Telecom, Media & Entertainment Insights Journal Volume 3
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volume 3: spring|summer.07 telecom, media & entertainment journal Innovation 2.0 Business Transformation Mobile Instant Messaging First Person Interview: Peter Bazalgette, Endemol New Patterns of Consumer Behavior CONTENTS first person 4 An Interview with Peter Bazalgette, Endemol (available on request) industry insights 12 Digital Natives: How Is the Younger Generation Reshaping the Telecom and Media Landscape? 20 Mobile Instant Messaging: Cannibal or Cash Cow? 30 Developing a Successful Digital Media Strategy 38 Optimizing Telecom Operators’ Supply Chain Management management insights 46 Innovation 2.0: Learning from Online Players 54 Transforming Telcos: Have the Giants Learned to Dance? 62 Private Equity: Outlook for Value Creation in Telecom and Media light bites 70 Strategizing in an Uncertain World editorial Welcome to the Spring/Summer edition of Insights. The reshaping of the telecom and media industries through convergence is continuing apace. With a low cost of entry into the Web world, many new players have emerged offering innovative applications and are now looking for ways to generate revenue from them. The advertising industry is shifting online fast, creating new sources of value to those who can monetize their audiences effectively while also challenging traditional business models. And creating an addictive content and entertainment experience is fast becoming an imperative to engage consumer attention and unlock new revenue streams. We had the opportunity to discuss these issues with Peter Bazalgette, Chief Creative Officer for Endemol, for our First Person section. British newspaper The Independent referred to Peter as possibly “the most influential man in British television,” which is testament to his contribution to the content and entertainment industry. Peter’s understanding of the value of content as well as audience preferences makes him one of the leading lights in the format and gameshow industry worldwide. He and I discussed the major disruptions currently reshaping the content and broadcasting industries and the complexity of making content available online. Peter also shared his opinions on the most appropriate business models for Web-based content and reflected on the need to leverage content across several platforms. Consumers, especially the 15–24 age group, are key to shaping the way we communicate and consume content. We start our Industry Insights section with a study from the TME Strategy Lab that analyzes new patterns of consumer behavior, drawing key implications for players in telecom and media. The mobile device, often considered the “first screen” by many young users, is also playing a key role in how we communicate and consume content. In our second article, we focus on the prospects for mobile instant messaging and analyze its impact on overall messaging revenues. We go on to discuss the key success factors for a winning digital distribution strategy, suggesting a roadmap for companies to develop a compelling digital entertainment offering. Finally, with an increased focus on delivering both fixed and mobile services in a timely and cost-effective manner, we examine telecom and media players’ strategic issues in supply chain management. Key lessons on how to survive in the fast-changing telecom and media landscape make up our first report in the Management Insights section. We draw out key learnings from the innovation process and practices of the main Internet companies to suggest important action points for telcos. Following a recent study on business transformation, we asked telecom industry leaders what challenges and lessons can be learned from over 10 years of implementing major transformation programs in their organizations. Lastly, with the substantial increase in both the number and the size of M&A deals in the telecom and media industries, we analyze the growing importance of Private Equity in telecom and media and highlight the challenges to value creation in this dynamic and complex sector. I hope you find this edition of Insights insightful and thought provoking. If you have any comments or would like to discuss any of the issues further, then please get in touch. Didier Bonnet Managing Director Telecom, Media & Entertainment 3 industry INSIGHTS Digital Natives: How Is the Younger Generation Reshaping the Telecom and Media Landscape? 12 Mobile Instant Messaging: Cannibal or Cash Cow? 20 Developing a Successful Digital Media Strategy 30 Optimizing Telecom Operators’ Supply Chain Management 38 Digital Natives: How Is the Younger Generation Reshaping the Telecom and Media Landscape? by Jerome Buvat and Benjamin Braunschvig Abstract: Predicting consumer behavior has always been one of the key challenges in the telecom and media sector. Detecting any early indicators of change will be crucial for telecom and media players to gain insight and ready themselves for whatever awaits them in the future. The habits of the 15–24 year old age group, the technology-savvy generation, herald the changes in the way we will communicate and consume content in the future. Capgemini’s TME Strategy Lab analyzed these so-called ”digital natives” in order to identify emerging patterns of consumer behavior. The attitudes of this generation are underlined by the need to control, socialize, create and make efficient use of their time. To take advantage, telecom and media players need to redefine their relationships with their customers, offering services that increase consumer involvement as well as create addictive experiences. The history of the telecom and media 2006.2 These examples reflect the instance, was the early adopter of the sector is littered with unexpected difficulty in predicting consumer Internet, embracing the medium successes and surprising failures. behavior, which is set to become even much faster than the rest of the Video calling, for instance, was more complex with the increasing population: 65% of American teens thought to be the “killer 3G number of options available to was using the Internet in 1998, a application” by many mobile consumers for communicating and penetration figure that was only operators, but uptake of the service is consuming media. reached by the overall US population still limited with less than 5% of 3G in 2005.3 Products and services subscribers using the service in the To anticipate how consumer behavior popularized by this age group often UK and France in 2006.1 Other than will evolve, it is important to identify subsequently gather momentum in price and quality, most operators early signs of change in how people the wider population. Consider that underestimated visual privacy communicate, entertain and interact video games were predominantly played concerns when assessing demand for with each other. A good barometer of by teenage boys in the 1980s before the service. Similarly, no one the impending developments is the they developed into a mainstream anticipated the phenomenal growth of evolution in the attitudes of 15–24 leisure activity. The average age of SMS, which grew from 10 billion to year olds, an age group that is often at British video gamers has risen from 21 100 billion messages sent every the forefront of cultural and in 1998 to 27 in 2006,4 belying that month worldwide between 1999 and technological change. This group, for gaming is solely a teenage obsession. 1 Strategy Analytics Insight, April 2006. 2 Gartner, 2006; Telecomworldwire, 1999. 3 Interactive PR and Marketing News, July 1998; Pew Internet Project, Internet Penetration and Impact, April 2006. 4 BBC, “Gamers in the UK,” December 2005. 12 Therefore, understanding how the The Media and Communications an average Internet user in the UK, for 15–24 year old age group consumes Consumption Boom example, now owns three to four telecom and media services can give Over the past few decades, the devices, with 85% owning a PC, 57% us important insights into what is in telecom and media sector has a WAP-enabled phone, 53% a games store for the industry. undergone dramatic changes as console and 48% an MP3 player.5 choices available to consumers have In this report, Capgemini’s TME increased manifold. For example, This world of choice is praised by Strategy Lab analyzes 15–24 year olds’ content producer Endemol offers its users who communicate and consume use of technology to communicate, Big Brother programs not only on TV media more than ever before. In the entertain and socialize in order to but also on the radio, the Internet and UK, for example, weekly time spent identify emerging patterns of mobile devices, in full length as well on communication and media consumer behavior. We begin by as short format. Consumers can also activities has increased by 15% from studying how our consumption of interact with the programs through 53 hours to 61 hours per week communication and media services voice calls and SMS to vote, win between 2001 and 2006.6 has evolved over the past few years. prizes and send suggestions to the We go on to consider how telecom production team. Looking at media use specifically, we and media players should respond to estimate that time spent per week these emerging patterns of consumer Consumers’ use of personal digital increased from 50 hours to 56 hours behavior in order to take advantage of devices has also accelerated in the from 2001 to 2006 in the UK (see the arising opportunities. past few years. In addition to a TV set, Figure 1). Consumers continue to be Figure 1: Estimated Time Spent on Various Media Activities in the UK Estimated Average Weekly Media Contribution to Growth in Media Usage per Person per Week (UK) Usage (%, UK, 2001–2006) 50 hrs+12% 56 hrs Interactive 3% 1% 4% Web Content Gaming 66% 7% 10% Gaming 6% Text-based News Interactive Web 33% Content 44% 39% Audio/Music TV and Video 7% Audio/Music 1% 46% 41% TV and Video Entertainment -8% News 2001 2006 Source: Capgemini TME Strategy Lab analysis; Ofcom Communications Report, “The Communications Market,” 2006; IDATE, “Telecom 2.0: Emerging Usages and Implications for Carriers”, June 2006; ARCEP reports; European Interactive Advertising Association survey of 7,000 people across Europe, 2005; BBC, “Gamers in the UK,” December 2005.