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Potential Hulu Sale Puts Operators at a Crossroads

Thu, 07/21/2011 - 1:54pm
Mike Manzo, Openet

The news of Hulu's potential sale has been a source of constant speculation for some time now. As far as big time suitors go, rumors have pegged Yahoo!, Microsoft, Google and Amazon at the top of the list. In more recent developments, Netflix has taken itself out of the running as a buyer. This is not surprising considering Netflix's desired direction as a premium content distributor like HBO, as compared to Hulu's offering and business. What is somewhat disappointing about this whole purchasing situation is that more operators are not in the running to snap up Hulu.

As sites like Hulu, Netflix, Apple's iTunes and even Google win over consumers with on-demand content, operators are missing out on a serious opportunity – one that could truly signal a business breaking point. Partnering with content providers to develop innovative services could take operators to a new level of profitability Mike Manzoand consumers to an increased level of satisfaction. Instead, operators and content providers are in a constant fight over rights, money and bandwidth.

It's not news that operators are losing their value with consumers, as the bureaucracy of carrier restrictions, rules and access are pushing consumers to opt for more flexible, on-demand content from providers like Netflix or Hulu. However, operators are still responsible for the delivery of such content and are starting to look more like just a distribution point than a valued partner or provider.

Device makers and content providers have started calling the shots, and these decisions directly impact operators' business as well as the larger telecom industry. The positive side to this is that new business models and intelligent tools are finally starting to surface; those that truly meet the needs of subscribers. Unfortunately, operators historically have a hard time innovating and find it challenging to act as agile as these device or content companies. If operators don't start pushing out of the traditional organizational model (the comfort zone), there is a real chance that these device and content companies may look at buying carriers up—crippling operators' chances of stand-alone success.

Think about it. It makes sense that a device maker like Apple or a content provider like Google will get sick of the terms operators present and start to purchase what is needed to continue to deliver quality services on their own terms. Another option might be that users start paying for usage, being charged for every bit, while overall experience is downgraded. It's not that farfetched of an idea when you look at tiered pricing and the control that content providers already have.

However, for consumers and organizations in the telecom industry, the brave new world ruled by content providers might not be such a bright and shiny future. Consider what happened to Netflix in Canada. With broadband caps that were implemented, users caused an uproar when service quality was downgraded. Things became messy, and no one won. This is a challenge that still exists today, where quality of service issues conflict with user demands.

Despite the gloomy outlook for carriers, there is still hope. Operators have a chance to turn a corner and start to provide more value to consumers and OTTs. As Apple has successfully proven, user experience is the name of the game. Service providers have the tools to create a meaningful user experience while maintaining profitability. This requires more than just the development of a channel for great quality of service. The ability to provide more value-added services like Web 2.0, premium content and parental controls are critical to achieve a full experience, and operators must engage with customers to achieve this.

There are core elements of carriers' business models that can be utilized in this new era. For example, operators should consider offering more wholesale models to content providers, while ensuring quality of service for promotions. This takes into account potentials for revenue, new business models, partnerships with OTTs and, most importantly, the experience for the consumer.

Hulu's sale is going to shake up the telecommunications and cable industry, whether carriers are able to purchase the company or not. How operators decide to use this industry event to the advantage of the business and ultimate happiness of users is going to be the main turning point for future endeavors. But it won't be long before opportunities stop presenting themselves, and content providers refuse to sit at the bargaining table any longer. Carriers will need to get their act together, before they go the way of the dinosaurs.

Mike Manzo is chief marketing officer at Openet, where he oversees marketing and product management.

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