What do companies do when they are very powerful in a particular field but that power becomes threatened because technology means the battleground shifts to an area where they are weak?
You can’t organically become strong in a new sector quickly enough to avert the danger. You can’t even do with it with lots of acquisitions, not if the only purchases available are numbers five or worse in the pecking order. And you can’t make a weather changing acquisition, either because the powerful incumbent in this new field thinks they’ve got you on the run, or they are simply too big for you to afford, or both.
What you do is look for allies who, in order to enhance their own power, would also like to see your new competitor fail. The trouble is each player has assets the others would covet massively and either of them getting together would cast a long shadow over the third. So, who will partner with whom, and will they stick together? And who will be the big loser?
Such questions are set in train by reports of ‘top level’ talks about cooperation between Vodafone and Sky. The cooperation in question amounts to ‘stop BT’. There was no comment from either company, and it should be noted, perhaps, that the report was in the The Sunday Times, a News Corp paper. But, nonetheless, it would be quite surprising if they weren’t talking.
BT has made the most of its incumbent advantages to secure an unassailable lead in fixed broadband and is, therefore, well placed to be a platform for OTT services to the UK home. It has underlined its ambition to not just be the biggest pipe provider but also be a content player with its out-bidding of Sky for the all-important football. But, with hindsight, its sale of its 02 cell network (to bale itself out of international misadventures) now looks like a mistake to rank up there with AOL/Time Warner, (oh, OK, nothing is ever that bad, let’s settle for ITV Digital). BT’s attempts at a TV Everywhere service are always going to look piecemeal and half hearted as a result.
Vodafone used to be the #1 mobile operator in the UK and worldwide but, while still Massive, it somehow isn’t the consumer brand it once was and has been, so far, completely left behind by EE and 02 when it comes to 4G perception. And, despite a few desultory attempts, it never got any traction with its fixed broadband offers. It would certainly welcome a media content fueled surge back into the limelight. It could go it alone – the one thing it has is loads-a-money after the Verizon $130 billion sale – but it has no experience in media.
And then there’s Sky. The doyen of pay-TV it has leveraged loss-leading soccer to fill over half of UK homes with TV packages that return a handsome profit, and many more take Sky via other providers. But, despite a good catch up effort, it lags a long way behind BT in fixed broadband and hasn’t made much of a fist of its MVNO efforts.
Sky and BT aren’t going to work together – not until one is on its knees anyway. And both might see Vodafone as a way to help bring that about. Both would like Voda’s money to defray the competition inflated costs of UK football. But Voda will want full cooperation to make the most of exploiting those assets (they’ve seen how useless it is for a mobile company in isolation to have content – look at 3 and its football foray). It will want a proper TV Everywhere JV, maybe even a partial merger. Maybe it will buy one of them? Which of the enemies will make it their best friend and the other’s worst enemy? As it makes up its mind, how much do you want to bet on ‘rumoured talks between BT and Voda’ as a headline soon enough?
Ironically, having just quit Formula One, Vodafone finds itself like the richest ever pay driver trying to get on the grid. It can choose from all the top teams but, as in racing, it is still a leap of faith – today’s super car can be tomorrow’s slow coach.