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Executive Trends: Entrepreneurs, not customers, drive technology (May 2016)

An interesting issue arose at the recent INTX trade show in Boston, Mass. At a session with the press, one of the journalists voiced an often-heard assumption: "customers drive technology".

Unfortunately, that doesn't look as being the case, and believing it may be dangerous for the business. Blunders such as 3D television are expensive; now, content producers are being induced to turn out 4K UHD content, although there is no established consumer market for such a technology. And 8K, according to another participant at the session, delivers images the human eye is not capable of fully appreciating, even forgiving the size of the screen required to fully appreciate 8K. True, 4K and 8K downgraded to HD produce better visual results on an HD set that native HD programming. Therefore, it is almost mandatory to produce fare in 4K, although it will be watched on HD.

Steve Jobs had some thoughts on this issue: he considered that if he listened to consumers, he would remain "going circles" instead of innovating. He considered that consumers would have asked Henry Ford to deliver a "faster horse" instead of what we now know as a car. It is not difficult to imagine that no one came up to Jobs describing an iPod or an iPhone and asking him to build one.

Why is it dangerous to assume that customers drive innovation? Because, with growing industry concentration, CAPEX investments are skyrocketing and mistakes become more and more expensive. 4K UHD is being mostly pushed by the video hardware industry, which needs, along with delivering "better" images, to keep the content producers purchasing new equipment. Consumers are only offered the option of purchasing (or not) the prepackaged novelty. They do have a buy/don't buy choice, and this is determinant: the success of any new technology depends on its adoption rate. In the 4K and 8K cases, beyond early adopters, practical questions arise when you realize you'll need, for instance, a 6' to 10' TV screen to fully appreciate 4K and 8K technology. Few people have space at home for such a gadget.

The 3% problem
According to a Business Bureau report, the Latin American pay television market grew at a 3% annual rate as of March 2016. It forecasts a 2.8% composed annual growth rate (CAGR) from 2016 to 2020. Per the same source, 13 of the major operators within the region have launched their own OTT during this time period, and it also estimates that "piracy and undercounting" have grown in Ecuador, Mexico, Puerto Rico, Argentina and Uruguay during the past twelve months. BB considers there are currently 86.8 million households in Latin America that have access to multichannel pay TV, but this figure includes illegal connections and subscribers not reported by the operator to the programming sources.

The main problem with a 3% annual growth rate is that it does not match the ambitious expectations of most cable networks' affiliated sales task forces, which in the past have set goals based on the up to 30% expansion seen in Brazil prior to its current crisis and smaller but consistent growth in nations such as Mexico and Chile. Indeed, the pay TV programming companies are well aware of the irruption of Netflix, which Dataxis considers is accountable for 67% of the pay OTT market in Mexico, with some 2.4 million subscribers, and is estimated by local consultant Carrier & Associates to have 850,000 subscribers in Argentina, with service covering up to 3 million households due to the "multiple user" subscriptions Netflix offers in that nation.
 
According to these figures, Carrier considers Netflix might be 'the third largest pay TV' operator in Argentina, although Private Advisor data indicates that at least Telecentro --which allegedly would appear as a buyout target in Eng. Carlos Slim's plans, if allowed by regulations-- exceeds this subscriber level. Along time, Telecentro has so far denied having sellout plans, remains under control by the Pierri family, offers Triple Play --including wireline telephony-- and might venture into mobile telephone in the near future, competing against Grupo Clarin's Cablevision and Nextel.

According to Private Advisor data, the overall LatAm market has expanded by 3.9% to about 72.75 million subscribers during the past twelve months, with Brazil contracting 7%; Mexico expanding by 12% (thanks to some degree of local data adjustment and the influence of the analog switch-off); Argentina with a meager 1.7%, Colombia by 10% (again, there must be some local recalculation concerning the 2+ million unaccounted mass of subscribers in this nation), Venezuela growing 10% (attributed mostly to the distribution of free DTH receiving kits) and Chile at the 6.2 growth level, probably the desirable level at this time.
 

See other EXECUTIVE TRENDS Editions:
OTT vs. VR vs. Linear television
-April 2016
And the winner is...
-March 2016
Digital pennies vs. Analog dollars
-February 2016 
The owner of content is King
- January 2016 
What to expect the day after OTT 
-December - Part 3: Linear TV fragmentation
-November - P. 2: The dark side of "Content is King"
-October- Part 1: Some definitions, background
Digital platforms may be good to television 
- September 2015

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