The wall that stands between Africa and a fully functioning online content ecosystem
The global debate about “over-the-top” services (delivered by the Internet) vs the walled garden approach (delivered within apps or the mobile operators’ walled space) is not just some distant developed world issue but crucial for Africa. The current African content deals and the frameworks that support them are broken beyond repair. Russell Southwood looks at why and what happens next.
Historically, the terms for content deals come out of the mobile operators providing SMS services. The mobile operators sometimes deal directly with content owners but in the main these deals go through “VAS aggregators”, the value-added service providers who provide the content delivery platform.
The terms for the deal vary but they are significantly less good than the terms found elsewhere in the world. The mobile operator takes between 70-80% of revenues generated, leaving the balance to be shared between the VAS aggregator, the content provider and sometimes the artist. Last year both Glo and Airtel moved to keeping 80% of the revenues generated.
The operator’s rationale for this approach is that they do most of the marketing and own the access to the customers, sometimes rather misleadingly described as owning the customers . Also it’s fair to say that when these services were simply religious texts, goal scores or headlines, the amount of work put in by the content owners was fairly minimal. Even less if these were “retread” international services.
But if you look at the case of Nigerian musicians the picture is rather different. In 2011, according to Obi Asika, CEO, Storm 360 the mobile operators generated $150 million through ringtones and music related services. The artists and label owners shared only 15% (by his account) with the VAS aggregators.
Not surprisingly, he would like to see the iTunes model where the platform operator keeps 30%, leaving 70% for the artists and labels. The difference in income is huge and the mobile operators will find it hard to make the case that they are “marketing the service” when the artists involved are famous in their own right and have no difficulty raising interest whatever media platform they appear on. See Obi Asika in a video clip interview on the Nigerian music industry and this issue.
I’ve spent the last twelve months talking to people who have been selling content services to the mobile operators and the problem is compounded by the way that mobile operators deal with content owners. The mobile operators treat VAS services as a very narrow channel and understandably only commit marketing resources to a limited number of “content releases” in a year. As a result, perfectly good ideas with respectable content owners or artists attached get backed up in the queue.
Mobile operators are conflicted about content and, with a few notable exceptions, do not really understand it. If they did, the size of the sport and entertainment offers would be far more varied. We did a comparison of SMS services in West Africa last year and discovered that well over 95% of the services were identical, in some cases down to having the same underlying information provider. If you use the analogy of newspapers or magazines, individuals don’t buy identical newspapers or magazines, they buy particular ones because they are different.
The second major obstacle that mobile operators have created is the operation of their payment systems. They each have a monopoly on offering payment systems and the larger operators like Kenya’s Safaricom are in a dominant position. To reach 70% of Kenya’s mobile users, you have to go through Safaricom.
You can’t get money paid on the platform and transferred to you as the content owner without going through the onerous deal structure described above. Indeed, given the similarity of the deal structures across operators there is undoubtedly a case for regulatory investigation. There is no cost basis for the 80/20 or 70/30 split to the operators. These are media channels – like radio and television – through which increasingly countries will understand themselves.
The alternative is “over-the-top” services using the Internet. You don’t have to line up for a mobile operator launch window. You can take the money directly or go through a platform like iTunes where the platform operator will give you something more like 70%. But you don’t need me to tell you that this is Africa and the number of people able to access the Internet – whether on PC, laptop, tablet or phone – is currently probably too small to make this alone a viable alternative.
But the mobile operators should not get too smug about this. During my recent visits to Lagos, I was struck by the number of sites that are now making a living out of selling things like music, travel and clothes. Currently, it’s no more than a small hole in the walled garden. But we’re at the beginning of the process and that hole is only going to get bigger.
European operators are already beginning to have to wrestle with how the date business model might operate. Telia Sonera got itself into hot water trying to charge users extra for using Skype. After much protest in Sweden, it backed down but will charge extra for data use above certain levels.
The issue is of crucial importance for Africa because if the content operators, the rights holders and the artists cannot get something better out of the current system, the speed with which the content and services ecosystem develops will slow down or become still born.
Operators have to devise a new, better business model that enables them to make money out of supplying data and platform services, whilst giving more like 70% of the revenues back. Mobile operators do not understand content so they should stick to what they do understand: providing cost-effective network operations. If they don’t, in five to ten years time the Internet will have eaten their lunch.
A bumper crop of video clips this week on Balancing Act’s You Tube channel:
Kwabena Smith, Orun Energy on saving diesel costs on base stations
Justin Hartman, Social Code on South Africa's ICT entrepreneurialism and the failure to support it
Julian Macharia, Buni TV on this new online video delivery platform
Envir Fraser, Convergence Partners on investment opportunities in ICT
Tayo Oviosu, CEO, Paga on the mobile money market in Nigeria
Nigerian ICT blogger Loy Okezie on Nigeria's online successes
Victor Dibia, CEO, Denvycom.com on his games portfolio and plans to monetize
Oluseye Soyode-Johnson, consultant to Maliyo Games on the business model