Wiring Europe

By Lovegrove, Nicholas C.; Wilshire, Michael J. et al. | The McKinsey Quarterly, Spring 1995 | Go to article overview
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Wiring Europe

Lovegrove, Nicholas C., Wilshire, Michael J., Leibbrandt, J. Gottfried, The McKinsey Quarterly

Are Americans using Europe as a dress rehearsal?

Vulnerable incumbents

Strategies based on distribution are shakey

The emerging power of gateways

Most of the early attention devoted to multimedia has emphasized American opportunities. However, the focus is now shifting to Europe, probably the next frontier in the industry's evolution. How will Europe's experience resemble that of the United States, and how will it differ? Who will be the principal competitors, and in which battlegrounds will they fight? And how will the nature and intensity of competition affect the eventual shape of the European multimedia landscape?

European companies face a real danger: that opportunities will be grasped by others as the competition for multimedia supremacy hots up. The most menacing entrants into Europe are Americans, either exploiting the experience and scale they have gained at home or using Europe as a dress rehearsal for future domestic battles.

Rapidly intensifying competition

Under assault from the United States, many of the established European players - public service broadcasters, public telephony operators (PTOs), and equipment vendors - are looking increasingly vulnerable. European PTOs generally have much lower labor and capital productivity than their US counterparts. The European personal computer market is dominated by Compaq, IBM, Apple, and Hewlett-Packard - and, of course, by Microsoft operating system software. US companies lead the UK cable market and have the rest of Europe in their sights.

Hollywood overshadows the European film market. European television is under attack from CNN, MTV, NBC, and Disney. All this despite the fervent attempts of the European Union, and France in particular, to safeguard its cultural independence by imposing quotas and introducing other protective mechanisms.

The Europe of old might well have put its faith in national champions - probably under public ownership - to resist these threats and drive industry development, seeking to capture the economic benefits for the national coffers. Indeed, some countries, notably Germany and France, may still look to their state industries to build the multimedia highway. It seems likely, however, that the balance of power will shift away from incumbents, allowing newer players - including those entering Europe from the outside to make much of the running.

Some of the best-positioned European multimedia companies have come from nowhere over the past decade. Canal Plus now dominates the pay television market in France, while Lyonnaise des Eaux and Generale des Eaux - water utilities until recently - are operating much of the country's cable infrastructure. Luxembourg-based SES has made Astra into by far the leading distributor of satellite TV across Europe.

In the mean time, BSkyB has established a stranglehold over UK satellite television, and has just been partially floated at a value for the whole company of around $10 billion. Nethold, through its Film Net subsidiary, leads the Scandinavian pay-TV industry. Kirch has built up the strongest film and music library and production business in Germany, and owns one of the most successful television stations.

In this new environment of liberalization and competition, European companies are under pressure to reinvent themselves to create an identity they will be able to sustain in the multimedia era. While this is always a difficult process, there have been some notable successes.

Reuters, for instance, has positioned itself to control both the flow of information and the technological gateway for the financial "community of interest," and is now applying the same approach to others, such as health care. Traditional publishing corporations like Reed Elsevier, VNU, and Pearson are applying multimedia technology to deliver content in new ways to targeted consumer and professional segments. The BBC, Europe's oldest and most respected public service broadcaster, is becoming a multimedia content provider for both domestic and world markets in such genres as news and education.

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