Kate Bulkley, Media Analyst.

Better late than never

By Kate Bulkley

The Guardian

Monday, April 17th 2004

Once taboo, convergence is back on the agenda. The seamless delivery of TV, music and the internet is poised to radically alter the media and business landscape and, as Kate Bulkley writes, telecoms and industry leaders are eager for a slice of the commercial action

When convergence became the buzz word of the media world during the dotcom boom, it described a vision where TVs, the internet, mobile phones, PDAs and the like would all become part of a single distribution platform for information and entertainment.

But when the internet bubble burst, the buzz word became tarnished and fell out of favour. Not only was the technology convergence relied upon still catching up with the concept, but as fiscal reality hit the bottom lines of the companies involved, the business models underpinning these strategies were unmasked as shaky at best and, in many cases, disastrous.

Now, several years on, convergence is again the word. And yes, it's got groove and it's got a whole new meaning. Not only has the technology caught up, but it's also advanced. Sure, there are still gaps in what Brian McBride, the head of T-Mobile UK, calls the "seamless delivery of services" across different platforms but the kinks are being ironed out.

A lot of this is down to the falling cost of technology, but also a new willingness among the players to work together. Most pertinently, the power of convergence is that it relates to the partnerships (both current and potential) among some of the most important players on the media stage.

It's BT's network strength getting together with the internet content of Yahoo!; it's the Sony Ericsson multimedia phone leveraging Sony's understanding of content with Ericsson's mobile handset expertise; it's Apple's iPod vision acting as a catalyst to get the major music companies working together on music downloading.

For a company like T-Mobile UK, the strategy today includes talking to a fixed-line company like BT about how they can cooperate to provide customers with services that use whichever of their networks is most convenient and cost-effective. The idea is that the customer's mobile phone or PC could log on to the network that it needs at the time, be it a Wi-Fi hot spot in a Starbucks coffee shop or the fixed line if it is at home.

"In the past, you've seen convergence as a defensive ploy by fixed-line companies trying to stop the erosion of their marketplace," says McBride. "Now we are working with BT for the convergence piece because we think it could be a win-win for both of us. At the end of the day, it may get us into markets we couldn't get to on our own today."

Underpinning convergence in the UK are a raft of technology success stories. Broadband connections are growing at 35-40,000 a week and already number 3.6m lines; 3G mobile will be launched by several of the established mobile operators later this year; DVD penetration continues to grow; Wi-Fi technology is rolling out from coffee shops to trains to airport lounges; home networking is starting to take off; Freeview's is having runaway success with digital TV boxes in more than 3m homes; Sky+ PVR boxes are in about 300,000 homes; and digital radio is taking off.

"Is convergence back on the agenda now? Yes, very definitely," says Arash Armel, a research analyst at Screen Digest, a media research company. Armel believes that broadband is behind the new focus on convergence with Screen predicting that UK connections will more than double to 9m by 2006.

"There are enough broadband-enabled households now for the economics to start to make sense for a lot of new services," says Armel. Look no further than the recent words of Eric Abensur, chief executive of Wanadoo UK, the internet service provider formerly known as Freeserve, who says he is going to make broadband more exciting by cutting subscription prices and offering more services, eventually including video on demand (VoD) and TV.

Wanadoo plans to roll out a home gateway box this summer that will include high-speed internet, Wi-Fi, Bluetooth, the ability to make voice calls using voice over the internet (VoIP) technology and TV. "I don't want to be an ISP," says Abensur. "I want to be a broadband services provider with a range of products from high-speed internet to voice calls to VoD."

One point about the recent advocacy of partnerships is that the lines are now blurred between what companies traditionally did and what they can do in the future. This has made business plans a bit more complex, but in the long run many say they will be more robust.

In this new world, Apple becomes a portable music device company and music retailer, BT is hard at work testing a VoD TV service using its phone lines, Nokia launches N-Gage (a portable games player that is also a phone) and Microsoft Media Centre software turns your PC into a home entertainment hub to organise all your digital content from digital pictures and music downloads to scheduling your TV.

In all this, the battle for the home becomes a high priority because the living room and the home PC are where most digital content originates. The cost of equipping a home network has come down to between 150 and 250 euros. The big hurdle is not price but the mental hurdle of installing it.

"We see the home network as the strategic building block for all of this and we think it is easier to package it with a second PC purchase with an easy on-screen set up," says Aymar de Lencquesaing, general manager of NEC's Packard Bell.

Other companies aren't so sure they want to cede the home network to the PC makers. BSkyB's Sky Plus box is evolving, with more hard disc space for storing more programmes and even advertising messages and the potential for a broadband connection.

Meanwhile, Sony's newest PlayStation games console incorporates a TV tuner, a PVR (personal video recorder), a DVD and a broadband link. Convergence doesn't amount to any more than faster emails and clearer telephone calls unless you factor in content.

With more and more customers connected to broadband devices, content giants such as the Hollywood studios are starting to become interested.

"From a studio perspective, we realise that there will be an alternative to the way we sell our product today," says John McMahon, general manager for Sony Pictures Television International Europe.

"Consumers will be attracted to different types of products depending on the device they are using, and there will be different price points. The fact that Sky is a big brand in the marketplace and good at what they do is important to us, but we are not going to allow ourselves to be restricted in how we deal with these new technologies either."

Sony already distributes its Spanish satellite TV channel AXN on Imagenio, Telefonica's pay TV service is delivered over its souped-up phone lines and the studio is in talks with other telephone firms around Europe about offering its movie product over telephone line-based video on demand services.

"This is the set up year for the fixed line operators across Europe," says Screen Digest's Amel. "All the telcos see this as the way forward as their traditional phone business becomes increasingly commoditised. Any that aren't in the latter stages of product development or the early stages of product launches this year will fall behind."

Sir Howard Stringer, chairman and chief executive of Sony Corp America has called 2004 "the year of convergence". He sees the growth of broadband connected TVs, PVRs, PlayStations, mobile phones, MP3 players and so on as a way for converged companies, or loose alliances of companies, to bridge the gap between content and consumer. "We will no longer need a permit from the gatekeepers when we want to reach the consumer," he says.


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