Kings vs. Lords: OTTs/Content vs. Carriers

Content and Distribution does not mix, but they need each other. You need a different set of skills, corporate culture and knowledge to master each of them. Specialization is needed, average does not cut it. It has been said that content is king, but we can also say that distribution is a kind of feudal lord; once powerful but no longer relevant. That was the situation until the feudal lords decided to get together combining, through Ms & As, their lands, aka networks, in order to make them bigger and stronger.

Now in their lands live a vast number of vassals, aka eyeballs. Content is still the king, but now these new powerful feudal lords are able to sit in the table to negotiate with the kings, since they have the access to immense numbers of eyeballs. The Internet has made the distribution business in several industries irrelevant, think about cable TV, brick stores, etc., but there is one distributor who cannot be bypassed, and these are our feudal lords.

This new relation of force between kings and lords, have even received the seal of approval from Warren Buffett, who have recently invested on Verizon and discussed briefly this investing during the last shareholder meeting a couple of weeks ago, and you know that rarely WB makes wrong investment bets.

Kings are aware of these, and they have been betting in different strategies to undermine the power of the lords, like investing in long-haul networks or even local networks, such as the doubtful success of Google Fiber/Webpass attempts, the numbers  of new submarine cables, the MVNO Google Fi, the outright investment in mobile providers (FB investment in the Indian carrier Jio), attempts from FB to reach the vassals in unincorporated lands via the FB connectivity projects, like Internet para Todos in Peru, OpenCellular in Africa, etc., the incentivization via partnerships with the coming LEO satellite providers (such as Starlink/SpaceX) or via direct investment like the project Kuiper from Amazon.

But like feudal lords cannot become kings.  ATT and Verizon failed attempts into the content media business failed is the last reminder of that, but we have plenty of previous examples, like Telefonica’s excursion into media. ATT has just recently spun-off its media assets and Verizon sold its media business, a feudal lord cannot become a King. Neither a king can become a feudal lord. The attempts made by content providers to be network providers have been unsuccessful or too small to be considered relevant. There is a specialization on each of these occupations.

I am sorry RM Kanter, but Lords like elephants will never be able to dance, and the kings, who are born to be beloved, are going to tarnish their brands, overstretch themselves, and become hated if they would like to reach directly the vassals with pipes and hard assets. The lords act as a perfect buffer, between the eyeballs and content. Lords are used to be hated; they actually have been since the Ma Bell times. Competition probably is not the biggest thread for Lords in their own industry, the vassals do not have much choice, unless they decide to move to another land, which is very cumbersome. The main difficulty is to earn a decent return on their capital-intensive business without alienating too much the vassals with a bad or expensive service.  

This equilibrium of forces between the kings and feudal lords, has brought democracy in the Internet world, because now the really powerful ones are the vassals. The problem is that, as in democracy, the vassals are only powerful when they act together, individually they hardly have any effect. But when they move together, they produce big waves that affect the kings and lords greatly, think about when they choose new content winners, like TikTok, Discord, or Disney+. Legacy kings lose power and lords have to rush to open new commercial routes, like Marco Polo a few centuries ago, with the new kingdoms.

Lords have been complaining that they are just dumb pipes and actually they are, they have to accept that. But that does not mean that they should not be compensated enough for their heavy assets invested in their business. The biggest lords have been able to renegotiate terms with the kings and forced them to share a little piece of their big pies. What for a king is a small piece, for a lord is an enticing portion that incentivize its willingness to deploy more resources for improving the lands where the vassals live. The middlemen will probably suffer the most, i.e. the majority of transit networks and neutral CDNs.

There are several strategies that lords can apply to protect their strength and usually they make the mistake of undermining themselves. All these strategies point in one direction which is protecting the vassals living in their lands.  This is hardly surprising, the most important duty that a feudal lord had was to protect his vassals. There is not an objective of this article to discuss them here, but in general they need to establish a walled garden in their lands. For that the first, and basic thing to do it is not to peer or purchase transit locally (in your own lands, where the vassals live),  but peer openly and free with anyone remotely and purchase your transit even further abroad….and do it without exemptions, because as as Benjamin Franklin said: “…a small leak will sink a great ship”…to be continue…