And the Award Goes to …. The Emmy Awards and the Future of Telecommunications

When you think Emmy Awards, you think celebrities — who’s wearing what, or perhaps who’s saying what. This year, what you may not have seen is the behind the scenes battle over the future of content — traditional networks are being upset by a new generation of content-providers.

A Changing Tide
This year’s Emmy Awards told us a lot about the future of telecommunications. The 2017 Emmy Awards marked a television first: since the awards began in 1949, the top award for Outstanding Drama Series went to an over-the-top content supplier. Hulu’s win for The Handmaid’s Tale was joined by Netflix winning four Emmy Awards for three of its own shows, and a host of other wins and nominations coming from studios that are decidedly outside the historic mainline television companies. All-in, including the Creative Arts Emmy Awards, the non-traditional triumvirate of Netflix, HBO, and Hulu took home an astounding 59 awards.

While this is big news for television, it could actually be a very strong indicator of how telecommunications companies will have to evolve over time.

Content vs. Distribution
Across all markets, there are some basic trends: when distribution channels are limited, whoever provides the route to market can aggressively monetize their channel. When distribution channels are plentiful, the balance of power swings back to the product or service.

In the content streaming space, Netflix was the first player. Because they were the only streaming service at the time, they could negotiate great deals with the providers of content. By the time those first contracts were up, other streaming companies had emerged, and Netflix had to pay billions of dollars to license the content. As distribution channels became less constrained, the value accrued to those who built the original product.

Owning the Product
It should then be no surprise that every major distribution company has since invested in creating their own content. If that’s where the profits go, then you have to move the business there. Netflix, Hulu and Amazon have all gotten into the content business. This allows them to own both the product and the distribution, effectively double-dipping in the space.

But is Netflix really handling distribution? As a streaming service, they are a key part of the distribution channel, but they themselves rely on the underlying telecommunications providers as actual distribution.

Telcos and Distribution
If you’re AT&T, Verizon, or Comcast this raises a pretty important strategic question. If your primary role is distributing content (media, emails, etc.), then you basically monetize the channel. If there are few channels, then you can monetize fairly aggressively. But as more distributors join the market, your distribution channel is inherently less valuable and you can’t charge as much.

In the telco space, this is a huge problem. The costs of building out nationwide coverage for both wired and wireless infrastructure are huge. Competition is also getting stiffer as more players enter the fray. T-Mobile and Sprint have largely reached good-enough coverage for mobile connectivity in most metropolitan areas. Cable companies have obviously been in the wired broadband space for a while. And of course, there is the next tier of providers like CenturyLink and Frontier, as well.

Telcos and Content
It shouldn’t be any surprise that major telcos are evolving their strategies so that they own both the distribution channel and the product. AT&T bought DirecTV, which gave them sole rights to many NFL broadcasts. Verizon picked up Yahoo. Comcast owns NBC, as well as channels such as Bravo and USA, and local sports.

And increasingly, telcos are seeing nontraditional competition from the cloud players, who, unsurprisingly, have their own content. Amazon has invested in their own studios, for example, and Google owns perhaps the biggest trove of content with YouTube.

And what about net neutrality?
This is all before we even consider the impacts of net neutrality. If the distribution networks and content providers become more than just symbiotically related, it could further accelerate strategic changes aimed at drawing customers into particular networks.

In a non-net-neutral world, even things like enterprise applications and data start to look like content. This will make it critical for telcos to consider how they partner with the major cloud providers. Interestingly, these cloud providers look like content providers from an application perspective, but they look very competitive from other angles. Could Amazon offer managed cloud services, for example? Could an enterprise version of Google Home replace the branch connectivity solution in distributed retail?

The bottom line
Telecom infrastructure providers are all undergoing their own transformations. They talk about being more capital efficient, more highly automated, and more committed to open source, all as a means of managing cost. But it could be the top-line that makes the most significant impact on these markets, and perhaps this year’s Emmy Awards are just a prelude to what will ultimately be a battle for content.

The Challenger is a series of posts authored by a member of the Juniper Networks Executive Team. The goal is to challenge existing norms about technology, business and society.