El Dorado on the ‘Net

For a couple of centuries European explorers believed in the myth of El Dorado, a place where gold was so plentiful that new kings entirely covered themselves with gold dust as part of their coronation ceremony. The myth that content revenue will rescue the telecom industry may take as long to die.

For a couple of centuries European explorers believed in the myth of El Dorado, a place where gold was so plentiful that new kings entirely covered themselves with gold dust as part of their coronation ceremony.

The myth that content revenue will rescue the telecom industry may take as long to die.

El Dorado (“the gilded one”) was a powerful symbol. This persistent myth of cities of gold drove much of the European exploration of the American continent and, along the way, bankrupted many explorers when they came up empty handed.

The myth of El Dorado apparently started with Spanish conquistador Sebastian de Belalcazar, but I have no idea where the myth of King Content started. But it sure is a persistent myth of the mountains of gold to be had if the telcos could only deliver content to the masses. Most recently the myth showed up in fellow Network World columnist Thomas Nolle’s column. He wrote “content revenue could dwarf the revenue generated by voice and the Internet.”

Quite a few people have tried to slay this myth. Perhaps the most meticulously researched attempt was by Andrew Odlyzko in his February 2001 paper Content is not King. I reported on an earlier version of this paper a few months before. (An aside, Odlyzko has a lot of other very carefully researched papers on his Web site)

I did some quick finger work with Google to see if I could update the 1997 numbers that Odlyzko had in his paper to see if his conclusion still held that content will not be the sought-for mountain of gold.

The most recent numbers I could find came from 2004 on various Web sources, most commenting on reports done by others that I could not locate. So some of the numbers might be a bit off, but I expect they are in the right ballpark.

To establish a baseline of what revenue needs to be dwarfed, the FCC reports that the 2004 revenue for the telecom industry for wireless, local, long-distance and international service was about $289 billion.

On the content side, 2004 U.S. revenue from movies (box office receipts along with video tape and DVD sales and rental) was about $25 billion in 2004, cable TV was about $60 billion, satellite TV was about $21 billion and newspaper revenue from subscribers was about $10 billion. Thus “content” generated about $116 billion.

That means content revenue is less than half of telecommunications revenue, but that does not mean the telecom industry would suddenly get $116 billion extra if it could easily provide support for all of these types of content. After all, the competition is unlikely to agreeably close up shop.

For sake of argument let’s pretend that the telecom companies could take away half the content business – maybe $55 billion (hardly dwarfing compared with $289 billion). But even this would hardly be all profit, as the cable and satellite companies would compete very hard and drive the profit margin way down – likely far below zero for the telcos because they have to deploy new equipment. Real numbers don’t shine as golden as some people expect.

But El Dorado is still a shiny vision, unlikely to be deterred by facts. I expect to be writing about it again.

Disclaimer: Harvard has a Folklore and Mythology department but I did not find any mention of El Dorado or Content as King in any course descriptions, so the above must be my own history lesson.