Friday, September 12, 2008

What business are you in, part two

I've spent the last 20 months writing and talking about telecommunications companies using Internet technology to deliver video programming to consumers (IPTV). In the U.S., AT&T and a host of smaller companies offer IPTV, as do France Telecom, Telefonica, Deutsche Telekom and many other service providers in Europe. They compete with cable operators, satellite providers and over-the-air broadcasters.

A few posts ago, I mentioned Ted Levitt and his famous "What business are you in?" question. If you talk to representatives of these companies, they're likely to tell you that they're in the telecommunications, or cable, or satellite, or broadcasting business, but they're really all in the entertainment business. That's what consumers are buying. Consumers couldn't care less whether the signal comes in over a twisted pair or a coaxial cable, using a satellite antenna or rabbit ears. To consumers, these services are interchangeable; economists call them fungible. Consumers are making their decision based on price, channels, picture quality and customer service. To date, for all the talk about interactive applications, there's no evidence that they actually drive consumer choice one way or the other.

That's why there's so much "sturm und drang" about HD programming, at least in the U.S. DirecTV got an early lead in HD channels, and everyone else has been fighting back ever since, either by adding more HD channels or trying to convince consumers that they're not all that important. The fact that only a minority of U.S. households has the ability to watch HD television hasn't put a lid on the war of words.

There is a way for these companies to differentiate themselves for real, which I'll write about in a future post.
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