, but with no need for an explicit relationship with the providers of those networks”
The bottom line is that ISPs such as iiNet have come to prominence by focusing on what they do best — providing better broadband access — and that taking any steps beyond that nice little revenue stream is risky for them, due to the basic technological nature of the Internet as a platform which disaggregates content from carriage. Could iiNet succeed at its new strategy? Of course it could. But personally I am not confident about that just yet — not confident at all.