The content and network men

At the consumer end of the business, Virgin Media and Sky will fight like cats in a sack says Raymond Snoddy – but what is remarkable are the large areas of agreement between them. So what do their leaders have to say about the future of the market – and what do they really think of BT and Netflix?

One of the most sterile debates in the media over many years has been about whether content, or distribution and networks are king.

In the latest echo of the old argument it is now being claimed that content now really, really is king, because networks and paths to the consumer have continued to multiply so it is content that makes you stand out.

Certainly rights to exclusive sporting events matter, as do original, edgy dramas of the sort produced by AMC/Sundance – dramas such as Madmen and this week’s Emmy winner Breaking Bad.

The likes of Netflix is prepared to pay billions of dollars for second run rights as well as $100 million to make a marketing statement with House of Cards.

The truth of course has not changed very much. It’s always been about both and it’s its even more fine and dandy if you can manage to own networks and produce your own original content.

The perfect example of how you can still make piles of money from either route could be seen in sharpest profile in the closing session of the CTAM cable conference in Barcelona at the weekend when two top executives discussed the future of the business.

One wore a sharp suit, white shirt, no tie obviously, and he was the network guy actually in the process, in a counter-intuitive way, of selling the content channels he controls.

The other – the primarily content guy – was in the sort of casual fashionable look; informal shirt, jeans and jacket that cost much more than you would think to assemble.

The two have been billed as bitter rivals in the UK market but they seemed perfectly charming to each other and indeed when one of their corporate jets developed a technical problem they were happy to share a single corporate jet on the way back across the Atlantic.

One was Mike Fries, president and chief executive of Liberty Global, who the previous day had been celebrating the final closing of the $24 billion acquisition of Virgin Media. Not everyone was celebrating; the day had also been marked by the announcement that 600 Virgin Media staff, many of them middle managers, were going to lose their jobs.

The other was James Murdoch, deputy chief operating officer of 21st Century Fox and chairman and chief executive of the company’s international division.

Behind the two men and their strategies lurk the long corporate shadows of two legends of the media business, Rupert Murdoch and Mike Fries’s boss, John Malone.

But how, the two were asked, could their strategies be so different, the contrast so great? Could they both be right?

The answer from Murdoch was deceptively simple.

“Content is just the business we are in,” he replied.

Content is what the company has always specialised in historically – from newspapers to films and television. News Corp also happened to miss out on the opportunities to buy into the cable industry in the US when small cable networks could be snapped up for what would now be considered next-to-nothing.

Rupert Murdoch has admitted that failure to buy into cable in the early days was one of his biggest business errors. But at least he spotted the potential of satellite.

Fries has put Liberty Global’s Chellomedia channels up for sale as not being part of the strategic future of the group. The latest betting is that Scripps Networks in the US has its nose in front from an extensive field.

The Fries argument goes like this: they need access to all the very best content but they really don’t need to create it themselves or own it. They are happy – well, relatively happy – to pay BSkyB around £700 million a year for content.

The Liberty Global approach is to focus on signing more and more subscribers to the “quadruple play” of TV, broadband, fixed-line and mobile – or as Richard Branson calls it “fourplay.”

Apart from that, Fries believes one of his enduring assets will be gradually rising broadband speeds, from 100 mbit/s to 200 and even 500 mbit/s.

So all power to original content and networks.

As for BT’s entry into the television market, Fries is unimpressed by the business case.

“It’s neither one thing nor the other. They are stuck in the middle,” the Liberty chief executive said.

James Murdoch saw BT Vision as a purely defensive move to try to protect their existing broadband base.

When you get to the consumer end of the business Virgin Media and Sky will fight like cats in a sack but what was remarkable was the large areas of agreement between them.

Fries insisted there was absolutely “no need for belly-bumping.”

Both the network man and the mainly content man were in total agreement that further consolidation in the industry was both inevitable and desirable. It would involve mobile as well as cable networks and the consumer would benefit as a result of richer and richer offerings.

Vodafone’s $10.4 billion purchase of Kabel Deutschland, cleared this week by the European Commission, was a deal that showed how attractive cable networks now were.

There is little sign of OTT operators like Netflix causing significant cord-cutting, trading down from more expensive cable and satellite subscriptions.

Indeed Virgin is so unphased by the Netflix “threat” that it has recently done a deal with the over-the-top operator.

It’s “just another channel rather than a competitive platform,” insisted Fries.

Both believe that you haven’t anything seen anything yet as far as pay TV is concerned and all around the world pay TV will continue to rise, making content and network owners richer and more powerful.

But both corporate structures, and the way ever multiplying choice is offered to the consumer, needs to be drastically simplified.

Despite moves by American competition authorities towards selling a la carte, Murdoch in particular is still a big fan of bundling channels. Or as the controversial executive put it, “all you can eat” for a single subscription.

Unsurprisingly, the two executives were as one in the belief that consumers were getting a great deal on their media and communications offerings.

Which can only mean with further consolidation we will all have to be vigilant that the content and network men try to belly-bump us by ratcheting up their prices.