Universal business conventions form the foundation of modern trade. Additionally each industry has its own set of rules defined by business’ economical constraints and environmental factors. Together these “rules” make up the laws that function as the basis for building business relationships with other parties in the value network. Since high-definition video was the focus of this study special consideration is given to ways application of this new technology will affect online video content distribution services.
In order to learn the rules of a trade the easiest way to start would be to look at contract documents between companies already participating in the game. Most of the agreements between companies have been spelled out in writing and stored somewhere. Unfortunately for currently active business engagements most often no such paper trail will be visible, nor is there an open archive for public to see. For an outsider understanding the logic of a business would require a lot of tedious work piecing together the complete picture. Not surprisingly the scientific study of business dynamics of an industry can be compared to detective work.
It is really tricky to really make sense of the really meaningful constraints and not so important ones. Puzzle building must start with corner pieces. Thankfully there are some simple clues and easy leads for starting the inspection. For example services aimed at consumers are required by law to have clear product descriptions. This documentation of the immaterial goods allows the detective to deduct the ingredients and sources of the content. Similarly, while extensive bundling muddles up the calculations, the price of the end-product gives an indication on the minimum sum the propriator must have paid for the said goods.
Laws are the framework within which legal business is conducted. In addition to laws of the land companies make legally binding contracts with each other. These business aggreements can be made on the terms, promises to partner for limited time or keeping the transactions disclosed from others. While important this documentation is more interesting to lawyers than to strategists trying to explain why things are done. Thus it is significant to notice there exists set of limitations caused by the physical world that have not yet been overcome with new technical implementations.
For high definition video the biggest obstacles are the limited means available for capturing, processing and securely delivering the content. As with digitalization before advent of high definition video the video content business had reached an equilibrium with set of standards ways of conducting business. The rules have evolved to their current state without systematic design and are more a rigid collection of forced compromises than a child of an orchestrated effort. Consequently the rules of a business are slow to change, even if the external forces, such as technological break-throughs or massive user-adaption, were to change their direction.
Capturing high-definition video is becoming quite accessible. At production houses professional camcorders are slowly being replaced by HD models. Processing HD signals is computation intensive and price of editing system is another factor inhibiting HD adaption rate. Availability of full-HD consumer camcorders are likely to drive up adaption of HD television sets, which will indirectly have an impact on demand for HD entertainment services.
Distributing high definition entertainment is mainly constrained by network bandwith, but also by the availability and price of compatible end-user devices. Network architecture has a profound impact on the economics of distribution. Currently television broadcasting offers the best opportunity to start HD video services as broadband multicasting and unicast are still constrained by the last-mile connections’ capacity. Due to capacity constraints not even television networks will be able to offer full all-HD catalogue so there exists a clear barrier to entry.
Network capacity challenge currently protects the incumbent players offering video services ie. cable operators. Overcoming this barrier would require either building a new higher capacity distribution network or leveraging competitive advantage from advanced user experience personalization. A new network should be able to reach significant number of customers and provide data transmissions in excess of 20Mbit/s end-to-end for each subscriber. Solutions based on fiber and distributed caching servers are the most attractive solutions. Sophisticated personalization could allow to use lesser bandwidth by relying on caching at the user’s end.
For a start-up in video services space it helps that the distribution challenge is the same to all players. Especially as long as secure transmission techniques have not been globally agreed upon, it is unlikely that other players would be able to make aggressive early moves and gain unfair advantage. On the other hand hard copy formats such as Blu-ray do have time to catch an early lead. However productions teams are quite slow at moving to HD so there is still lack of content produced in HD.
Traditionally media companies have been trying to balance their risks by bundling their products. As freedom of choice is highly valued by consumers offering new contract types to customers could be advantageous. However offering such fine dining experience instead of traditional all-you-can-eat buffets will be possible only if very large number of customer base can be summoned early on or if contracts with suppliers can be negotiated on revenue-share basis.
It is clear that high definition video is likely to have an effect on the media industry. The rules themselves will stay much the same, but the weight of each constraint will have to be adjusted. Consequently we will need to model the whole media industry value net in much more detail. Also since we are not working in a vacuum we will need to have a clear understanding of significance of all other rules before we can make conclusive judgement on effects of high definition technology on video services business.