Tectonic Shifts in Content Value Chains

Mark Mulligan[Posted by Mark Mulligan]

follow me at Mark_Mulligan


From a content strategy perspective, one of the most
interesting developments that came out of Mobile World Congress was Nokia’s
refinement of their Ovi strategy, with the announcement of the Ovi store (see Thomas Husson’s post for more details).

The Ovi Store might just look like another me-too App store,
and in many ways it is. But the strategy
goes much further than that. This is
part of Nokia’s attempt to develop stronger, deeper relationships with the end-consumer
with an ambitious content and services strategy. But the real audacity lies not in the breadth
of the services portfolio, rather in the disruptive, even disintermediative,
threat to Nokia’s channel partners. However inclusive Nokia may try to appear, selling content and services
such as ring tones, music, games and other applications compete directly with
mobile operator offerings.

The
walled-garden operator portal strategy may be a short sighted one, but the
operators are already having to compete with the established Internet brands
without having to worry about one of their historically trusted partners. It is true that the operator relationship is
more important in markets with strong subsidies, but even in those without, the
operators are at the very least a strong potential ally, at most a crucial
partner.

And yet the Ovi strategy remains
key, because Nokia needs to own more of the value chain. Even before this years’ expect global handset
sales decline, markets were getting saturated and replacement cycles being
stretched by 24 month contracts. The
emerging markets will have finished emerging sooner or later. This is Nokia planning for long term growth
when its core handset business will be mature. It’s a high stakes game, and if they pull it off, all of the damage to
channel partner relationships will become an unfortunate but ultimately
tolerable price to pay. It’s classic
sacrifice move, gambling tactical loss will bring strategic gain.

On the other side of the value chain equation we’re
beginning to see some content owners trying to extend their share. MySpace Music, the joint venture between the
major record labels and MySpace, is an astute move for all parties.  There is upside for both sides, however tortuous the negotiations might have been (and indeed there’s a case for terms being
revisited when this thing’s been in the water for long enough to just how well
it floats).  MySpace now have a much more
workable revenue and cost model for pursuing an ambitious on-demand streaming
strategy whilst the majors now have more
meat in the game
.  MySpace Music’s
success will be theirs also. In
traditional licensing models labels would have profited more only as streams
increased.  Now they profit more both
from increased streams and if MySpace gets better at monetizing its ad
inventory. 

The MySpace JV is also a bet on the future for the labels. As
they journey through the transition from historical reliance on distribution
towards the consumption era, they get to own part of the consumption
infrastructure.  If MySpace Music was to ‘do
an MTV’ the labels would profit this time round. And it’s not an isolated move: all the majors
also of course took stakes in YouTube immediately prior to Google’s acquisition
and Sky entered into a JV with UMG to launch a music subscription service. 

JV’s aren’t a panacea (cf Warner’s current
dispute with YouTube
and Sky’s current failure to draw in other partners) but they
are a means of taking a stake in an uncertain future.  But someone’s value chain gain is typically
somebody else’s loss.  Value chain evolution
is a messy process and the path will be littered with the battered and
bruised. Nokia of course will be hoping
it won’t end up as one of those.


Categories: