What Telecom Can Learn from Hollywood: Go Big or Go Home

Stop me if you've heard this before: Telecom and cable companies must transform into value-added players in the "digital services" space or face extinction.

There's no shortage of blogs, articles and presentations talking about it. Problem is, it simply isn't as easy as the PowerPoints make it out to be.

That's not to say that communication service providers (CSPs) are standing around. They are making progress. But, not surprisingly, most CSPs are playing things very conservatively. And in a market that’s moving at warp speed, taking incremental steps is simply delaying the inevitable.

Much of this is rooted in the desire for control. In a relatively short period of time, CSPs have gone from having end-to-end control over just about everything, to being squeezed from all sides. On the other hand, over-the-top (OTT) providers have anticipated customers' desires and have grabbed the leadership role with innovative services and applications. And while total revenue still favors CSPs, the trend isn’t going in their direction.

So how do huge, risk-averse operators become the next Amazon.com Inc. (Nasdaq: AMZN) or Google (Nasdaq: GOOG)? History is littered with once dominant players who couldn't adapt or were outflanked by disruptive innovators. Can a legacy CSPs morph into nimble providers whose services delight the customer and drive loyalty? Has this ever been done before?

Oddly, there is a model to be followed that comes from an unlikely source. Hollywood was another large, risk averse, vertically integrated oligopoly that was also forced by divestiture to change. It all goes back to the late 1940s and early '50s.

Decades before telecom was disaggregated, the Hollywood studio system was forced to break apart. Prior to that, a handful of major studios were vertically integrated and owned everything from the infrastructure to the writers, actors, directors and producers. They also owned the movie theaters. Some even made their own cameras. Complete end-to-end control.

Such a striking resemblance begs the obvious question – if Hollywood studios have continued to prosper and adapt, could CSPs follow suit? Could a bold CSP take a page out of Hollywood’s business model playbook and leapfrog to the front of the Digital Services marketplace?

After they divested themselves, the studios created a new business model, which is essentially still used today in various flavors. Here's a simple view:

This model allowed them to retain most of their power because they are a major source of funding and they still control most of the distribution channels. In essence they control the "entrance and exit gates" and few things happen without their involvement. And from a consumer’s perspective, this has led to higher levels of quality, creativity and innovation.

If we apply or adapt this model to telecom, what would the result look like?

It's important to note that in this model, nothing prevents a CSP from developing and delivering services they create. What it does is provide a much more robust way for CSPs to partner with others and in some cases – fund them.

Clearly partnerships exist today but they are in their infancy and CSPs still have a reputation as being hard to work with. For the most part, CSPs continue to view OTT players as a competitive "enemy" instead of working with them to develop win-win arrangements.

Likewise, every CSP has some form of incubator where they provide financial and other resources for promising ventures. The problem here is that with a few exceptions, the numbers of companies being incubated is small and the level of control over their development is high.

This is not to suggest CSPs should fund every idea that knocks on their door. But OTT players are where they are today because of a liberal —or aggressive— approach to risk and reward. However, by following a few, pragmatic guidelines and moving to platforms that can automate the service onboarding, fulfillment and delivery process, CSPs can begin their transformation into "Digital Services Studios."

Warner is the past president and CEO of the TM Forum and a Distinguished Fellow.