What Tencent's recent re-org. can tell us?

Tencent has just announced its re-org. plan after 6 years, which it will consolidates the content and digital entertainment businesses and segregate the cloud business as an independent group. What’s behind this message is that tech companies, all over the world, are preparing for the 5G era, which will drastically change the current industry and online user behaviors. With streaming services becoming much more accessible, we will expect a higher volume of digital entertainment (e.g., streaming videos, social media…) consumption. 

What is 5G?

5G networks are the next generation of mobile internet connectivity, offering faster speeds and more reliable connections on smartphones and other devices than ever before.

Combining cutting-edge network technology and the very latest research, 5G should offer connections that are multitudes faster than current connections, with average download speeds of around 1GBps expected to soon be the norm.

The networks will help power a huge rise in Internet of Things technology, providing the infrastructure needed to carry huge amounts of data, allowing for a smarter and more connected world.

With development well underway, 5G networks are expected to launch across the world by 2020, working alongside existing 3G and 4G technology to provide speedier connections that stay online no matter where you are.

What are the impacts of 5G?

5G will impact media consumption thanks to significant technical improvements in transmission speed, quality, and reliability, which will drive innovation in content.

Transmission Speed: Download speeds are bound to increase at least tenfold compared to 4G, and for true 5G standards, it could be up to 100-fold. So if an HD movie takes six minutes to download in a 4G network, with 5G it could take a handful of seconds. Also, in the era of user-generated content, photo and video upload speeds will improve, fueling social media content.

How will 5G Impact on Digital Media & Entertainment?

5G promises to enable close to zero latency between a streaming source and the viewer (from tens of milliseconds to less than three). A 4G culture taught us to be impatient. We are willing to sacrifice quality in order to avoid waiting. That is, we are ok with a half-quality stream as long as we get our content fix, uninterrupted. With 5G, there will be less of a trade-off between quality and speed. You will be able to get HD quality video on a fast, reliable stream, with little buffering.

These dramatic improvements in speed, quality, and reliability during media consumption will lead to radical innovations in premium content, such as dedicated virtual reality sports channels and multi-player mobile games. Chris McCann from Verizon's Corporate Communications, states: "We see the distribution of high-resolution digital content and media as a tremendous opportunity for the technology."

Value chain effects

In the internet era, it is easier and less costly to distribute content, so top content creators and owners have enjoyed a favorable position in the value chain to capture profits and margins. "Content is king," many industry experts claim. But with 5G, the power will tilt back in favor of distribution. 5G providers will own the most fertile land to distribute the best content, and content providers will have to pay the price.

5G network providers will get plenty of market power, at the expense of cable broadband providers like Comcast. Expect cable providers to partner with, acquire, or be acquired by 5G mobile providers. Also, expect tech companies like Facebook, Google, and Amazon to try to enter the 5G game.

Consumption effects

Transaction cost economics can shed a light on how consumer demand and behavior will change. Right now, streaming is preferred because of the high cost and delays from ownership. Downloading a movie can cost about $15 to $20 for an HD version. Downloading a song can cost up to $1. The economics of renting or streaming content is favorable, especially for content that we only consume once.

In terms of delays, in a culture of impatience, downloading content is on the losing end because streaming happens faster. But that will change with 5G. The time it will take to download digitally-heavy content like TV, film, or games will go down dramatically, to seconds. And viewing the downloaded version will be less subject to connectivity problems when we are on the go. Therefore, we should see a move back to downloading on mobile devices, either through online purchases or by using the download function of streaming services like Netflix or Spotify.

Looking at the economics of the industry's value chain and of consumer behavior, we can predict that 5G will lead to major content innovation, a move to live-streaming, and a come back of downloading. But this is just the tip of the iceberg and as often happens in technological transformations, there are many other impacts of 5G that cannot be foreseen, so we will just have to wait and see.

Here at Alibaba, we are also transforming ourself and putting more efforts on the digital arms to embrace 5G era.