Digital Asset Mapping of Interdependencies in Actor Networks ...

Digital Asset Mapping of Interdependencies in Actor Networks (DAMIAN): A new methodology for analysing value networks and regulation in converging markets Frank Berkers1, Pieter Nooren1, Wietske Koers1, Koen Dittrich1,2 1

TNO, Netherlands Organisation for Applied Scientific Research, Netherlands, 2

Rotterdam School of Management, Erasmus University

Keywords: value networks, strategic assets, control points, converging markets, competition, regulation

Abstract Convergence of the historically differently regulated media, Internet and telecom markets into one digital market results in new challenges for both policy makers and companies. Due to the increasingly complex technological interdependencies between firms from different origins in the digital market, it is difficult for both policy makers and companies to grasp the effects of current and future policies and regulations on the positions of power in digital value networks. To assess these effects, a shared understanding of how digital value networks operate is needed. Existing methods to analyse value networks mainly focus on actors and their (in-)tangible interactions as the main nodes and edges to model the value creating rationale of a network of firms. These approaches, however, bypass the technological complexity of system industries, such as the converging media, Internet and telecom industries, in which companies can assert control over other system components, and consequently other actors in their value network, through decision rights on their own technological assets. To fill this methodological gap in the landscape of current value network analysis methods, we propose the Digital Asset Mapping of Interdependencies in Actor Networks (DAMIAN) method in this paper. This method supports the systematic description and analysis of competing value networks in the digital market based on the architectural control points and the actors who can leverage them. By means of this methodology the complexity of digital value networks can be comprehended and the effects of (future) policies and regulations on the positions of power in the value network can be assessed. We demonstrate the added-value of this new methodology by empirically assessing one case: interactive television in The Netherlands.

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1 Introduction The formerly separated markets of media, Internet and telecom have become deeply intertwined at the level of infrastructure, devices and content. This convergence into a new digital market is profoundly changing the way in which media, Internet and telecom services are being produced, distributed and used. Attracted by the vast number of customers that can be reached over the Internet, device vendors, media companies and service providers have enriched the market with various combinations of hardware and software, such as smartphones, tablets, content delivery networks and cloud infrastructures, resulting in many alternative distribution and business models for content and services. Companies operating in the converged media-Internet-telecom market search for technical and commercial opportunities to obtain a competitive advantage, well aware of the competition they face from companies that used to operate in other, previously separate markets. Each player tries to maintain or expand its position in the network by creating value for end users, based on his own assets and selective use of other players’ assets (Allee, 2008; Ballon, 2011). This often results in multiple technologically and organizationally alternative ‘routes’ to deliver the same service to the end user, depending on the availability of assets from various companies in the value network. Each of these assets offers companies a means to assert control over other components, and consequently actors, in the service delivery route. How companies can leverage these control points (Allee, 2002; VCDW, 2005; Eaton et al., 2010; Woodard, 2008) is not only affected by the interactions between actors, but also by many policies and regulations from historically different domains. It can therefore happen that companies compete in the same converged market under different rules and regulations. Policy makers and regulators face the challenge to keep up with the ongoing developments and adapt regulation to new technologies, services and commercial models, while companies face the challenge to identify which policies and regulations they should take into account when determining their strategies, investment decisions and R&D activities. This is not an easy task, as regulation is, for historical and institutional reasons, still largely aimed at the three separate media, Internet and telecom markets. Moreover, the media and telecom markets, with their longer history, are generally subject to more sector-specific regulation than the Internet market. In today’s converged marketplace, the effects of such regulation propagate beyond the boundaries of the market they were originally intended for. As a result, debates on the fairness and impact of regulations follow each other rapidly, such as the ones on ‘must-carry’, net neutrality, cookies and user data and search-neutrality (e.g. Renda, 32

2010). The debate changes not only with new regulations, but also when new technologies are deployed by parties in the digital market, creating new service delivery routes to the end user. Such dynamics continuously change the competitive relationships in the digital market. In this paper we explain and illustrate the Digital Asset Mapping of Interdependencies in Actor Networks (DAMIAN) methodology and approach for a relative new and unique case: interactive television in The Netherlands. The objective of the DAMIAN methodology is to provide a methodology that pragmatically charts the interactions and dependencies within a value network systematically, to help understand and evaluate the dynamics within the digital value networksas a result of regulation, new technology and strategic choices of the players. DAMIAN explicitly includes the effects of regulation, as regulation can affect the conditions for the offering of content and distribution of services and applications. Regulation can also affect the control that a company has over its own assets and the conditions under which it can gain access to the assets of others. This paper is structured as follows. In section 2, we introduce the relevant concepts for analysis of the dynamics in the converged media landscape surrounding interactive television. In section 3, we shortly discuss the process of developing the DAMIAN methodology and explain the methodology and its different stages in more detail. Then, in section 4, we examine the converged media-Internet-telecom market by looking at different service and distribution models for interactive television used by broadcasters, triple play providers and on-line service providers in The Netherlands. We end this paper in section 5 with discussion and conclusions on the benefits of DAMIAN and a summary of the key insights gained in the case.

2 Theoretical background 2.1 Value network analysis The challenge for every company is how to create and appropriate both tangible and intangible value. Traditionally, value creation is explained as a linear chain of activities that are being performed to deliver a product or service to the market (Porter, 1985). This model is linked to the production line of the industrial era: firms buy materials from suppliers, transform these materials into products and then sell them on to consumers. Later Stabell and Fjeldstad (1998) extended this view with two alternative configurations to the value chain: the value network and value shop. How the created value is appropriated by the business 32

actors along these value configurations is determined by the competitive forces in the market (Porter, 1979): the less competitive rivalry, the more attractive a market. This does not imply that every enterprise in an attractive industry will be equally profitable. Based on capability logic (Lengnick-Hall & Wolff, 1999), firms can achieve higher profits through the application of key resources and capabilities at the firm’s disposal (Wernerfelt, 1984). Today, intangibles represent the majority of value for many businesses (Ballow et al., 2004) and the network is the main instrument for value conversion. The winners are no longer defined by the tangible value they accumulate along the value chain, but by the network externalities they can leverage within a web of actors across industries. This view implies that the environment is no longer beyond the influence of individual actors in business communities. Hence, organisations should effectively use their capacity to form strong social, professional and exchange relationships to relate their activities and assets to those of customers, suppliers, competitors and governing organisations within their business context (Håkansson & Snehota, 2006). This can only be achieved by understanding the interconnected business models of actors in a network and the forces that influence such networks. Parties delivering a service to end-users are almost always depending on assets of other parties. They combine their own assets with those of others to build a service. Thus one party can deploy its assets for its own services or make it available for use by other parties (e.g. a content delivery network). Sharing and using assets of another company creates interdependencies between parties and their services, which affects their competitive position. Regulation affects the strength of the dependencies, e.g. net neutrality decreases the extent to which a network operator can control usage of the access network by competing services. In order to grasp the interdependencies between parties in an industry we need to consider its portfolios of assets, rather than a single asset, because it is via these assets that parties are related and make transactions. In this view the dynamics in a value network thus revolve around assets. We define assets as a strategic ownership of a party that contributes to the value of a service for the end user. An asset can be both tangible (an access network, content rights) and intangible (brand, user base) (Allee, 2008). The markets for telecom, media and Internet have become intertwined at multiple levels and the Internet, combined with a tremendous development in devices such as smartphones and smart TVs, has introduced many alternative distribution and business 32

models for content and services. The traditional value chain (creation, aggregation, distribution and consumption) is only partly adequate to describe how assets are controlled and services delivered. The value chain has been transformed into a network structure, in which assets of different players are used and shared by one-another (co-opetition) (Brandenburger and Nalebuff, 2011). It holds multiple technologically and organizationally alternative ‘paths’ for service delivery. Each player tries to maintain or expand its position in the network by creating value for end users, based on his own assets and selective use of other players’ assets (Allee, 2008; Ballon, 2011). An approach that takes on a specific network perspective is Value Network Analysis (VNA) (Allee, 2002, 2008; Ballow et al., 2004; Stabell and Fjeldstad, 1998). VNA captures the activities in which a network of actors convert tangible and intangible assets into specific business, economic, or social good by transacting both tangible and intangible deliverables. VNA uses graphical network models to represent stakeholders within and across organizations and clarifies the relations between actors. Although VNA defines assets, it does not pose the asset central to the analysis, but rather uses it to identify value transactions between actors. Where and how value network actors can extract value from the network can be determined by control points: parts of the value network at which management can be applied through economic power (Allee, 2002; VCDW, 2005; Eaton et al., 2010). This power can be defined based on both transaction cost theory (Coase, 1937; Williamson, 1981) and the resource based view (Prahalad and Hamel, 1990; Wernerfelt, 1984). A more specific view on control points comes from Woodard (Woodard, 2008), who proposes the concept of architectural control points, stemming from “system component[s] whose decision rights confer architectural control over other components” (p. 361). This concept may be specifically of interest for system industries, like the media, Internet end telecom industry, as controlling certain architectural features can profoundly influence the entire business community. To define which points in the value network can be characterised as control points and evaluate the success of business models utilizing them, the Value Chain Dynamics Working Group at MIT (VCDW, 2005) proposes interchangeability, demand, value and time as criteria for determining the strength of a control point. This approach is taken further in the “methodology of business ecosystem network analysis” (MOBENA) (Battistella et al., 2012). It is designed to systematically study the structure and fluxes of a business ecosystem and 32

takes into account potential for strategic analysis and future perspective. It revolves around market (ecosystem) analysis, a network of companies and enabling technologies and defining future scenarios of impactful and uncertain drivers. Assets, control points and enabling technologies are also closely related to the resource based view (Wernerfelt, 1984). This approach tries to explain a firm’s sustained competitive advantage by its internal sources. It states that if a firm is to achieve a sustained competitive advantage it must acquire and control valuable, rare, inimitable, and non-substitutable resources and capabilities, plus have the organization in place that can absorb and apply them (Barney, 1991, 1994, 2002). Kraaijenbrink et al. (2010) analyse and provide some fundamental critique to the RBV, namely insufficient acknowledgement of the importance of controlling assets, bundling resources and of the human involvement in assessing and creating value (capabilities). We argue that a view centred on assets is nevertheless relevant for our purpose as we do not seek to fully explain sustained competitive advantage, but the dynamics in the business ecosystem. And although the value of an asset is determined by its use, thus exogenously, the role of the (mainly technological) assets in our view is key to a company’s presence in this ecosystem. These assets are tied semi-permanently to the company, so they give right to play and at the same time constrains its actions, because the building of assets costs time and represents investments, and as such implies path dependency. VNA provides analytical indicators for value creation, structural dependency, stability, reciprocity and agility, based on the intangible and tangible transactions between actors. In our asset-centred approach we focus on the transactions between companies related to the assets required for delivering the services. Where VNA focusses on the actual transactions to derive the indicators (rather than possible alternative transactions in which similar value could be attained), we focus on the qualities of the assets as a source for control on dependency and influence. This is approached by the availability of alternatives and the degree to which the asset is open for use by others. (The construction of the categorization and reciprocity is described a bit further.). Both MOBENA and RBV do not explicitly take convergence of technologies and competing regulations into account. A value network analysis of players in a digital value network thus becomes extremely difficult when using methods like MOBEBA or RBV, as different players, to which traditionally quite different regulations would apply, compete with each other on one converged market. In traditional methodologies, the effects of these different regulations, 32

which prevents the establishment of a level playing field for all parties, are not explicitly taken into account. However, since especially net neutrality and must-carry greatly influence the value of the network control point, as well as the assets controlled by the different competing players, a new methodology that structurally includes the effects of regulation is called for as we will discuss in the next section of this paper.

3 Methodology 3.1 The process of developing the DAMIAN methodology In this paper we introduce the DAMIAN method that is developed for the systematic analysis of the integrated value network, including the effects of regulation. This is done by identifying the roles and activities that organizations pursue, the markets in which they operate, the assets they own, and the assets they need to obtain from other organizations to offer their products and services. This leads to an integrated view of influence and interdependencies and how these are affected by regulation. Every step in the DAMIAN method reflects the crucial transition from value chains to an integrated value network. The DAMIAN method has been successfully applied in four consecutive workshops dealing with 15-20 representatives per workshop of the most important stakeholders (the number varied somewhat between workshops), including telecom operators, content providers, ministries, regulators, device manufacturers and consumer interest groups. In addition, three workshops were held at one single company (where representatives of other stakeholders did not participate). In the workshops, the DAMIAN method has been used to analyze interactive television, video distribution in general and neutrality throughout the value network. The workshop participants have indicated in their feedback that DAMIAN helps to keep all participants ‘on the same page’ in their analysis of a complex value network, resulting in a more productive and efficient discussion. Moreover, they stated that the careful scoping in terms of end-user services helped to prevent a short-sighted analysis at points that happen to receive media attention at the time of the analysis. In addition, the discussion on openness and alternatives for assets brought a deeper understanding of the different views among the participants. Based on their experience with the DAMIAN method and tool, the majority of the participants expect that they will apply the method themselves or that they will be involved in DAMIAN analyses of other cases. 32

3.2 The DAMIAN methodology Figure 3.1 presents the stages and steps in the DAMIAN-method. The main objective of the this method is to create an impartial and shared foundation for discussions about policy and regulations in converging markets. This impartial and shared foundation is based on a systematic analysis and description of the service delivery flows in the digital value network, consisting of 1) the activities that need to be performed in order to deliver a specific service to the intended end-users; 2) the actors who carry out these activities; 3) the strategic assets that the actors use and exchange to fulfill their activities in the value network; and 4) the rules and regulations that affect the positions and interactions in the value network. The outcomes of the DAMIAN-method are recorded in a so-called ‘Service Delivery Canvas’. By means of this method and canvas, the many interdependencies between organizations in the value network can be unraveled, the complexity of the converging value network can be understood, and the effect of (new) policies and regulations can be evaluated. The DAMIAN method consists of four consecutive steps, which will be explained in more detail below.

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Figure 3.1 The DAMIAN methodology at a glance

Stage 1. The starting point for applying the DAMIAN-method is a current and well-defined case, which causes (potential) tensions in the converging media-Internet-telecom market. Possible cases that can be analyzed by means of the DAMIAN-method are, amongst others: •

The emergence of new service delivery flows because suppliers expand their activities in the value network (e.g. cable providers experience competition for their television services from the live and video-on-demand services of media companies).

•

New entrants that offer similar services as incumbent parties in the value network, but under different commercial and regulatory conditions (e.g. Internet actor Netflix competes with the television services of cable providers and broadcasters, but is not regulated by the same rules that apply to traditional media actors).

•

The growing importance of certain strategic assets, which influences the power positions in the value network (e.g. as personal content recommendations become more important, so does data about the viewer and his/her viewing habits become more important assets).

After defining the case, it is important to determine the scope for the analysis . The scope consists of a set of end-user services and their distribution models that are related to the case and are found important by the involved stakeholders, described by the name of the service and the actor that offers it. It is important to include not too little or too many relevant services in the analysis. Including too little services might result in a very narrow focus on issues that at the moment of doing the analysis get a lot of (media) attention. However, including too many services in the scope results in a very extensive analysis. An optimal number would typically be 4-5 services provided. Stage 2. The second stage in the DAMIAN-method is aimed at clarifying the way in which services are being delivered to the end-user: -

Which actors are involved?

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Which functional relationships exist between these actors?

-

And which assets do the involved actors use and exchange to deliver the service? 32

The results of this stage are captured in the ‘Service Delivery Canvas’ (

Formatted: Font: 12 pt, Not Bold, Font color: Auto

Figure 3.2Figure 3.2). This canvas depicts the main activities in the digital market that are often, but not always, executed to deliver services to the end-user. The entries in the canvas are explained in more detail in Error! Reference source not found.Figure 3.3. To create an overview of the service delivery routes, first the actors and relationships between them are recorded in the canvas. Then the method zooms in on the capabilities of the specific actors partaking in the value network by analyzing which tangible and intangible strategic assets (e.g. distribution networks, content, brand, customers, etc.) they control and therefore can leverage to capture value in the service delivery route. A firm gains influence in the value network when its assets are scarce and in high demand by other business actors in the network. Conversely, firms that are mainly using other firms’ assets to deliver their service to the end-user occupy a more dependent position in the value network.

Figure 3.2 Service Delivery Canvas

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Figure 3.3 The service delivery canvas explained in detail

Stage 3. To create an understanding of the power dynamics in the value networks of the digital value network, the DAMIAN-method systematically analyzes the interdependencies between actors in the value system by means of their strategic assets and the rules and regulations that apply to these assets. Assets determine where and how actors can capture value, such as making revenues, from the network and can assert influence. In other words, assets provide companies with control points: parts of the value network at which management can be applied through economic power (Allee, 2002; VCDWG, 2005; Eaton et al., 2010). The power an actor can leverage through the asset can be defined based on both the competitive advantage of the asset (Wernerfelt, 1984; Prahalad & Hamel 1990) and how 32

much it costs other actors to obtain the same type of asset (Coase, 1937; Williamson, 1981). Regulation affects the ways in which actors can control their own assets to assert influence and can rely on other actors’ assets, in order to prevent misuse of power between actors in the market and champion the common interest. In the previous steps of the method we have already identified the assets that are important, and thus are assumed to bring a competitive advantage, in the delivery of the service. At this stage of the DAMIAN-method we zoom in on these assets to identify which points in the value network can be characterised as control points by assessing the identified assets in the service delivery on two scales (Error! Reference source not found.Figure 3.4): 1) How open is the asset for other actors to use?; and 2) how many alternatives are there for this asset? In order to determine an asset as a source for control on dependency and influence between different parties in the value network, we plot the assets in the following two-dimensional space of openness (accessibility) and availability of alternatives.

Figure 3.4 Dependency/Influence categorization space

Asset 1 is accessible to all and there are many alternatives available. Therefore one could say that the providers of services using this asset are hardly depending on the owner of the asset and conversely that the owner is not in a position to influence the provisioning of services by others. Asset 2 on the other hand is not accessible to others and no alternatives can be attained, so the asset is completely unique. This implies that any service in which this asset is required can only be delivered by the company controlling this asset. This does not per se mean that owners of assets in the lower left corner dominate the value network, as they may

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depend on assets of others as well. So Reciprocity, the mutual dependency, can offset strong influence. Below we introduce the discrete levels of openness and availability and construct a classification of Dependency and Influence. The distinguished levels of commercial openness are 

Open: accessible to all at no (little) cost



Fair use: almost for free (up to a limit of usage)



FRAND (Fair, reasonable and non-discriminatory): open licensed, term of use equal to all



Commercial/exclusive: terms of use are negotiated bilaterally and differ per party



Closed: asset is not accessible to others (but under debate and in demand)

As for the availability of alternatives we distinguished three aspects: 

The number of available alternatives (many (>3) or few),



The switching (or installation) cost in case of alternatives



Entry barriers: if no alternatives are available, whether the asset can be easily built or not (entry barrier is either low or high).

In order to simplify the approach we introduce discrete levels of openness and availability of alternatives and combine these into seven levels of influence and dependency (see Figure 3.4Figure 3.4). On the left we see from bottom to top increasing levels of influence of an asset if it is used in a service of another party. On the right we see increasing levels of dependency if the asset used is controlled by another party. The seventh level (not depicted) is reserved for assets that are identified and are for own use only and no debate or demand is known, so it is not relevant for the Reciprocity. In this categorization the properties Barney (Barney, 1991) requires to have for sustainable competitive advantage in the Resource Based View can be recognized. These properties are resources should be rare, inimitable, and nonsubstitutable. It also has similarities with the interchangeability criterion posed by (VCDW, 2005).

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Figure 3.56 Asset influence and dependency based on degree of openness and number of alternatives1

Stage 4. By following the preceding steps in the DAMIAN-method, a complete overview has been created of the service delivery routes, including the most important assets, their openness for other actors, the amount of available alternatives and the applicable policies and regulations. In this stageof the DAMIAN-method we will use this overview to identify and discuss (potential) tensions in the value networks by applying several filters, such as the openness of the asset, the number of alternatives available, specific policies and regulations, specific services, or disagreements on the openness/alternatives scores between participants in a multi-stakeholder workshop setting. In the next section, the DAMIAN method will be illustrated along the real-life case of interactive television in The Netherlands.

4 The case of interactive television in The Netherlands In the following sections we discuss in detail the four consecutive stages of the DAMIAN methodology (see Figure 3.1) which provides a systematic analysis and description of the service delivery flows in the domain of Interactive Television in The Netherlands. A comprehensive analysis is available in a separate report, available from the website of the Dutch Ministry of Education, Culture and Science (Nooren et al., 2013)

4.1 Stage 1. Defining the case Trigger In the delivery of interactive television services, there have been examples of tensions between the television service providers and the broadcasters, the two main actors in the value network. In the Netherlands, television service providers have been reluctant to 1

Note that the assessment of the asset is always done from the perspective of the service provider.

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distribute the HbbTV (Hybrid Broadcast Broadband TV) signal in the TV signals they provide to their customers. This makes it impossible for broadcasters to deliver their interactive TV services using HbbTV technology. In an attempt to solve this problem, the Dutch Parliament issued a motion in 20132 . The motion calls for a discussion between broadcasters and TV providers that should accomplish that the interactive services offered by broadcasters will reach their intended viewers. Scope There are three options for providing interactive television services: 

Broadcasters can use HbbTV technology to deliver their services to viewers



Television service providers can provide the broadcasters’ services via their own platforms



Broadcasters can provide their services via an Internet-only route

The scope of the interactive television case is thus defined in terms of three retail services. In the following stage, the main actors, relationships and assets will be examined in an analysis of the value network.

4.2 Stage 2 Value network analysis Identify actors In the value network of Interactive Television, the following types of actors play a role in the television service delivery flow. 

Broadcaster, example: NPO (Dutch public service broadcaster)



Television service provider, example: UPC

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Television manufacturer: example: Samsung

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Rights owner: example EBU, FIFA

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Producer: example: FIFA, NPO



Other device makers: Apple (tablet), HTC (Smartphone), Acer (PC)

2

Motion of the members of Parliament Van Dam and Huizing, Kamerstuk 33426 nr. 36, 25 June 2013, Meeting year 2012-2013, https://zoek.officielebekendmakingen.nl/kst-33426-36.html (in Dutch)

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Based on the example of the types of actors listed above, we can draw the service delivery canvas and the different routes for providing television services to the customers. Draw routes We look at the different service and distribution models for interactive television in Error! Reference source not found.Figure 4.1. We write value network rather than value chain as a key outcome of the convergence is that there are multiple, parallel routes that video content can take between its creation and its consumption.

Figure 4.1. Value network with routes for managed and over-the-top delivery of interactive television. Note: routes and company logos shown are only for illustration purposes.

Just as in traditional media value chains, the video content is created, aggregated, distributed and consumed, resulting in a familiar flow from left to right in the figure. These four main activities are found in the top of the figure in blue, together with three new activities which prove to be important in the converged value network: service, service aggregation and navigation & selection. But rather than links in a chain, these seven activities now correspond to zones in the value network, with several zones showing multiple parallel routes passing through them.

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First, we look at the different ways consumers can watch interactive TV. In the content & info creation zone on the left, the figure still shows a single route for the content. The FIFA owns the rights to the World Cup in Brazil. Content of the World Cup (all individual matches) is distributed via the EBU to European broadcasters. In The Netherlands NPO bought the exclusive rights to broadcast the matches of the World Cup, which were broadcasted live by the public broadcaster NPO. In order to do so, NPO has aggregated the matches with other TV programs (news, sitcoms, sports programs, etc.) on one of its linear TV channels (content & info aggregation).

As described above, we have scoped the interactive TV case in terms of three distribution options. These correspond to three different routes for delivery of interactive television services and content in The Netherlands: distribution via platforms of Interactive television/Internet service providers (“managed route”), via HbbTV platforms of broadcasters and via Internet (“over-the-top route”). The three routes are briefly discussed below.

1. Managed route. The first route, in red, is what we call the “managed route”. In this route, an number of interactive television providers (cable, telecom or Internet service providers) offer services of broadcasters via their interactive television platforms. The services are provided by the broadcasters (left in Error! Reference source not found.Figure 4.1) and are delivered to the devices of customers (right in Error! Reference source not found.Figure 4.1). In case of interactive television, information from the customer/viewer goes back to the service provider, e.g. choices made on the information offered by the provider or voting information related to specific television shows. The different steps in the service delivery shown in Error! Reference source not found.Figure 4.1 are briefly discussed below: 1. The television content is aggregated by the broadcaster. The broadcaster produces part of the content itself and the other part is produced by and bought from third parties (not shown in Error! Reference source not found.Figure 4.1). The interactive television services typically contain audiovisual streams (image and sounds), which can be complemented with other elements and functions (depending on the service), like a description of the content, interaction with other viewers, televoting options and more. The broadcaster takes care of bundling these elements.

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2. The broadcaster passes the content to the television service providers, who distributes the content as a service to the viewers. Besides content of broadcasters, the package distributors may also include third party content. 3. The television service provider delivers the service from its interactive television platform. One way to technically execute the collaboration between broadcaster and television service providers is via apps, in a way that is comparable to services provision via apps on smart phones and tablet PCs. Television service providers can allow apps developed by broadcasters and other service and content providers on their interactive television platforms, which can add new service to their packages. 4. A television service provider can deliver services over various routes to its customer via the interactive television platform. The traditional route is the so-called ‘managed lane’ of the television service provider. Via the managed lanes in their networks, television service providers deliver services with a guaranteed quality. Most customers in The Netherlands watch live television programs through such a managed lane route. 5. To receive digital television signals, a viewer may need a set-top-box or a smart card (a socalled Conditional Access or CAM module) inserted in his TV. The services are delivered to the viewers via a user interface connected to the set-top-box, such as a menu displayed on television or an Electronic Program Guide (EPG). These user interfaces are available on the set-top-box or, when using a smart card, on television. 6. Besides the above mentioned managed network, some television service providers also provide services from their interactive television platform via parts of their Internet access network. These television service providers use the Internet access network primarily for a different service: the provision of Internet access services for the so-called Internet lane. The Internet access network route for television services from the television platform is generally positioned by the television service providers as complementary to the managed lane route. With this complementary service, customers of the television service providers can also make use of the television services via apps on their smart phones or tablet PCs or via the website of the television service provider. 2. Broadcaster route. A second route is to distribute interactive services of broadcasters via HbbTV platforms. With HbbTV transmission via digital television networks of the television service providers 32

is combined with transmission via internet. The different steps in the service delivery via HbbTV shown in Error! Reference source not found.Figure 4.1 are briefly discussed below: 1. Content is created by the broadcaster. 2. The broadcaster delivers the interactive television services to the customer and also facilitates the HbbTV platform from which the services are delivered. 3. For the transmission of the linear television program channel to the viewer, the television platform and the digital television service of the television service provider is used (red line in Error! Reference source not found.Figure 4.1). The signal of the linear channel contains among others linear video, audio, teletext and subtitling which the broadcaster transmits via the managed lane of the television service provider. This partial route strongly resembles the managed route discussed above, with the difference being that this route is not used for delivering interactive content. 4. The broadcaster will deliver interactive content via internet with its HbbTV platform (orange route in Error! Reference source not found.Figure 4.1). 5. The broadcaster adds an extra signal to the signal of the linear television program channel, the so-called HbbTV signal, to ensure a correct association and synchronization of the interactive content with the linear channel (dotted orange line in Error! Reference source not found.Figure 4.1). 6. To use the service provided via HbbTV, a customer needs a television set or (or set-topbox) that supports HbbTV. Recently bought Smart TV’s typically support HbbTV. A Smart TV uses the HbbTV signal to combine the linear channel with complementary information to deliver the (interactive) service that the broadcaster provides to its customers. The customer gets access to the service via the red button on the remote control of the Smart TV. At the moment, only few set-top-boxes are available on the market supporting HbbTV. Such settop-boxes can also combine the linear channels with complementary information, similar to Smart TV’s, which allows (interactive) HbbTV service delivery on older (non-Smart) television sets. 3. Over-the-top route. The third route is an over-the-top (OTT) route, shown in purple. The OTT route is a supplementary to the preferred transmission routes of the broadcasters (either 32

the managed route or the broadcaster route), not a separate route offered without one of the other two routes. With OTT, interactive television services will be provided exclusively via the internet lane. This means that all video, audio and signals of the service are delivered via internet, independently of the managed networks of the television service providers. The broadcasters using the OTT route are completely independent of television packages provided by the television service providers. The OTT route is used by well-known service providers on the internet such as Netflix, Youtube and the Dutch pay-per-view video service Videoland. Broadcasting companies use the over-the-top route to deliver their Catch-up Program offering directly to their customers. The different steps in the over-the-top route shown in Error! Reference source not found.Figure 4.1 are briefly discussed below: 1. Content is created by the broadcaster. 2. With over-the-top transmission interactive television services are also provided to the customer by the broadcaster, e.g. via the website of the broadcaster. 3. The broadcaster owns or hires a platform that can play out (“stream”) the videos to the individual viewers. 4. Internet is used for transmission of the service from the platform to the user. The user needs to have an internet access service, provided by an Internet Service Provider (ISP). For the over-the-top transmission route, a separate internet subscription offered by an arbitrary ISP is sufficient. For customers with a so-called triple play (‘all-in one’) package, the internet access service will be provided in combination with the managed television service and telephony service by the television service provider. 5. The customer can use (interactive) television services on different devices, such as tablet PCs, smart phones and PCs/laptops. If an appropriate app for Smart TV is available from the broadcaster, the customer can also use the service on the Smart TV. It is up to the broadcaster to develop the app, whereby the broadcaster is depending on the Smart TV manufacturer for inclusion of the app in the app store or portal of the television. The interactive television services offered by TV service providers and broadcasters already lead to a rich set of possible routes and consumption modes. However, the set of routes in Error! Reference source not found.Figure 4.1 is by no means exhaustive. For example, some TV service providers also bring their services to tablets and smartphones, using their Internet access networks to stream video from their TV platforms to their apps running on 32

these devices. Furthermore, the different routes can also be provided over mobile networks, thus adding mobile network providers to the picture. We would like to point out three important messages that follow from the routes for interactive television in: 1. In the converged media-Internet-telecom value network, there can be multiple routes for the delivery of the same content from the same content provider or aggregator to the same consumers. 2. These multiple routes are often associated with multiple providers of video services (in the example: TV service providers, broadcasters and on-line video service providers), thus blurring the lines between these actors. 3. All routes for delivery of video content depend on the availability of assets from multiple actors in the web. This leads to a multitude of interdependencies between the actors in the value network.

Identify assets The delivery routes depend on many assets, provided by many players. We will not provide a detailed analysis here, but examples of important assets are: Content rights (FIFA), Content (NPO), Content metadata (NPO), Channel brand (NPO), Portal (NPO), Video streaming platform (NPO), Managed network (UPC), Internet access network (UPC), Peering relations (UPC), Electronic Program Guide (UPC), Billing relation (UPC), Portal (Samsung), App (NPO), App store (Apple).

4.3 Stage 3. Assessment of assets and regulation Related the three routes for interactive television services delivery as identified in stage 2, three distinct value networks were identified with different assets owned by different actors. Below we briefly discuss the assets in each of these three value networks.

1. Managed network. UPC owns the network infrastructure that is needed to deliver the service to the customer. NPO (broadcaster) needs access to this network to be able to deliver content to customers of UPC. Openness of this asset can be characterized as Commercial/Exclusive, as NPO and UPC have bilateral negotiations on the distribution of the NPO channels over the UPC network to UPC subscribers.There are 32

only few alternatives and switching costs are high. NPO can distribute its TV channels over the internet (OTT), but the majority of its viewers watch TV on a traditional TV connected to a managed network. It would take considerable effort to build a large viewer base for OTT.

2. Content & Channel brand. The content and television channels brands are owned by the broadcaster NPO. The television service providers such as UPC need both content and use of channel brands to delivery various television service packages to its customers. Openness can be characterized as Commercial/Exclusive and is part of the same negotiations in which the distribution of NPO channels over the UPC network is determined (see above). There are no alternatives, since a basic television package without the NPO channels is not commercially viable.

3. Internet access network. The access the internet network can be characterized as open. Because of the net neutrality regulation in the Netherlands, UPC cannot block or slow down the NPO traffic distributed over its internet access network. There are no alternatives for internet access. On the Internet, UPC customers can only be reached via the UPC internet access network. Mobile internet is at this point not a viable alternative.

Identify regulation The previous sections shows that the development of the media-Internet-telecom value network is driven by new technical and commercials opportunities that companies seek to exploit. The development of new services, applications and distribution models is also subject to various types of regulation. As explained earlier, the influence of regulation on the development of the value network is explicitly included in the DAMIAN approach. The converged value network brings together regulation from, primarily, the telecoms and media sectors. Error! Reference source not found.Figure 4.2 illustrates why it is important to take regulation into account when looking at the routes through the value network and the interdependencies between actors.

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Figure 4.2. Regulations that affect interactive television services. Note: routes and company logos shown are only for illustration purposes.

The figure shows some examples of regulation and the region in the value network where they have a direct effect: 1. Rules related to the content provided in audiovisual services, such as (minimum) quota for the amount of European content in the programming of public broadcasters, on the protection of minors from harmful content and on the amount of commercials in linear programming. These rules originate from the European Audiovisual Media Services Directive (European Commission, 2010). 2. Rules that aim to lower the barriers for end users to switch between providers. The European Commission’s Connected Content proposal (European Commission, 2013) complements the long-standing number portability obligation in the European universal service directive (European Commission, 2009a) with rules that apply to service bundles (triple play, quadruple play). 3. Must-carry rules that oblige providers of TV packages to transmit certain TV channels (e.g. the channels of the public broadcaster), based on the European universal service directive.

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4. Rules on conditional access services. These older rules from the European conditional access directive (European Commission, 1998) were developed to promote the development of pay TV services based on conditional access through the single market. 5. Rules on transparency and end-user consent for “cookies”. The cookie rules, originating from the European e-Privacy directive (European Commission, 2009b), determine how service providers can use cookies and other technologies to store information about users on their devices. 6. Local Loop Unbundling (LLU), Wholesale Broadband Access (WBA) and Virtually Unbundled Local Access (VULA) are among the wholesale access remedies that can be imposed on network operators with significant market power. The access regulation is based on the European Access Directive (European Commission, 2009c) and the associated list of relevant markets (European Commission, 2007). 7. The current universal service directive deals with net neutrality through transparency provisions that aim to give end users a meaningful insight into the traffic management methods employed by network operators. In the Netherlands, the transparency has been complemented by explicit no blocking/throttling rules and rules that prevent tariff discrimination in Internet access services that depends on the over-the-top applications that end users choose(Nooren et al., 2012)3. The European Commission’s Connected Content proposal contains similar (but not identical) rules. 8. The overall regulatory context for protection of privacy is provided by the European data protection directive (European Commission, 1995). This 1995 directive is currently in the process of a major reform with a view to bring more control of end users over their personal data in the vast amount of services and applications provided in digital value networkss, such as the Internet-media-telecom value network. 9. The legal basis for copyrights in the European Union is provided in the Copyright Directive (European Commission, 2001). Based on this directive, content creators, aggregators and service providers enter into commercial agreements on the right to distribute content and make it available to the public. Error! Reference source not found.Figure 4.2 illustrates why it is important to take regulation into account when looking at the service delivery routes through the value network and the interdependencies between actors. Regulation has an effect on the way business actors in the converging markets can leverage their strategic assets, such as their content, 3

See also: Dutch Telecommunication Law, article 7.4a

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network, or customer base. By doing so, regulation affects the balance of power between actors in a market. From the figure it is not straightforward to assess the consequences of the introduction of new regulations or the removal of existing ones on the overall balance in the value network. The many interdependencies between actors can lead to situations in which a rule that seems to make sense at one position in the web can have adverse consequences in other parts. The two most important regulations in the case of Interactive Television are net neutrality and mustcarry. Net neutrality, as mentioned, ensures that the internet access works is open for use by all providers. Must-carry stipulates that the NPO channels have to be distributed by UPC to its customers. A legal analysis by the Ministry of Education, Culture and Science 4 shows that the HbbTV signal cannot be considered as an integral part of the TV signal and therefore, the HbbTV signal falls outside the scope of the must-carry obligation.

4

Kamerbrief Staatssecretaris Dekker, Rode Knop (Amendement/motie Van Dam-Huizing), 7 April 2014, http://www.rijksoverheid.nl/bestanden/documenten-en-publicaties/kamerstukken/2014/04/07/kamerbrief-overdistributie-van-interactieve-televisiediensten/kamerbrief-over-distributie-van-interactieve-televisiediensten.pdf (in Dutch)

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4.4 Stage 4. Identifying tensions and follow-up Tensions Tension arises in this case because of the competition between two (potential) providers of interactive television: a TV provider (in this example UPC) and a broadcaster (NPO). This breaks the traditional model in which the broadcaster creates and aggregates content in channels, and the TV providers distributes the channels. Adding to the complexity is that the providers of the two competing services depend on one another for crucial assets: NPO needs UPC’s distribution, both the managed network and the internet access network, while UPC needs NPO’s content. Net neutrality regulation removes the effect one of these dependencies by guaranteeing availability of the UPC internet access network for NPO. The other dependencies remain and are subject to commercial negotiations between the parties involved. Follow-up Since the summer of 2014, UPC transmits the HbbTV signal of NPO, thus enabling the HbbTV distribution to all UPC customers that have a suitable Smart TV or other HbbTVenabled equipment. At the time of writing of this article, Ziggo, another large Dutch TV provider does not transmit the signal. As the example of interactive television demonstrates, the sheer complexity of (loosely linked) digital value networks makes it more complicated for policy makers and regulators to deal with (rapidly changing) positions of power in the digital value network. Regulations that applies to different routes in the value network cannot be considered in isolation, as they come together to steer the outcome of practical cases and discussions. Companies, on the other hand, find it harder to survey which policies they should take into account when determining their strategies, investment decisions and R&D activities. To assess the effects of (possible) policies on the positions of power in the complete value network, a full analysis of the value network is needed. The DAMIANmethod aims to provide such an integral framework for analysis.

5 Conclusion and discussion In this paper we have explained the DAMIAN methodology and illustrated an application of it to the case interactive television. The core of this methodology is consciously building a networked view of assets that are used and often shared in delivering substitute services. Many of these assets are also subject to regulations. By assessing the User Value levels and 32

Dependency/Influence levels of the assets, we can create the User Value profile of the service (which reflects the value strategy of the company delivering the service) and we can reflect the Reciprocity of co-opetitors. The Dependency/Influence levels are derived from levels of openness and the availability of alternatives. Furthermore, DAMIAN supports analysis of ‘What if…?’-scenarios by adding new assets and services as well as add or remove regulations (e.g. net neutrality) and demonstrating the impact on Reciprocity and User Value profiles. The methodology is co-created with and supported by stakeholders from the media industry from both business as well as government sides. The methodology preserves a neutral character as it charts facts with respects to the assets required for service delivery and groups these in two major indicators. The cases show that the identified assets vary greatly in nature (from tangible, e.g. specific hardware, but also the unique characteristics of an algorithm, to intangibles, such as the size of the user base, the nature of user identifiers or content rights). The methodology provides a broad network-perspective that includes the relevant scope from the perspective of the players. This is achieved by starting from the retail market and including all relevant assets in the service delivery. Proper scoping of the set of considered services consciously constructing the delivery of services the right parties, assets and alternatives and especially their interdependencies come in the picture. Application of the methodology reveals that a relatively high degree of technical and regulatory knowledge is required to identify and assess the relevant assets. E.g. in the cases under consideration it was required to know in which order a TV-set scans its input ports, or to what specific service ‘must-carry’ regulations apply. Involvement of stakeholders from the industry helps to preserve width and objectivity. The methodology does not require to include all highly similar services, in order to understand the dynamic mechanisms of the value network. However, adding highly similar services will not affect the conclusions, so the methodology is robust for over-scoping. For a more quantitative approach completeness would be required. This is currently considered a limitation for this methodology. The methodology could benefit from a stronger focus on end-user value, as well as industry value (e.g. monetary or ‘eyeballs’). The application of the methodology to the various cases, as well as the exposure to both business and government actors supports our belief of a more 32

generalized applicability to contexts in which service delivery is highly determined by the configuration of the digital assets. This configuration is both a technical as well as a strategic activity, and it is influenced by regulation. Thus, DAMIAN drives sufficient breadth and depth in debate on strategy, policy and regulation in converging markets.

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