There’s Gold in Them Thar Fibers!

In an industry which, at times, seems to move at about the same rate as molasses being poured from a jar, the communications and media world’s got a whammy recently when Apple announced it was lifting digital rights management (DRM) restrictions on all songs being offered on iTunes by April.
 
This is big news, especially when you think about how hard record companies have been fighting piracy over the past few years. They succeeded in getting peer-to-peer sharing sites like Napster and Kazaa shut down, and they have not hesitated to drag individuals into court for the dreadful crime of sharing songs with others.
 
How things have changed! The record companies probably figured out that they are going to lose the DRM war anyway, so why not make some money? Apple’s new tiered pricing means rather than just the usual 99 cents you pay for a song on iTunes, you might also pay $1.29 or the lower 69 cents, which likely will be reserved for older songs.
 
Technically speaking, record companies could come away a winner if they choose to have all new releases priced at the $1.29 level, and customers could feel more empowered by being able to copy the song to as many devices as they want without worrying about the Coldplay police breaking down their door.
 
In a direct challenge to Nokia, Apple also announced it would provide iTunes downloads over 3G rather than just over Wi-Fi. It wouldn’t be a huge leap to say the next step down this DRM-free road is removing restrictions on movies. Yippee! Hopefully an end to those ghastly “Piracy is Theft” diatribes at the start of each DVD will quickly follow. But more strategically, we’ll be seeing a vastly different digital value chain than we have today.
 
We could see a day when there’s an extremely simple way of downloading music, movies, TV shows, books and anything else that can be turned into a digital format and more with no complexity getting in the way. You just pay your money, and that’s it.
 
Invest in Infrastructure
While many industry watchers are on the “gloom and doom” bandwagon, I think the Apple announcement is just a small example of the vast opportunities available for communications companies. Telecom is in a very strong position to take advantage shifting money from where it’s currently being spent (in shopping malls, etc.) to being bought and delivered via their own portfolios. No need to invent brand new services that nobody ever thought of before; it’s far easier to substitute for some existing service by doing it cheaper and more easily. It’s going to happen, so telecom companies need to grab the turf before others do.  But the challenge is not just to deliver the bits, it’s about creating a great customer experience when acquiring entertainment - it has to be a complete service:  easier, cheaper and better than browsing through a record store or whatever.
 
During a recession period, the whole pie gets smaller, so winners and losers will be determined by who figures out how to take money from someone else. Telecom is in a perfect position to succeed here, because of the move to online commerce. Key to their success will be to make appropriate investments to facilitate this, but unfortunately there are roadblocks that operators have to go through first.
 
We’re seeing all these fantastic services like being able to download TV programs, IPTV, and 3D television isn’t nearly as far off as you’d think. All of these services and others will need significantly more bandwidth than we have available today.
 
When I was in Japan recently and saw a demo of 3D television, several people told me they had 100 megabit per second fiber coming straight into their homes. You might think that’s overkill, but you’d be surprised. Just a few years from now we’ll think 100 megabits is a joke, and gigabit speeds to the home will be the norm. And yet today most of the world is living with 2 or 3 megabit connections if they are lucky ( I’m not, I’m stupid enough to have bought a house a few miles from the central office, so I have to be grateful for about 500K !).
 
In the computer industry, Moore’s law has ruled so long that nobody agonizes too much over the business case for higher chip speeds or more memory. Imagine if Intel said it wouldn’t develop higher speed chips until the applications were proven. In that chicken and egg conundrum, the capability has to be there before the application. Same for communications – bandwidth demand will mirror memory and chip increases and must be there before a really vibrant online industry can take off and truly change the shape of the market.