Even thought business practices and value chain composition probably are very similar across the digital entertainment services industry, it is clear that a case study analyzing specific players is necessary. So in order to make any sense of the general workings of the industry a joint effort between Elisa Corporation and Canal Digital Finland has been selected as the target of the study.
The two nordic companies cooperatively launched an IPTV service called Viihdekaista in November 2006. In addition to the basic free standard-definition television services the service offers pay-tv packages and movies on-demand that can be purchased using the set top box included in the monthly fee. A fast 24Mbit/s ADSL broadband connection was required to be eligible for the service.
Canal Digital is part of the norweigian Telenor group that operates IPTV services also in other Scandinavian countries. It appears that the co-operation between the two companies has given Elisa the opportunity to cost-effectively and quickly offer broadband video services using Canal Digital’s headend infrastructure. On the other hand Canal Digital Finland that operates pay-tv services in the finnish terrestrial network has gained the possibility to widen their footprint to densely populated areas, where most households receive television through cable television network.
For any partnership, where there is no clear supplier-customer roles, loyalty is key to venture’s survival. Both companies need to tightly bound to the arrangement in other ways than just a legally-binding contract. The fact that both players have significant business investments in video technology outside of the joint venture does not make the arrangement any easier to manage. Canal Digital Finland’s most financially significant business is in terrestrial operations. Elisa has SaunaVisio and is a cable television operator and thus IPTV could be considered cannibalizing its operations.
It is clear that the relationship was problematic from the start. However being able to grow the IPTV service’s subscriber base fast would have been in the best interests of both companies. This would have increased the existing added-value of the joint venture and enable further deepening the relationship.
However the tools like social media recommendations or aggressive marketing were not used to achieve fast subscriber base growth. The price of the services was prohibitive to the most subcessible demographic groups.
The operators failed to benefit from sufficient economies of scale in device, content purchasing or service development. Since most power in the value net is wielded by content suppliers a unified front would have been a competitive advantage. The product was designed to battle the incumbent television media and content houses’ existing bread and butter business from the start. In retrospect now that the parties have published that they will walk away from the partnership it is easy to say that they were facing an uphill battle with the product offering.
Disclosure: I used to work on the Viihdekaista development in 2005 and 2006, but haven’t been involved with the product since then and all the presented ideas are purely speculative.