France Telecom in the Movies

The next move for telecom companies is to look outside telecom

It would seem that if cable and phone companies are set for a war, the phone companies need to hurry up and catch up in one of the areas cable has a stronghold; video content. This is not news to France Telecom who recently created a new unit that will invest in French and European movie rights and produce between 10 to 15 films per year.

Some people were surprised by the move but what France Telecom has done makes perfectly good sense for a number of reasons. We all know content is king. Consumers will be watching more and more video on devices like iPods, phones and soon watches. There seems to be no end to the ways consumers will have access to video programming.

As this happens the splintering of media will continue meaning consumers will align themselves into narrower and narrower communities of interest.

All this is well know to TV and telecom business.

But the hidden truth in this announcement is what France Telecom is not saying. They are acknowledging that their role in the future may be a provider of pipes of not much more. The “dumb pipe” business is not where phone companies want to be but it seems inevitable that this direction is their future.

That is of course unless they can become producers of content themselves or find a way to tax other companies looking to use their pipes to transmit content.

Aleksandra Bosnjak, Analyst at Ovum has the following comments about this news:

"This pact with content industry insiders sets a new scene both for France Telecom and European telco positioning as a whole. They are embarking on the riskiest route of all: financing local production industry and European/independent content, which was typically backed by French or European broadcasters. Film producers and filmmakers see this as a logical and welcome move, and in keeping with the pace at which the convergent content-telco industry is evolving."

However, she points out that "the giant telco’s move into the film acquisitions business, particularly co-productions, will increase pressure on its margins and the new outfit will have to perform and compete for film rights against an army of existing local and international content players, including the French Tier 1 production companies, major broadcasters, and the broadcasters’ own film subsidies."

According to the Wall Street Journal, A France Telecom representative stressed that the company would stick to financing and wasn’t plunging into a new business it knows little about, saying, "We won’t be setting up a studio or choosing actors."

But it seems inevitable that content is going to be a differentiator in the telecom world and as such phone companies will need to get more involved in the content side of the business.

One would expect acquisitions as one means of doing this. I also envision cooperatives of phone companies working together to produce content.

In the end, the content game is much more risky and volatile than providing pipes but it can be much more lucrative as well. Just ask Steve Jobs.

We seem to have entered a brave new world of telco/movie production convergence and it is anyone’s guess who the new winners and losers will be as once disparate industries continue to merge.

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