Executives from several of Australia's largest internet service providers have over the past few months expressed their desire to become media companies in their own right.
Telstra's aspiration to become a media company has recentl been cemented, with the carrier rolling its ISP business (BigPond) into Telstra proper and launching a new content-centric division, Telstra Media.
The move puts former OzEmail exec and Telstra Bigpond leader Justin Milne into a position he's long desired — to be more than the "dumb pipe guy" — and instead a wheeler and dealer of content.
"It's a very much more enjoyable world to be in than the guy who gets disintermediated from the content and the applications and just finishes being a dumb pipe guy," he says during a recent video interview. "I'd rather not be that guy."
iiNet managing director Michael Malone in some ways has a similar vision.
"Right now, the [ISP] game is about getting as many households as possible connected to the internet, and in our case getting them onto as faster speed as possible," he says. "But the next phase then is, well what are you going to use that [speed] for?"
Telstra has paid big dollars to obtain exclusive online and mobile rights for high-profile sporting brands such as the AFL, the NRL and V8 Superstars. The telco giant is also producing programming — including 18 hours of live TV doing the 'round the grounds' coverage on the BigPond Sports Weekend, and the filming of Monday Night Live — a live music show broadcast to broadband and mobile subscribers from renowned music club The Basement.
I can't pay those content providers in Hollywood a rational price to re-sell content to my customers. So it's not surprising that in the end, at the moment, they steal it.
Internode's Simon Hackett
"One, from a marketing point of view it differentiates us from our competitors," says Justin Milne, former Bigpond chief and now group managing director of Telstra Media. "Two we make money from it — when people buy music or movies from us we make a margin on that, and in addition it also drives access revenue.
"We also find that people who use our content, notwithstanding the fact that the content is unmetered if you're a BigPond customer, finish up buying higher access plans. Finally, people who consume content churn less. The churn is less from people who, for example, habitually go to the AFL site than it is from people who don't use the content."
In the last twelve months, Telstra's smaller competitors have also been edging in on the content game. Internode has been actively hiring staff to investigate content deals, while iiNet is week by week adding new content to its unmetered 'media lounge'.
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"We are building up a library of free content for our customers to be able to access that gives them a reason for having a 20Mbps connection to the house," Malone says.
The ASX-listed ISP already offers unmetered (downloads that do not count towards download quotas) access to iTunes content, the ABC's iView content, Macquarie Financial TV and a wide range of global radio stations. The recent addition of broadcasts of English Premier League soccer has been a "breakthrough", Malone says, with about 25 per cent of iiNet's customer base already having viewed at least one game.
While sports has proved incredibly popular, Malone says it's the niche content smaller ISP's provide that will enable them to compete with the big media players and Telstra.
"I think of iiNet as a small business, we have five per cent market share nationally compared with Telstra's 50 per cent," Malone says. "So [while] Telstra's out there chasing all the really popular content that has broad-based appeal to the entire community, I'd like to see us going after some of the quirky content that has particular niches.
iiNet's Michael Malone
So for instance, importing a television station that is broadcast live from Ireland or Italy or Brazil. That's going to target a particular segment of the Australian community that Telstra might not be interested in pursuing because its quite small, but for iiNet it's a meaningful number of people."
Malone says that finding content is "easier than you might think". Content owners, he says, are looking to get access to customers, but are only too aware that in Australia, customers are limited by download quotas on their internet connection.
"If somebody downloads a movie from iTunes, it costs them $2.99 to rent it for 48 hours, but it might also cost them $150 in download charges from their ISP," Malone says. "Most of the content owners want to bypass that quota system."
The only way for marketers to gain access to those subscribers is for ISP's like iiNet to bring the content local (so the traffic doesn't need to be hauled from the United States, for example), and make it quote exempt or 'unmetered'.
Malone admits the business model for iiNet to profit from this content in the future is yet to be entirely worked out. While BigPond is actually profiting from content via branding (advertising) deals, iiNet is pursing a strategy of acquiring "as much content as you possibly can, and then you look back at it and see if there was a strategy in there!"
Today, Malone sees unmetered content as a customer retention tool — but expects that to change as late adopters become connected to the Internet.
These late adopters would more easily be swayed by the promise of seeing a movie with Brad Pitt and Angelina Jolie for free, he says, than the promise of '20 Megabit per second ADSL with Voice-over-IP on our dark fibre network with broad soft-switching capability'.
"There may come a point where content itself becomes useful as a way of pushing sales," he says.
Hollywood's missed opportunity
Internode's Simon Hackett also has some mainstream content ambitions. "I look forward to a future where we're actually more a part of the curation process and not just a mechanism to bring the data to people," he says.
But today, however, he feels hamstrung by the lack of interest from the major content owners (movie studios, record companies etc) to consider smaller ISP's as a legitimate new channel for selling their wares.
"In Australia the irony is that Hollywood still hasn't really discovered us," Hackett says. "Hollywood keeps re-inventing region coding, to the chagrin of or everybody. They've reinvented it with Blu-Ray, they've reinvented it with IP-delivered content by actually caring about where your IP address is."
It perturbs Hackett that many US TV companies will offer free downloads of shows broadcast the week prior, but only to US citizens.
Telstra's Justin Milne
"I can't pay those content providers in Hollywood a rational price to re-sell content to my customers. So it's not surprising that in the end, at the moment, they steal it. Its just crazy, its just diminishing the value of the very thing you'd expect they want to gain income from."
This means Hackett, like Malone, looks elsewhere for most of his content, diving deeper into the 'long tail' of the Internet.
Hackett says he'd like to create his own multicast IP stations, "but again I can't actually get the licensing to do it," he laments. "So lately we've been thinking, I wonder how hard it is just to become a channel instead? To actually bring in the content ourselves, and use the appropriate open source tools to put channels together. It's certainly a place I'd love us to go."
Hackett believes content providers will eventually have to adapt their business models and embrace the Internet.
"I think the person who is going to demonstrate it is [Apple CEO] Steve Jobs," he said. "What happened with iTunes is a remarkable notion — that it's worth paying a little bit for a music track if the convenience is there."
"There's a real argument there, that getting the bits delivered faster and more reliably is worth some money," Hackett says. "This concept is not illegal, immoral or fattening. I'd like to see is a world where we can charge to bring in content, and it may not be a very high charge, to get it right now when you want it and get it very conveniently."
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