In an interview with engineer Ernesto Orozco Orozco, current member of the Colombian National Television Authority, he gave his perception of the changes that the digital ecosystem is experiencing, the new business models and the challenges of the State in the face of the implosions that the industry immersed in a digital environment is experiencing.
By: Luis Fernando Gutiérrez Cano and Luis Jorge Orcasitas Pacheco
Today, audiovisual industries must be aware of and expect major changes in business models in the digital economy.
How can the ecosystem allow Digital TV service providers in Colombia (paid or open) to face the challenge of the digital economy and convergence with the appropriate skills?
Ernesto Orozco: Promoting competition and competitiveness through an adequate compensation regime, reduction of entry and exit barriers and definition of the model and size of public television and its sustainability.
What are the big changes in digital business models that will come in the future and what should companies do to adapt quickly and assume strategic positions, redefine their proposal and innovate permanently?
Ernesto Orozco: As expected, disruptive business models have ventured, with no little success, into markets for the provision of online video, pay per view, on demand, everywhere, etc., taking advantage of the opportunity represented by the principle of net neutrality; the massification of broadband; the large-scale incremental dynamics of the digital economy, with large returns and low marginal costs; differentiated value propositions and their status as information services, outside the scope of the regulation of the regime of public television services or telecommunications services.
We are facing a general change of the rules. A permanent change in established business models. In short, today the great competitive advantage is the ability to break paradigms.
This reality demands other managerial skills: innovation: technological, services and business models, for the achievement of competitive advantages; anticipation, information management, today big data, to generate, as far as possible, new needs in customers, their own "blue ocean" and that the service or product is timely; generation of "experiences" as a value proposition and emotional bond.
Today, industries must be aware of and expect major changes in business models, much lower revenues and the need to adapt quickly, assume strategic positions, redefine their value proposition, differentiated and based on true competitive positions; be flexible, adaptive and constantly innovate.
What would be the digital challenge for the state, the legislature and regulatory agencies?
Ernesto Orozco: The digital ecosystem represents a new vision of public policy of the countries that not only covers competition as a primary objective, but also the sovereignty of the countries in the political, economic and information framework. Such public policy must weigh the level of intervention needed that does not slow down investment and innovation in the digital economy, but at the same time recognizes the real barriers to control that exist in the face of the global information market.
For its part, the digital challenge for the State, the legislature and regulatory agencies is to produce an ecosystem that minimizes barriers to entry and exit, that promotes competition and competitiveness through an adequate compensation regime and that defines the model and size of public television and its sustainability.
This ecosystem must allow service providers in Colombia to face with the appropriate skills the challenge represented by the digital economy, convergence and disruptive business models.
The great advances and technological changes of recent decades brought with them a new paradigm in economic processes within the digital economy and media convergence. Nowadays, many of the media companies are undercapitalized, how should companies face this critical moment in the midst of a constant change in the digital media environment?
Ernesto Orozco: As I have explained, today the life cycles of companies are very short. This causes many companies to see their revenues fall rapidly in increasingly competitive industries. Those who want to stay and grow will have to adapt and change their organizational culture to respond to the demand of more informed consumers with less sense of loyalty. Today, the consumer is much more aware of the products and services that represent greater transfer of value will always seek to maximize it.
Another phenomenon present in contemporary media is that there are fewer levels of audiences but at the same time there are more specific audiences; How should the media deal with these new habits of media consumers?
Ernesto Orozco: The digital economy, convergence, the massification of the internet and the principle of net neutrality have led to a phenomenon rarely seen in the history of the world economy, with an effective transfer of value to the consumer that, in some cases, has represented up to 75% of the value of an industry (For example, the phonographic industry). This is accompanied by a structural change in business models.
Today, we must recognize these effects in ancestral and powerful industries such as the written press, the phonographic industry, retail, voice services, messaging, travel agencies, hospitality and, more recently, public transport, banking and provision of audiovisual content.
Industries that took more than 50 or 100 years to consolidate, decay in 10 years or less, thanks to digitalization and the reduction of the gap in access to the information society. The life cycles of certain industries and business models are getting shorter: in 1958, the average S&P500 company was 60 years; today, it is 20 years old.
Similar effects can be recognized in retail, voice communications, messaging, travel agencies, hospitality and, more recently, public transport, banking and audiovisual content provision.
From my analysis, consumer exposure to time consumption of audiovisual content has grown, exacerbated by the omnipresence of mobile devices. As for traditional media, although the consumption time is maintained, it has not been able to increase, causing a smaller participation in total audiovisual consumption.
Despite retaining, for now, their traditional audiences, these media and their traditional business model are struggling to retain their advertisers, especially those with segmented needs.
Traditional media must quickly question their business model and migrate to managed IP services on their networks (satellite, cable and broadcast), in order to provide mobility services and use big data as opposed to traditional and rigid audience measurement that does not allow immediate decisions, both programming and commercial.
They should also be aware that digitalisation and convergence destroy value for incumbents by drastically decreasing their income, but pass this value on to the consumer.
That is why broadcast networks, managed and offering Quality of Service (QoS) and Quality of Experience (QoE) as a value proposition for point-to-multipoint broadcast services such as traditional television, still have room for maneuver to face the challenges of OTT. However, they must adapt their business models as soon as possible and expect revenues much lower than usual, since the speed of these changes can cause digital companies (DTT, HD cable, DTH HD), but tied to analog paradigms, to only address small portions of the market.
What would be the general characteristics of the New Digital Economy, based on elements such as the network economy or the phenomenon of disintermediation or interactivity?
Ernesto Orozco: Digitalization and the reduction of the gap in access to information through the WEB have affected in different ways almost every industry in the world, thanks to the reduction of transaction costs between suppliers and consumers.
In accordance with the above, we can approach a definition of Digital Economy as an Economy based on the reduction of transaction costs associated with capital, information and human talent, using ICT as a driver and, as a support, telecommunications structures and services.
The general characteristics of this economy are, among others:
i. Economy is dynamic and incremental,
ii. Large economies of scale,
iii. Network effect,
iv. Descending marginal costs,
v. High Returns on Capital,
vi. Short life cycles,
vii. Low physical asset requirements, and
viii. Generating more value for consumers.
ECLAC, in the book Digital Economy for Structural Change and Equality (2013), already spoke of the fact that "in a context of economic growth and poverty reduction in a large part of the countries of Latin America, they must address the challenge of articulating and consolidating their digital economy, which requires answering the questions about how to identify and take advantage of the new opportunities that arise in a phase of technological convergence to advance economic development and equality", how would this be applied in a country like Colombia?
Ernesto Orozco: The opportunities are realized by taking advantage of and exploiting the drivers of the digital economy:
Global internet penetration of over 50%, with annual global growth of 10% and at the LATAM level of 6%.
Global social media penetration of more than 40%, with annual global growth of 10% and at the LATAM level of 6%.
Penetration of mobile devices of more than 50%, with annual growth of 4%.
Social media penetration of more than 30%, with annual global growth of 19% and at the LATAM level of 7%.
Additionally, in the very short term, policies must be adopted for the promotion and use of Big Data, Artificial Intelligence, Internet of Things and nano things and cloud computing.
How could Colombia move towards institutionality for the digital economy and seek integration into policy initiatives on broadband, ICT industries and digital inclusion?
Ernesto Orozco: The digital ecosystem represents a new vision of public policy of the countries that not only covers competition as a primary objective, but also the sovereignty of the countries in the political, economic and information framework. Such public policy must weigh the level of intervention needed that does not slow down investment and innovation in the digital economy, but at the same time recognizes the real barriers to control that exist in the face of the global information market.
Therefore, it is pertinent, and we consider it healthy, that the country discusses how to include these information services (voice, data and video, among others) provided from abroad, within the tax base of Colombia.
It is not a question of distorting information services, classifying them as public television or telecommunications services, in order to subject them to the same legal and regulatory scheme of these services, which would expose the States to a monumental and, therefore, sterile effort.
I consider urgent the need to create a single digital market between the countries of Latin America, later Brazil, Spain. Starting with telecommunications and information services, cultural services and all kinds of digitizable services that can be provided online. Subsequently, extend this MUD to all types of transactions that are supported by the drivers of the digital economy already mentioned.
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