When The Wall Street Journal first broke the news of AT&T’s bid to purchase satellite television provider DirecTV for $48.5 billion, several media outlets focused on the likely scrutiny to come from federal regulators, who must first approve the deal in light of anti-trust concerns.
While the deal is mutually beneficial — DirecTV will no longer be hindered by a lack of broadband services offered by the likes of AT&T; and AT&T nets nearly 20 million DirecTV customers, often in markets beyond their fiber optic network — it also raises a significant question: when big companies align, such as Time Warner Cable and Comcast, do they merely broaden their existing footprint without truly reinventing their business models in order to gain competitive edge?
To answer that, one must first examine what an innovative business model looks like. Take, for example, Netflix which The Dallas Morning News says further shattered a broken mold and now reigns over a much different looking entertainment landscape.
“This marriage opens up not just competition but innovation. Years ago, cable television gave birth to new content offerings, such as ESPN and HBO, and forced the traditional big three networks to adjust to a new competitive landscape. Today’s new platforms and corporate mash-ups promise that more customers will benefit as companies find ways to reach audiences when and how they want to be reached. Netflix was given the last rites not long ago. Now it is king of a new business model.”
But is the ability to “reach customers” innovative, or reactionary, when operating in the constraints of an outdated model? According to USA Today, AT&T is “responding strategically to the new TV revolution, with customers increasingly watching live-TV streamed on their phones and tablets. … and it sees DirecTV as the best-in-class TV deliverer with comprehensive programming rights — and expertise in licensing and user-experience.”
This may mean greater agility for AT&T, however, as noted in Insigniam’s Transformation Roadmap, when you make one small change, such as altering the price of a product or how customers interact with it, it impacts the rest of the business model.
In order to construct an innovative business model that truly unlocks competitive advantage, companies must search for gaps between current market solutions and customer needs, even if customers have yet to articulate those needs. To a great extent, customers have overwhelmingly responded, embracing newer models, such as Netflix, who according to BBC News, reported a 2014 Q1 profit of $53 million, and added 2.25 million new members, bringing its total membership worldwide to 48 million — double the subscribership of DirecTV.
Companies and products like Netflix, and Apple’s Apple TV — which lets customers access free and subscription based-content like Hulu and MLB.TV — are truly offering consumers something innovative and unique. And while many will welcome the merging of AT&T and DirecTV for a variety of reasons, it should be noted that if they move forward using yesterday’s strategies, albeit with a larger corporate footprint, they’re missing an opportunity to leverage their size and strength to define a new playing field and drive the market in a different direction. At worst, they’re merely muscling customers into engaging in an outdated cable model.
While it’s still far too early to tell if the merger will lead to a transformational restructuring of the new company’s greater vision, it’s not too early to say that greater returns could most certainly be in store if AT&T/DirecTV were to engage consumers, and their upstart competitors, in new and inventive ways.
We’ll stay tuned, since the (digital) revolution will most certainly be televised.