The great European multimedia gamble

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The great European multimedia gamble

“Battlegrounds are unlike those in the US.

The right perspective may be short term and tightfisted.

Above all, protect your core business.”

The McKinsey Quarterly, 1995 Number 3

Policy relevance:

Following the collapse of the Kirch Media Gruppe and the convergence of technologies through which to broadcast media messages makes this analysis is still important to today’s reader.

Main conclusions:

  • The communications networks in the past were built under monopoly conditions. Today’s multimedia landscape could not be more different;
  • Deep uncertainty surrounds consumer takeup, competitive threats, the emergence of substitutes, content and product availibility, the cost of new product development, regulation, and content and gateway providers’ share of economic surplus;
  • There are also uncertain returns as large investments are being made in an environment of enormous risk;
  • The likely end game and winners in European residential broadband will vary dramatically from country to country because of marked differences in their starting points: broadband infrastructure penetration and ability to compete;
  • A country’s existing level of broadband infrastructure penetration and the ability of its telephone and cable companies to compete will influence (if not determine) the long term competitive outcome of its broadband environment. Four patters are here emerging: multiple “battlefields”, emerging cable markets, “war footing” and “negotiated truce”;
  • The best way forward would be to go for the stepping stone approach and making a thoughtful step-by-step sequence of investments with short paybacks instead of taking the “go for it all” approach;
  • Thus minimising investment costs and managing capital expenditure tightly may allow a business to reduce its total costs by as much as 20%;
  • To succeed, companies must recognise that they will need to undertake research and economic analysis to understand the mix of channels;
  • Regulation is the single most important determinant of profitality for a multimedia distributor as it is regulation that defines the speed and terms under which new entrants are allowed to compete in telecommunications.

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