This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy policy for more information on the cookies we use and how to delete or block them.
Blog:

Digital media - a rocky road ahead?

22 May 2019

M&A partner Damian Ryan, examines the evidence, ponders then postulates:

Hacks

Earlier this month Facebook held their F8 event – an internal conference to address the myriad of challenges one might expect for an organisation with 2.7 billion users.

In contrast to an earlier declaration (vis a vis “age of privacy is over”), founder Mark Zuckerberg countered by now stating “privacy gives us the freedom to be ourselves, we need intimacy more than ever and that’s why the future is private” (eh??)

Someone has clearly been listening – and I don’t mean Alexa or any other smart speakers that you’ve welcomed into your household in the recent past.

Just days later and the beleaguered Big Z faced fresh challenges as hackers installed spyware through an infected WhatsApp voice call.

The spyware was capable of trawling through calls, texts and other data, activating the phone’s camera and microphone and performing other malicious activities.

Protection

Meanwhile in Washington, President Trump announced further trade war curbs and this time directed his ire towards Huawei, the number two phone manufacturer in the world and the leader in 5G networks.

While Russia and China sign anti-hacking agreements, the US is seeking protection from foreign owned tech businesses which together perhaps spells out the end of the first age of the Internet.

Featured in Intelligencer.com, Henry Farrell, a professor of political science and international affairs at George Washington University, explains:

“Trump’s Huawei order is the latest signal that the world’s great powers may not be willing to put economic efficiency above grand strategy much longer: We are seeing the “beginning of decoupling” in the telecommunications sector. It’s the clearest sign yet that the basic assumptions of globalization are collapsing … “

Infrastructure vulnerability

The globalization of the 1990s massively transformed the world economy. Fuelled by the telcos, national economic systems that had previously been separate from each other became densely interpenetrated, and deeply dependent on financial, informational and trade networks that spanned borders.

These networks are structurally embedded. Supply chains have been globalized, in the pursuit of economic efficiencies. It’s hard to imagine how the world economy could work without them, but the pursuit of efficiency created strategic vulnerabilities. Some networks had hub structures meaning that states that could control the hub could control the network. Others relied on crucial components that were single sourced or sourced within an individual country.

Cast your mind back to October 2016. Just a month before Trump was elected president, the US Department of Justice effectively handed operational control of the entire Internet to The Internet Corporation for Assigned Names and Numbers (ICANN). The ICANN is a non-profit organisation responsible for coordinating the maintenance and procedures of several databases related to the namespaces and numerical spaces of the Internet, ensuring the network's stable and secure operation – and yet every three months the Internet is still rebooted by 14 handpicked experts.  That’s just one example of the vulnerability of the web we know and love.

Farrell went on to say “the Huawei move displays both US fears about vulnerabilities, and US efforts to exploit them. The US is worried that 5G networks could compromise US communications to surveillance. US is not only moving to push Huawei out of existing markets — but to damage Huawei’s core business by potentially preventing it from using core US components (such as Qualcomm chips or Android OS it remains to be seen exactly which technologies will be listed). Chinese hawks are talking about retaliating, for example through blocking sales of rare earths again. This will also reinforce Chinese efforts to build “autonomous and controllable” technology and supply chains outside US control to decrease their vulnerability to future attack.”

Trouble for digital media?

The old model of globalization is in serious trouble. The networks that tie the world economy together have been over-exploited for strategic gain. The US move is both a response to fears about its own vulnerabilities, and an effort to exploit China’s vulnerabilities in return. The result will likely be escalation — but we don’t know for sure. We still don’t have anything that approaches a strategic analysis of this new field of politics and how it works. Historical experience provides no good recent analogies.

TRUST is the new ‘black’

As we zoom towards 2020, there’s more evidence than ever to suggest the successful digital convergence of “technology and media” hinges on trust.

Knowing the content isn’t fake.

Trusting the connection won’t download your bank account and steal your holiday money.

Or even just living without “digital paranoia” – surely that’s where we need to be?

Take a look at the trust equation featured in David Maister’s book: “The Trusted Advisor”, (if you haven’t read it, read it)

T = C + R+ I
S

Where: T = trustworthiness, C = credibility R = reliability, I = intimacy and S = self-orientation.

Does the digital media sector feel like this right now?

Ask Trump or Zuckerberg and I think their answers might be the same as yours.

We now face a media world which would have been as unimaginable 20 years ago as spending our waking hours glued to a mobile phone is today. It’s a world fuelled by unfathomably powerful technology driving the relationship between consumer and media to a whole new level.

Not only are there too many players in the media world, but there are too few with too much spending power, which means we have seen complete domination by players such as Disney, Amazon, Apple and Netflix (taking on the OTT video market) and former Telcos such as AT&T and Comcast seeking control of content, audiences and networks all at the same time – not to mention Google and the aforementioned, Facebook controlling two thirds of the digital advertising cake.

However bubbling underneath, like an excitable pool of molten media magma lies, quite literally, all the potential, the greatness and the excitement of what may happen in the years ahead to restore and build trust.

Breaking up is hard to do?

So what’s next? Some like Senator Elizabeth Warren (Democrat) believe the break-up of the tech giants will form a key trend in next year’s US elections.

Yes you can own the platform but not the activity.

Yes you can own the app store but not the apps. Give the little fella a chance?

This may be a real driver of M&A because if the tech giants are unable to compete for content and ad bucks then the massive raft of the “also rans” become targets.

Senator Warren feels the tech giants have “bulldozed competition and abused private information for profit and that they’ve hurt smaller players and stifled innovation and creativity in the process”.

And I think that brings me neatly on to my final point:

Does the end of globalisation spell the end of “SCALE” and if so what happens next?

While old media brands become targets for new rich distributors in a deconstructed and giant-free tech ecosystem, we are seeing a clear shift towards quality and creativity, the search for truly emotional experiences between customer and business, and ultimately, I believe we will see an explosion in content.

5G will bring about extended reality (XR) which will drive the VR and AR industries and continue to drive success in new media models such as esports.

Uber is getting into the ad business. Why wouldn’t they? The promise of driverless cars turns the “Daypart Media Mentality” on its head. What used to be audio based drive time media becomes more like cinema – a captive audience where passengers will do their shopping. What a theatre for creativity this will be. Gosh you might even enjoy the M25.

Retailers? Buoyed by Amazon’s breach of the $1billion mark in ad revenue we are already seeing players such as Walmart and Target invest in ad businesses. Others will follow suit. This is because retailers believe advertisers will help them to fund customer engagement and customer retention. You can see more clues in BDO’s latest Martech Report.

I guess everything in business needs to have some kind of direction. While the realisation of the value of customer experience has reached fever pitch, infrastructure and access will take more time to resolve. As an interim measure I believe we will see an “insured subscription model” come to market offering safe access to a good Internet – one that doesn’t carry crass content and one which provides a new level of safety and privacy in return for a fee. Perhaps via OTT players such as Disney? If you can’t trust Winne the Pooh well who can you trust?

 

Damian Ryan is a media expert and a partner in BDO’s M&A team. He is author of Understanding Digital Marketing, (4 editions) Understanding Social Media and The Best Digital Marketing Campaigns in the World. (2 editions). Next month he will address Westminster Media Forum on the future of advertising regulation online.