Video services

DT, KPN, Vodafone Unenthused by Content Ownership

AMSTERDAM -- IBC 2016 -- Several of Europe's biggest telcos have poured cold water on suggestions they might become mainstream content owners and producers, in the manner of movie-streaming giant Netflix.

There also appears to be little enthusiasm for making huge investments in high-profile sports events, despite lavish spending by the UK's BT Group plc (NYSE: BT; London: BTA) and Spain's Telefónica on exclusive rights to screen top-flight soccer matches.

Germany's Deutsche Telekom AG (NYSE: DT), rival Vodafone Germany and KPN Telecom NV (NYSE: KPN) of the Netherlands plan to focus on being content "aggregators" for the foreseeable future, according to executives from those operators gathered at this week's International Broadcast Convention (IBC) in Amsterdam.

All three companies have been expanding quickly into the TV area amid competition from local rivals offering packages of broadband and TV services.

Yet none appears keen on mounting a challenge to Netflix Inc. (Nasdaq: NFLX) as a content owner and producer, preferring to see the web giant as a valuable partner.

"Our strategy is to be an aggregator of content," said Alejandro Casal Gomez, a senior TV consultant at KPN. "By integrating everything in a user interface we can provide an easier way for customers to access everything from one device, and so partnerships with Netflix, Fox Sports and Spotify are important."

Those remarks were echoed by Peter Kerckhoff, vice president of content for Deutsche Telekom. "We need content owners to be attractive but we like it where we are," he said during an afternoon session, when asked if he would prefer to be a content owner, a premium content brand or an aggregator. "We have a relationship with millions of households in Germany and are the dominant brand over there and can invite content partners to be guests on our platform."

Earlier in the day, Vodafone Germany's chief commercial officer, Manuel Cubero, had rejected the possibility of following BT into the soccer-rights game. "We are happy not buying exclusive content and being an aggregator, but there is no set rule for everyone," he said, recognizing that other operators have differed in their approach. (See Vodafone Germany Plots 'Convergent' TV by April 2017.)

While Deutsche Telekom has acquired less costly rights to screen hockey and basketball matches, it decided not to fork out for expensive rights to the Bundlesliga, Germany's top soccer league, earlier this year. Instead, it renewed a wholesale agreement with rights owner Sky Deutschland, giving its own TV customers access to those matches. (See DT's Jan van Damme Flexes Quads.)

"It was a strategic and commercial decision," explained Kerckhoff. "You do need exclusivity to differentiate but commercially you can't acquire everything out there."

The decision contrasts starkly with recent moves by BT, which has spent vast sums on English Premier League matches during a rights battle with Sky in the UK. (See BT, Sky Splash £5.1B on Premier League Rights.)

Unlike in Germany, however, Sky has emerged as a major broadband force in the UK and now trails only BT, whose access network it uses, in terms of customer numbers.

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By embracing the aggregator role, other operators are sure to attract criticism for giving up the content fight and settling for the far less glamorous role of aggregator -- or even "dumb pipe."

Investors constantly fret about the commoditization of the traditional telco business, noting the huge valuations attached to web companies that are comparatively small in terms of annual sales.

Netflix, for instance, made less than $7 billion in its last fiscal year, but is currently valued at $42.3 billion on the Nasdaq.

Compare that with Vodafone Group plc (NYSE: VOD), the parent company of Vodafone Germany, which last year generated nearly eight times as much as Netflix in revenues but carries a valuation that is not even twice as high.

To some extent, Deutsche Telekom and KPN are hedging their bets, however.

The former maintains contacts with other telcos that have developed their own "fictional" content, while Kerchoff expresses concern about becoming overly dependent on partners.

KPN, meanwhile, has launched its own "over-the-top" service, under the KPN Play brand. Customers can access linear and on-demand content through an app without having to sign up to KPN's telco offerings.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

mendyk 9/9/2016 | 9:06:45 AM
Re: Reality check Comcast was through acquisition. So, yes, if a CSP wants to invest tens of billions to buy into an industry, that's an option.
brooks7 9/8/2016 | 6:22:26 PM
Re: Reality check See Comcast....
mendyk 9/8/2016 | 4:45:46 PM
Reality check The idea that a CSP should venture into video content development is more than a bit strange. It would be a little like Boeing deciding to launch a commercial airline business. Add in the fact that content development is far from certain as a profit-making business, and the strangeness grows. DT, KPN, and Vodafone are right to maintain their unenthusiasm.
Alison_ Diana 9/8/2016 | 4:07:36 PM
Divergence is interesting It's interesting to see companies take so many different approaches to the content quandry. I've become accustomed to businesses following a similar model; even high-end consumer brands seem to all have lower price models these days in order to compete on price. You can see how all these models may or may not work because of the huge cost involved in developing content, partnering - especially when it comes to the crazy money for top sports broadcasts, or the cost and risk of creating your own. I'd guess there'll be winners and losers in all models simply because creative processes and products are involved.
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