Shattering the Myths of Convergence

onvergence - the merging of the communications, information and entertainment industries - is creating a mythology of its own.

"Much of this conventional wisdom either assumes conditions into existence prematurely or is just plain wrong," said Dr. Joseph Kraemer, managing director of EDS' Communications and Electronics Industries Consulting. "Blindly accepting conventional wisdom will lead to bad decisions and lost profits."

Kraemer recently authored "The Realities of Convergence - A Perspective on How to Avoid Becoming A Road Kill on the Global Information Highway," an analysis of the perceptions driving the mad scramble to survive and profit in the multimedia age. The study examines and explodes 10 myths underlying the prevailing attitudes of convergence - myths that many of the major communications and other companies are building business strategies around.

Examples of convergence abound, and include MCI getting into the Internet business, Microsoft getting into the online business and Bell Atlantic getting into show business. Kraemer said this phenomenon, propelled by technological, economic and regulatory imperatives, will pack the socio-economic wallop of the industrial revolution into the next 15 frenetic years.

The stakes are astronomical, with risks and opportunity for all involved. Kraemer estimates the total 1994 revenue of all industries concerned, what he refers to as the "value chain for multimedia," at a whopping one trillion dollars - approximately 15 percent of the U.S. economy. And more than a few of these sectors are experiencing double-digit growth.

These parties include content producers and providers such as film and music studios ($600 billion); packagers such as television, radio and newspapers ($42 billion); national distributors such as long distance phone companies ($65 billion); local distributors such as cable television and local phone companies ($125 billion); network equipment suppliers ($100 billion); and consumer electronics manufacturers ($60 billion).

In his attempt to inject some

reality into this trillion-dollar information revolution, Kraemer diverges sharply from what are fast becoming the sacred cows of convergence (see accompanying story). These are a few of his more iconoclastic findings:

Interactive, broadband networks to the home will not be widely deployed by the year 2000; regulation is on the rise; there are no so-called killer applications; and consumers are at least as interested in information as in entertainment.

Kraemer's assertion that interactive networks will not be widely deployed for another decade, for instance, is an instructive example of how one convergence myth can profoundly affect a number of major industries.

More than a few Baby Bells have announced ambitious plans to send consumers into spud heaven by promising video on demand by the late 1990s. But the interactive fiber optic networks necessary to achieve this feat will cost a king's ransom, and mass market penetration will not occur before 2005, says Kraemer.

"I think the real risk is to the those companies facing huge capital expenditures - the carriers - whose business plans may

optimistically predict premature revenue flows," said Kraemer. "They [must consider] it will take longer than they thought, put the money up, and bet the company."

But betting the company is sacrilege to risk-averse RBOC executives whose bonuses are tied to share price, not to mention RBOC shareholders, who were responsible for the single most spectacular convergence debacle to date.

"Bell-TCI fell apart not because of the FCC but because Bell Atlantic shareholders unloaded the stock," Kraemer said. "They wanted dividends, not to be part of the deal of the century."

However, with cable operators, long distance companies (or a combination of both - witness the Sprint/TCI/Comcast/Cox combine) and other RBOCs breathing down their necks - the Baby Bells cannot afford to delay deployment unless that competition somehow fails to materialize.

Network equipment suppliers, on the other hand, find themselves in a far more enviable position. They can sell and install their equipment now without worrying about the fact that it won't generate revenues for the carriers until the next century.

The reality behind the broadband network myth, Kraemer argues, is that interactive multimedia products and services will in fact achieve mass consumer acceptance by the year 2000 - but through stand-alone products such as CD-ROMs - not interactive networks.

"Companies in the content or production of nonnetworked interactive devices for homes should do well." Until interactive networks are fully deployed later in the next century, he said, "the information highway will be a UPS truck delivering CD-ROMs to homes."

Although carriers must wait longer than expected to reap rewards from their networks, there is value-add for them in this scenario. When networks finally are up, Kraemer said, CD-ROMs will likely have accelerated consumer acceptance of multimedia and whet the collective appetite for full-blown, networked interactivity. "CD-ROMs, laser discs and [other] devices are paving the way for network-based services," he said.

While the interactive infobahn remains the most visible symbol of convergence, Kraemer questions other relevant myths as well.

Contrary to the prognostications of pundits, Kraemer said the advent of a Republican-controlled Congress will not stem the tide of info regulation. Convergence, he said, will breed regulation by virtue of the questions it raises; questions concerning issues such as privacy, universal access and intellectual property.

And rather than in the statehouses, where the RBOCs have long held sway, this regulation will originate in Washington, where cable operators, broadcasters and the satellite industry are more effective, Kraemer asserts.

Kraemer also attempts to dethrone the notion that entertainment is king; that consumers would rather be passively entertained than intellectually engaged. He cites studies demonstrating consumers are at least as interested in distance learning and database access as entertainment on demand.

Further, he argues, the core mass market for interactive services in the next century is the "Internet Generation," a group that will be under age 40 in the year 2000. This techno-savvy generation is far more likely to demand information services than reruns of Johnny Carson on demand.

"For the consumers in the year 2000, service providers will be more successful with a balance of information and entertainment rather than an overemphasis on the entertainment end of the continuum," he said.