strategic_alliances_in_services_of_audiovisual_entertainment (1).pdf

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Strategic Alliances in Services of Audiovisual Entertainment Content in the Context

of Digital Convergence: Evidence from TV and Telephone Companies in Brazil

Luciana C. Lenhari, Ruy QuadrosCampinas University, Science and Technology Policy Research Department, Campinas, SP - Brazil

Abstract--The paper aims at analyzing the emerging strategicalliances and partnerships between traditional and new agents

in the value chain of services of audiovisual entertainment

content (AEC) in the context digital convergence in Brazil. Such

alliances seek to accumulate relevant competencies for the

effective exploration of the emergent market of multiplatform

AEC: TV, IPTV, mobile phones, web, tablet. Our theoretical

framework is based on the literature on value chains and

strategic alliance management under the perspective of the

resource-based view (RBV). Research methodology has mainly

comprised in-depth interviews in television and telecom service

providers in Brazil which hold together from 50% to 90% of

market-share, depending on business segment. Research results

reveal that whilst the new strategic alliances and partnerships

are enabling television and telecom service providers to share

costs, revenues and accumulate learning and competencies in

order to change and expand their resource basis, this strategy is

empowering potential new competitors in the value chain. This

is a key management challenge to these companies in building a

new market for this service.

I. INTRODUCTION

Since the 1990s, the convergence of TV broadcasting,telecommunications and Internet services has been taking

place in several countries [1]. The Organization for EconomicCooperation and Development [2] synthesizes this debateshowing that the road to convergence was built through an

increasing content digitalization, changes in the InternetProtocol (IP)-based networks, the expansion of the access tohigh-speed broad band, the availability of multimediacommunications and computer devices. Such convergence isthe result of several technology innovations in the electronicsand telecommunications industry [3] and enablescongregating over a same network different services, such asTV over IP, TV over the mobile phone, voice over IP, thelandline-mobile integration etc. Many are the possibilities forconverging services and in this article we chose to focus onthe audiovisual entertainment content (AEC) service.

These new frameworks in TeleCommunications(TeleCom)1services have been threatening the conventional

boarders of TV networks and telephony activities andshowing its players the need for undergoing a rapid strategic(re)positioning by reviewing businesses and alsodeveloping and acquiring resources and competencies toeffectively respond to this scenario. The decisions taken cannow define the capacity of a TeleCom company to survive in

1The term TeleCom services is used in this paper as a way of designating asa group the segments of Teleccomunicatons (telephony), Means of SocialCommunications/broadcasting (television) services and Internet services.

its market of origin and in new markets, since such servicemarkets are being re(defined) in view of this convergence.

Until the coming of digital convergence, the bordersbetween TeleCom service activities were also distinctivelyregulated in Brazil (and still are at the initial step towardconvergence). On one hand, the service of free-to-air TVstations is regulated by the Cdigo Brasileiro dasTelecomunicaes(the Brazilian Telecommunications Code)(Law 4.117/1962), and their resolutions are made by theMinistry of Communications. On the other hand, the voiceservice of telephony companies is regulated by the Lei Geralde Telecomunicaes (the General Law ofTelecommunications) (Law 9.472/1997), which created

Anatel2 (the National Telecommunications Agency) and hasjurisdiction over control, conservation and repression actsrelated to telecommunications. And the services of pay TVstations are recognized as telecommunications, but itsregulation is not connected to that of free-to-air TV, and itsmain restriction fell under the Lei do Cabo (the Cable Law)(Law 8.977/1995) which limited this cable service to 49%maximum of foreign capital. The Lei da Convergncia (theConvergence Law) (Law 12.485/2011) replaced the Lei doCabo, enabling foreign telephony companies to also offerAEC to subscribers through their networks, with the creationof the Conditioned Access Service. Now telephonyconcessionaires are allowed to explore all kinds of TeleCom

services, and not only those related to the object ofconcession.Research on the AEC market within digital convergence

conducted by Lenhari [4] indicates developing keycharacteristics of this process in Brazil. The current scenarioof free-to-air TV is underlined by the introduction of DigitalTV, whose high-definition, mobility and interactivity featureswill lead to significant changes for its players, regarding boththe production and distribution of content and the possibilityof supplying new services in their networks. These playersalso seek to occupy mobile and Internet screens to assure themaintenance of advertising funds, which are their mainsource of revenue. Accordingly, they already display theirschedule in the mobile models capable of receiving digitalfree-to-air TV stations signals and also (re) exhibit a good

part of its schedule through their own Internet services, suchas Globo.com, which is one of the portals with the largestaudiences of AEC Brazil.

2Anatel was inspired in The Office of Communcations (OFCOM), an agencythat in independent in terms of competition and regulation ofcommunications companies in the United Kingdom.


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Pay TV stations are reacting to the increasing competitionoffering triple play packages, which correspond to theintegrated offering of telephony services, pay TV servicesand access to the Internet. The largest company in thissegment in Brazil, Net Servios, has had a significantincrease in its subscriber base since it began to deliver thesethree services through one single technology (coaxial cable),and it benefits widely from the Lei do Cabo. On the otherhand, with the approval of theLei da Convergncia, Telmex,which controlled 49% of the company until then, will takeover its ownership interest and has announced that it willinvest greatly to expand its services.

Mobile telephony operators seek to profit from the trafficof data created through video sent via networks. For such,they have launched their own pay TV services, chiefly usingthe same contents of traditional pay TV, such as Minha TVfrom Claro (Telmex), Oi TV Mveland TIM TV. With regardto mobile telephony, an important event in place is theimplementation of the 4G network, technology which willoptimize the expansion and solidification of AEC services.

Telephony companies are also offering pay TV packages,such as Telefnica TV Digital, via satellite and AEC

packages with Internet and DVD resources using the IPTVplatform, directly competing with traditional pay TV stations,in addition to the triple play offerings.

AEC service is controlled and explored in Brazil mainlyby free-to-air TV companies, which are sponsored byadvertising. Right after them comes pay TV stations, andmost recently telephony companies have also began offeringAEC services. The countrys expansion of pay TVsubscribers by 273.5% from 2000 through to 2011 coincideswith the entry of telephony companies in 2008 into the payTV market. This should be further facilitated by Law

12.485/2011 [5].Free-to-air TV in Brazil is mainly composed of nationalfamily-owned businesses, which in the scenario ofconvergence into digital AEC compete with largemultinationals such as the Telefnica Group and the TelmexGroup. A competition which is asymmetric in many ways,such as in investment capacity, which is a relevant tool forsuch businesses and that, in a certain aspect, is (and can be)offset by market regulations, markedly influenced by free-to-air TV stations. A recent example was the fact that BrazilianFree-to-air TV corporations were excluded from the scope ofand discussion on Law 12.485/2011.

In view of this context, the purpose of this paper is to

discuss the new strategic alliances and partnerships that arebeing underlined by traditional and new players of the valuechain of AEC services within digital convergence as a solidroad to build up the needed tools and skills to constitute anew multiplatform AEC market: TV, tablets, the Internet,mobiles etc.

To achieve the proposed objective this paper is structuredin six sections, in addition to this introduction. Section two

presents the theoretical framework chosen to analyze thecontext presented, combining concepts of value chain

approach [6-9] with concepts of strategic alliances approach[10], both under the perspective of a strategic analysis ofResource-Based View (RBV) [11-14]. The principles of RBVand how it is related to corporate strategies make it as theappropriate theory to use as base for the findings andidentification of relevant resources and competencies that TVand telephony companies need to use to gain competitiveadvantages through strategic alliances and partnerships withtraditional and new players of AEC value chain in digitalconvergence.

The third section presents the methodological proceduresthat guide the empirical research on which this paper is

based. Section 4, on TV stations, and section five, ontelephony companies, respectively summarize the keycomponents of the value chain and key partnershipsestablished by the companies in these segments until digitalconvergence (subsection 4.1) and in the initial phase ofdigital convergence (subsection 5.1), using as referenceacademic and specialized literature of these two segments.Following this and based on empirical research, each of these

sections discusses evidences of new roles and players of thevalue chain of companies in both segments, as well as theneed for establishing new strategic partnerships and alliancesthat are being designed to build the future market of AECservices in digital convergence (subsections 4.2 and 5.2). Thefinal considerations section (section 6) has a joint analysis ofthe companies of both segments and the strategiccharacteristics that AEC alliances and partnerships have beenforming in digital convergence.

II. THEORETICAL FRAMEWORK

The construction of the theoretical framework knows as

Resource-Based View (RBV) was influenced mostly byPenrose [15] and Selznick [16], among other authors [17-22].Most researchers linked to RBV agree with the general ideathat sustained competitive advantages are conferred throughresources that are hard to be copied and relatively lean inrelation to their economic value. According to RBV thecompetitive performance of a company is related to theresources this company has and manages strategically, whichinclude both tangible assets (physical equipment,geographical localization, access to raw material etc.) andintangible assets (knowledge, patents, experience, decisionskills, relationship skills etc.). Intangible resources areaccumulated and embodied in individuals (skills and

knowledge) and organizational systems (routines, processesand codified knowledge), and they are developeddistinctively among companies [25-27].

Although RBV can be considered an analytical approachprincipally aimed at the inner structure of a company, in thesense that the strategic approach is ideally seen as using as

base a resource portfolio analysis, the environment must notbe disregarded from the context in question [28, 29]. A wayof knowing the environment is through the analysis of the


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value chain to identify the relevant external resources andcompetencies [12].

RBV and most particularly Barney [12], uses as analyticalbase the value chain and the definitions attributed to it byPorter. However, considering the specificities of convergenceand AEC, and the nature of TeleCom services in Brazil where there are multinationals with operations in manycountries -, it was considered relevant to explore theapplication of RBV also within the scope of global valuechains.

According to Barney [12], although it is possible tocharacterize the resources of companies more broadly, it isuseful to think how each one of a companys activities takes

place and affects its financial, physical, individual andorganizational resources. Based on this one can understandthe potential sources of competitive advantages of a companyin a more detailed manner. In fact, likewise the structure ofthe five forces in Porter, [] it is considered that the basicidea of value is continuously subject to a complex negotiationthat is played among employees, suppliers, distributors,

clients and business owners [30].For Porter [7] the value chain has to do with several

activities related with and developed by a company to fulfillthe needs of its clients, from the relationships with suppliersand production and sales cycles through to the distribution tothe final consumer, with each phase of this cycle linked toone another. These phases may lead to competitive advantagein two different ways optimization and coordination andmay also reflect the need to coordinate activities. The skillsneeded to coordinate phases usually reduce costs or increasesdifferentiation and according to Porter [6] these are the basictypes of competitive advantages that a company can have.

The global value chain concept by Gereffi [8] considers it

to be a set of interorganizational networks grouped around aproduct that links consumers, companies and states within theglobal economy stage [31]. For Gereffi, Korzeniewicz andKorzeniewicz [32] and Gereffi [9] a value chain comprisesfour key dimensions: the input-product structure (a set of

products and services linked to a sequence of value-addingeconomic activities); territory (geographic dispersion orconcentration of companies in production and distributionnetworks); the governance structure (authority and powerrelationships); and the institutional structure (conditionsfound in different scopes local, national and internationaland political initiatives).

When we observe the companies that provide television

and telephony services in Brazil (and the world) we canverify that large groups or conglomerates control part or allthe production and distribution chain of products and servicesin several areas, such as telecommunications, landline andmobile telephones, radio broadcasting, newspapers andmagazines, publishing houses, news agencies, free-to-air TV,

pay TV, the Internet, software, advertising agencies, musiclabels, studios, film production companies, distributors andexhibitors and other audiovisual products [34].

Understanding which stages of the value chain of aproduct a company operates is useful to identify the types ofresources a company will likely control. And the capacitythese resources have of creating competitive advantages can

be analyzed. However, even the companies that operatewithin the same set of value chain activities can access theseactivities differently. Consequently, they can developdifferent resources and competencies related to theseactivities.

The participation of companies in collaborativerelationships was recognized long ago, since they have a keyrole in organizational learning [35]. Creating new knowledgein interoperational collaboration enables the creation of newknowledge, not available before to any collaborators [36, 37].

Tidd et al. [10], when discussing strategies to exploreexternal sources of technology innovation and acquisition,emphasize a couple of reasons for companies to collaborate,such as the reduction in technology costs or entry in themarket, the reach of scale economies, the reduction in thetime spent to develop and commercialize new products,

shared-learning encouragement etc. These authors alsodiscuss the different forms of collaboration: outsourcing,licensing, consortiums, strategic alliances, joint venture andnetwork. For the purposes of this article, the focus is ondiscussing strategic alliances.

Alliances can be used as an opportunity to learn newmarket and technology competencies, i.e., as an opportunityto absorb a partners knowledge, and within this scope it ishard to measure the success of an alliance, since collaborationis an intrinsically risky venture, and according to Tidd et al.[10] less than half reach their goals. Besides, companies havedifferent expectations toward alliances and this affects theway they evaluate their success.

An alliance tends to have different objectives, someexplicit, other implicit, and results can be planned or not.Thus, any successful action must be multidimensional anddynamic to capture the different objectives as they evolve.For Tidd et al. [10] if learning is the key objective, partnersmust have complementary skills and competencies, although

balancing forces is also important. In this sense, the similarthe partners are, the greater the possibility of establishing asuccessful alliance.

These authors [10] also indicate that research on alliancesin the commonly called high technology industries, such assoftware and telecommunications, seem to confirm thataccess to technology is the most frequent reason for them and

access to markets seem to be the most frequent reason forestablishing collaboration in the computing, microelectronics,consumer electronics and telecommunications industries. Theempirical research conducted for this article confirms suchtrends in Telecommunications services.

III. METHODOLOGY

In this paper, research has been conducted following the 3objectives: i) to understand the context of digital


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convergence, with which the investigated companies areinvolved, with a focus on AEC service ii) characterize thevalue chain, business models and regulatory aspects relevantto businesses operating within the segments of TV andtelephony, and iii) discuss and understand the empiricalresearch based on the chosen conceptual framework.

Due to the singularities and newness of the phenomenon,this research has been exploratory and descriptive, whichseemed most adequate to providing researchers initialknowledge about the topic or research problem in

perspective. This was critical in the early stages of research,as researchers do not have enough knowledge to formulatespecific questions and hypotheses [38, 39].

In order to address the main issue of this paper which ismapping out and analyzing the new strategic alliances and

partnerships pursued by the actors engaging in AEC servicesvalue chains under digital convergence this paper reflectsthe findings of a comprehensive empirical exploratory studyconducted through interviews with managers and executiveofficers who have been following the convergence process in

their companiesThe empirical research has been based on interviews

conducted in companies belonging to bost investigatedindustry segments. A semi-structured questionnaire wasapplied in an intentional sample comprising eight companies:three free-to-air TV stations (Globo, SBT and Band), one payTV company (Net Servios) and four telephony companies(Oi, Telefnica, TIM and Claro-Telmex). The interviewswere conducted from October 2008 through to March 2009.The interviewed companies control from 50% to 90% sharein their respective market segment. Note that although weonly interviewed Net Servios within the pay-TV segment,the understanding of the competition in this segment includes

elements of interviews conducted with Telefnica and Oi,which also explore pay-TV; of the interview conducted withGlobo, which also operates in the pay-TV segment through

Net itself and through Sky/DirectTV and also through Claro,which is controlled, as Net Servios is, by Telmex which, inturn, also offers pay-TV services via satellite throughEmbratel.

Interviews have explored interviewees experience in theirrespective businesses in order to assess their expectationswith regard to the exploitation of AEC services in the contextof digital convergence and the vision they have in regard towhat the future of this service market will be. How should betackled the challenge of producing and distributing content

considering the need to supply distinctive media andlanguages (AEC service multi-platform)?The analysis and the findings from the qualitative research

was organized by industry segment. The companiesdemanded secrecy and confidentiality, which were agreed towith the interviewees and as such the companies wereidentified by letters not to be recognized. The Televisioncompanies (subsection 4.2) correspond to letters A, B, C and

D, and telephony companies (subsection 5.2) correspond toletters E, F, G and H.

Data treatment and analysis was organized in order tointerpret, explain and categorize the materials collected sothat they could answer the main questions of research. Dataanalysis consisted of a recombination of the evidencecollected in order to clarify, verify or refute the initialobjective of the study [40].

Additionally, academic bibliographical and specializedresearch was conducted on the main phases of the value chainof these segments, as well as on their key players and

partnerships before digital convergence. Such informationwas also used as a base for the empirical research and is

presented in subsections 4.1 and 5.1, respectively. Thisresearch helped understand some of the relevant resources ofcompanies in these segments and the urgency of theconvergence, and enabled comparing such resources withthose needed to manage new opportunities of strategicalliances in the current convergence phase, based on theempirical research (subsections 4.2 and 5.2). Some of these

partnerships are more clear-cut and others are more subtleand difficult to grasp given the early (and still experimental)stage of service development under convergent AEC.

The next sections (4 and 5) will explore collected data indetail, while Table 1, in section 6, presents a synthesis ofmain fieldwork findings.

IV. VALUE CHAIN AND STRATEGIC ALLIANCES INAEC SERVICES BEFORE AND AFTER DIGITAL

CONVERGENCE: EVIDENCES FROM TV STATIONS

A. Value chain and strategic alliances of TV stations before

digital convergence

Figures 1 and 2 show the steps of the value chains of free-to-air TV and pay TV that were predominant untilconvergence took place and that are still valid at their initial

phase. However, some players and their roles in these chainshave begun to change, as will be seen throughout this and thenext sections. It is important to know the pay TV chain

because it has been the entry to telephony operators in theAEC business. Firstly, it was more concentrated in contentdistribution, but now efforts are being concentrated oncontent production. On the other hand, bets by telephonycompanies on advertising as a new source of revenue may bea threat to the free-to-air TV business in the medium and longterms, since it is its main source of revenue.

The value chain of free-to-air TV, according to the CPqD[41] comprises four sequential phases (Fig.1), withsignificant quality and audience share. A strikingcharacteristic of the free-to-air TV market in Brazil is its highverticalization, i.e., the players which make up the televisionnetworks concentrate several of the roles of chains withintheir organizations, participating in several stages.


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Fig. 1: Steps of the value chain of free-to-air TV

Source: Adapted from the CPqD, 2005.

Fig. 2: Value chain of the Pay TV segment

Source: Adapted from Turolla et al., 2008.

The value chain of the pay TV (Fig.2) differs from that offree-to-air TV, although they are strongly interrelated andinterconnected, notably in the first phases of the production

process. The link between this chain and the consumer are thepay TV operators which make feasible the entry of resourcesin this chain and reach the first content link. As regards payTV, this paper focuses on the operators. The value chain ofthe pay TV begins with AEC production and ends with salesto subscribers of these contents formatted in programmingchannels through schedules and specific topics by pay TV

operators. While the free-to-air TV model is vertical, the payTV model is horizontal [42].

It is in content production that an AEC idea istransformed to be handled by the next player of the chain.This phase comprises the phases of conception (creation),

production itself and post-production (the processing ofcontents for television).

In the free-to-air TV step we can identify at least threetypes of players: i) production centers of free-to-air TVstations (mainly in Brazil) and which offer betteridentification of the content with the countrys viewers; ii)independent producers, in a very reduced scale and little useduntil the first phase of convergence; in this model, TVstations are responsible for content conception and theindependent producers only execute them. There is alsocoproduction, conducted in partnership between independent

producers and TV stations; and iii) international producers,such as Time Warner, Sony, News Corp, Viacom, Disney,

NBC Universal etc., and from these producers it is possible topurchase finished products at lower prices, since theamortization from investments are paid in the country oforigin. Other players can act in this phase, taking on rolesassociated with one of these three main players. Examples of

these other players are screenwriters, editors, dubbingstudios, among others.

Free-to-air TV also has a phase of TV advertisingproduction. This type of advertising is one of the mostimportant ways of advertising products and services, usuallymade by advertising agencies, due to the demand ofsubscribers for communications plans. In view of thisdemand, these agencies plan campaigns and broadcastingmediums, negotiate prices for inserting advertisements in TVstations and the production of commercials, when they are

contracted with independent producers. The stock of a TVnetwork (when compared to a manufacturing company), of itsaffiliates or independent stations is based on the time left forthis stock to be inserted in commercials.

The chain of pay TValso begins with AEC production.We refer to studios, national and international producers oreven the programmer of free-to-air channels. AEC producershave two options: i) negotiate directly with the next phase ofthe chain, i.e., the programmers; or ii) license their productsto exhibition rights distributors which sell to all segments ofthe AEC chain, among which the pay- TV operator.

The program schedulephase comprises the storage andorganization of the schedule of programs, distributing themand inserting advertisements, which is the main source ofrevenue of programmers in the market and is organized perviewers region and scheduled time. Programmers anddistributors are strategically located aiming to reach marketsthat are geographically close and similar culturally, providingscale gains by reaching operators and subscribers within asame region. In most cases, programmers which cover theBrazilian market also cover countries in Latin America.Examples of such are: Fox Latin American Channels doBrasil and HBO Latin America Group.

AEC ProductionProgramSchedule

Distribution andDelivery

Consumption

ProgramSchedule

packagingdistribution

(operators)AEC

ProductionSubscribers


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Packaging agents are the ones that purchase programschedules, and negotiate with programmers the licensing of

program channel transmission rights. According to Turolla etal. [42] this agent is not fundamental, but has emerged inBrazil due to contracts internal to the chain, being controlledin the country by the Abril group and the Globo group, as wewill see below.

Distribution and delivery in free-to-air TV comprisesthe distribution of program schedules among TV stationswhich belong to a same network (the distribution of AECfrom the main company to local/regional companies orrelayers). The capillarity produced from the delivery phaseadds significant value to the chain, since the free-to-air TVstations reach approximately 99% of the Brazilian population.In pay TV the distributors or operators are responsible forselling program channel packages for subscribers and also forthe needed infrastructure, composed of different networksand technology platforms (coaxial cable and optical fiber inhybrid network, satellite and MMDS). Consumptionhappens through receptors TVs and antennas in the case

of free-to-air TV, and TV sets and decodifiers in the case ofpay TV, through subscription.We note that according to a study by Cruz [43], the

research conducted by the CPqD [41], which divides into foursteps the value chain of the free-to-air TV received severalcritical opinions. These players saw such division as a threatto their business model, since it used as base the view oftelecommunications on radio broadcasting. This view usedas base the European model, in which several countries

separated network operations from services as fromanalogous TV and separated network from content with theintroduction of Digital TV. Each of these activities is run bydifferent companies, which makes the industry no longervertical.

Outcomes arising from pay TV operations in the UnitedStates, such as the creation of independent channels and

productions, were not reproduced in Brazil. The model of payTV in Brazil was developed having the Globo and Abrilgroups controlling the main steps of the value chain andadding foreign components with the entry of foreigncorporations and large imports of contents, placing thecountry in the route of global market. According to Torres[34], the influence of the free-to-air TV model wasreproduced for the pay TV model, since the Globo Groupcontrolled 51% of Net Servios stakes until regulation byLaw 12,485/2011 (the remaining 49% was controlled byTelmex, which with the approval of said Law gained stock

control) and 24.99% of Sky/DirecTV, which most recentlywas reduced to 7%, although it still has a seat on the board ofshareholders. These are the main pay TV operators in thecountry, and despite the entry of telephony operators in this

business, they still have the largest market share in theindustry.

We also note two other characteristics that marked theperiod before convergence of Pay TV with the market sharedbetween the Abril and Globo groups: the channel exclusivitypolicy, such as Globosat (which belongs to the Globo Group

and produces AEC to several of the main Brazilian pay TVchannels), and the control over transmissions of the countrys

popular football tournaments. According to Torres [34], theexclusivity policy can only be exercised in a framework ofcross ownership in the communications means, i.e., whenthere is control over production and over distribution andexhibition. According to this author, the lack of public

policies and of regulations to limit cross ownership andmonopolistic practices led these companies to make their ownrules, thereby oppressing competitors and the public interestuntil convergence.

Since mid 2008, the advance of the pay TV market viasatellite of telephony operators made the channels withGlobosat contents also available in the schedules of thesenew competitors. In face of their new audience these are alsoused as a marketing strategy to sell packages of TV servicesfrom telephony operators. Regarding Brazil, we can affirmthat this solid interface between radio broadcasting and payTV is a relevant tool in terms of scale within a context inwhich the television business (AEC) is increasingly

competing with the business of large telephonymultinationals and the Internet.Another movement seen in Brazil as of the 1990s are the

consolidations, mergers and alliances in the pay TVbusinesses. They allow larger companies to absorb into theirbusinesses smaller regional companies, leading to rapid gainin scale to benefit from the synergetic potential between

products and infrastructures which is much benefited fromdigitalization and stronger competition in theTeleCommunications market. Identifying opportunities ofconsolidations and mergers is important to gain scale and canalso be regarded as an important tool of pay TV companiesthat remains valid at this time of convergence.

B. Alliances and partnerships of TV companies in digitalconvergenceUntil digital convergence, establishing alliances and

partnerships was not a common practice by free-to-air or pay-TV companies. However, in this new context, they will needto develop this resource. We do not have a strong

partnership model, this is a competency we do not have.Our business is highly vertical [...] there is only one TVmanufacturer at the end of the value chain, but it is standardbusiness(until convergence). (interviewee of company A).

On the other hand, it is important to consider thatinvesting in own production helped develop resources andcompetencies in AEC throughout the history of Brazilian

radio broadcasting.Most of our production is made here, but we do notexclude other possibilities, no one here is closed to newideas. Weve already done many things with outside

producers [...] (interviewee of company C). Today it ismainly own production, thats how we developed ourcompetency. Brazilian TV was greatly influenced by theradio and theater models. Since the 1950s,competencies have evolved as technologies haveadvanced(interviewee of company B).


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Considering that free-to-air TV in Brazil has and willcontinue to have for quite a while content with high audienceratings, it is most likely that free-to-air TV companies will beable to benefit from negotiations for partnerships to distributeand deliver exclusive premium content to mobiles, forinstance. However, this possibility has not yet been explored[...] we have not negotiated any free-to-air TV exclusivecontent [...] (interviewee of company A). This type of

partnership can also benefit from one of the features ofDigital TV mobility. Mobility leaves room for negotiating

partnerships with telephony operators, Internet servicecompanies and also companies from other value chains, suchas bus companies, banks etc.

Although most of the content is produced by the free-to-air companies themselves, over the past years they have beenexperimenting partnerships with independent producers insome series and programs, some of which airing on primetime of company A. Another example of partnership withindependent producers is that of company C, which from

2009 to 2010 prepared three projects in coproduction withindependent producers: a short fiction series, a short culturalseries and a documentary series. These partnerships plannedto use the resources of the Lei do Audiovisual (theAudiovisual Law) (Law 8,685/93), which authorizes free-to-air TV and pay-TV channels to invest 70% of their tax due onfunds sent abroad to co-produce works with AEC fromBrazilian independent producers. Company C has established

partnerships with telephony operators and Internet servicecompanies to provide contents, some of which exclusive,from their pay-TV news.

We noticed in Brazil that company A is more verticalizedand closed to partnerships, whereas company B seeks greateralignment with the business models of telephony operatorsand Internet service operators in relation to AEC. Company Aawaits demand from telephony operators, while company Bseeks a more aggressive strategy of supply of AEC adapted tothe format needed to provide this content to new platforms.Probably this positioning is encouraged by the positions thesecompanies have in their market, approximately 50% and 5%share in audience ratings, respectively.

Nevertheless, we can identify in this case the beginning ofa partnership that can be intensified when we considermultiplatform contents and the learning which needs to bedeveloped in this context. The scenario for partnerships in thecase of TV companies is opposite to that of telephonycompanies, as shown in the following section.

Another model for negotiating partnerships that can beintensified in convergence, thereby becoming moreadvantageous to the business involved, is the model forreality shows, such as Globos Big Brother Brasil, SBTsSupernanny or Rede Records dolos (inspired in theAmerican Idol format), since it involves free-to-air and pay-TV, the Internet and telephony companies, the latter as relaychannels. Within this program format, AEC can be followedup on interactively and complementarily, through these fourmeans of communications.

A great part of our business will depend onpartnerships [...] because all the interactivity oftelevision and part of the distribution will be madethrough partners (interviewee of company D). I thinkwe are moving slower than we should. We should haveadvanced a bit more in terms of negotiating withtelephony operators in several things. We have notdeveloped trust in each other, but inevitably

partnerships will happen [...](interviewee of companyB). We didnt produce any soap operas through these

partnerships, maybe its time to try something like this[...]. Ours is not a culture of strong partnerships(interviewee of company A).

The relationship with the advertising market can certainlybe considered the most relevant resource and a differential ofthe free-to-air TV companies in the competition that has beentaking shape in digital convergence. However, as mentioned

before, the competition for advertising funds will becomemore intense. This type of relationship makes it easier to

negotiate and distribute advertising funds for TV companiesto also explore the business model from the Internet, besidesmaking it feasible.

We have this high competency that will be fit to us inthis context of convergence, which is the relationshipwith the advertising market. The company has a strongrelationship, a very important and trustworthy one, withthe advertising market [...] a telephony operator does notbuild such a relationship overnight (interviewee ofcompany C). This is a rare resource, hard to copy. Ourorganization is prepared and structured to handle this.This culture we have - of building a relationship with themarket and with our advertiser - is very solid and wework very well in this sense: Oh, theres a person fromVolkswagen that comes here [...] everybody knows thatthey have to receive him well. The TV star, the soapopera director are well received. Also, our salesdepartment has to be competent to manage this.(interviewee of company A).

Regardless of the doubts about which Internet advertisingbusiness model can be successful, free-to-air TV companiesalready know that placing banners in contents is not soalluring. Yet, they are studying new possibilities to negotiateadvertising in this vehicle, having as one of their referencesthe successful business model of Google, which is sellingadvertising through key words searched by users.

This partnership with the advertising market alsoencompasses the challenge of including in the business modelthe share of advertising revenue from TV stars, soap operawriters and other professionals involved in AEC production,since the soap opera writers need to agree with insertingadvertising in their work. This stirs up a great discussionwhich was mentioned by the interviewees of companies A, Band C, because until then these professionals were hired to

produce AEC to be broadcasted in the TV screen and now


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this same AEC can be edited and distributed to other types ofscreens, and everyone wants a share in revenue.

[...] the TV stars gain a lot with advertising andadvertisers also benefits from hiring them andassociating such TV stars with their brand and/or

product because attention given to an advertisementwith a celebrity in it is much greater than to one with anunknown person. Consequently, the advertiser

purchases mush less insertions to have the same return,the same result of brand recalling. For the company itis not that beneficial, since it decreases commercialincome, but for the advertiser it is the right investment.(interviewee of company A).

We can affirm that the ability to manage a business modelbased on advertising sales and broadcasting is, just as in thecase of AEC production, an important resource of Brazilsfree-to-air TV segment. Such resource is strongly threatened

by digital convergence, because telephony companies and theInternet are increasingly incorporating into their business

models the sales of advertisements as one more source ofrevenue, in addition to subscriptions. With this they can gainpart of the advertisers and/or the value of advertisementswhich until now had TV as their main means of exposure.

Another aspect to be mentioned is the partnership betweenTV companies and suppliers of infrastructure, equipment anddevices. In Brazil, nearly all technology needed for the TV

business to happen is and has always been imported. As aresult, companies of this segment (basically engineers andcreation directors) developed skills to negotiate technologywith suppliers and to follow up on all technologicalinnovations from the main business centers: Japan, Europeand the United States. They also follow up on how suchinnovations affect the TV business in those places to thusadapt, customize and/or develop internally the technologies insearch of a competitive edge. And this is possible, becausethis competitive edge is not in hardware, but in software,development and application. That is why technologycompetencies are important in AEC production and also inengineering.

The company we are closer to is Sony, because it is ourlargest equipment supplier, but we havent establishedany long-term agreement, we do not have access to anyadvanced development center of theirs. We have nothingof the kind. Our business with them is made on acontract-by-contract, project-by -project, studio-by-

studio basis. (interviewee of Company A). When we

bought this equipment, we automatically paid thetraining, which is included in the value. Usually an

American or European engineer comes to Brazil to givethe training. (interviewee of company B).

Digital convergence demands from TV companies theneed to negotiate lucrative partnerships, because now theverticalized model alone might not be enough to keep and/or

gain market share in a context of competition not only withother TVs, but also with the Internet, tablets, mobiles etc.This competency needs to be developed in a way so as toenable learning and lucrative operations of new medias bythese companies, and to assure the quality of the AECdelivery to consumers. We also note that these companieshave a competitive edge whenever the quality of AEC

production is relevant in new strategic alliances that can beestablished with the current and new players of this servicechain.

V. NEW FRAMEWORKS OF THE VALUE CHAIN ANDNEW STRATEGIC ALLIANCES IN AEC SERVICE IN

DIGITAL CONVERGENCE: EVIDENCE FROMTELEPHONY COMPANIES

A. Value chain and strategic alliances of telephonycompanies in the initial phase of digital convergenceSome of the key characteristics of the telecommunications

sector until the 1990s were the regulation of the industry

based on monopoly, strong vertical integration and the use oftechnologies [44, 45]. However, the rising of competing opentechnologies, the evolution of microprocessors, thederegulation which happened in many countries and theopening of the telephony services market in the 1980s are thedrivers of this markets transformation. This scenariochallenged the business strategies adopted until then. As ofthe 1970s, digitalization guided this industry toward growingintegration, whose acme was the expansion of the Internet inthe 1990s.

A characteristic shown by companies of this industry isthat operators, which previously focused on technologydevelopment, now are focusing most of their efforts on thedevelopment of services to serve their clients, leavingtechnology development including R&D activities toequipment suppliers. Another characteristic that stands out isthat many equipment and device suppliers are increasinglydedicating their attention to systems integration and offeringof solutions for operations and services. This hasstrengthened AEC strategic alliances between technologycompanies and telephony service companies.

The main changes of the telecommunications industry,mostly as of the 1990s, were synthesized in the industrialmapping developed by Fransman [45], which is known as thelayer model (Fig. 3) and is widely used by experts in this areaof research. This can be considered a pioneering model in thedesigning of a value chain for this industry.

The model has as base the Open Systems Interconnection OSI, which is the Internet technology based on theTransmission Control Protocol/Internet Protocol (TCP/IP) tocreate six layers and the levels of activities performed in theindustrys value chain. Each layer handles a subsystem whichcontrols a certain economic activity. Companies have startedorganizing themselves by similarity or even bycomplementarity of resources needed for their activities.


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Fig. 3: Fransmans layer model for the telecommunications industry

Source: adapted from Telecomvisions, 2002 (www.telecomvisions.com).

Usually, layers 1 and 2 dealt with the telecommunications

industry, but with the Internet and the TCP/IP standard, new

standards of data, voice and image transmission became

feasible through multiple and different networks, originating

new platforms of services available to the final consumer and

new competitors in the market. In terms of technology, theinitial layers are more dependent on hardware and network

logistics systems, whereas the final layers increase theimportance of software and application systems [46]. This

integration enables introducing a series of processes that add

value to services (multiservice structure). The new services in

telecommunications seek to combine traditional services todata and image transmission based on packed-switched

systems technology, such as is happening with the

exploration of AECs. This becomes clear when we think of

broadband and third and fourth generation mobile phones.

With digital convergence, telephony services havefocused their businesses, principally AEC businesses, in layer

5. However, it is worth noting in this case that AEC offerings

depends on network availability (infrastructure), equipment,browsing and access provider, i.e., for a consumer to receive

AEC in a certain place, all layers need to be available.

Accordingly, telephony service companies have infrastructure or its position in the value chain as an important

technology tool mobilized in the pre-convergence phase,

providing them a strategic differential in the current context,because it is the investments in New Generation Networks

(NGN) that will enable the solidification of new business

models for these companies in the convergence context.The changes we described so far draw attention to the

important issue most particularly to telephony services ofneeding to mobilize resources to manage increased

competition due to the entry of new players in the value

chain. In addition to those which entered from the new

technology platform that became a characteristic of the

service (as per the Fransman model), by focusing their

business on services and leaving to the large equipment

suppliers the responsibility for technology development, the

operators paved the way to the entry of such suppliers as newcompetitors, as they have increasingly shown interest in

advancing on converging services, from which an important

one is AEC. Thus they also need to notably mobilize theirengineers and administrators, to learn and use, maintain and

adapt new technologies to their business models.

Focusing more specifically on telephony services

companies, the elements of Fig. 4 make up a value chainwhose purpose is to offer a service or product which adds

value to the client. The operator functions as the center of a

network with responsibility over the operating platform and

the infrastructure, through which other partners can

collaborate in offering products and services to clients.

Fig. 4: Value chain of telephony service companies

Source: Adapted from Tude e Martins (2003), based on the Teleco Tutorialon , accessed

on March 3, 2010.

Layer 6: Consumers

Layer 5: Application

( processed information)

Layer 4: Browsing and middleware(information device)

Layer 3: Access provider

Layer 2: Network to circulate digitalinformation

Layer 1: Equipment and Software


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This network exists to fulfill the needs of clients, whetherindividuals or entities. A client can be a subscriber, a finaluser or both. Suppliers interact with the operator, providing

products and services, which are integrated by the operator insuch a way that they can offer their products and services tothe client. This cell includes what is known in the industry asvendors, i.e., suppliers of equipment, software and solutionsto the operator, such as service providers to whom theoperator outsources services, and other operators which arehired to provide infrastructure and/or connectivity andnetwork services.

The intermediary is responsible for performing functionson behalf of the company with clients or suppliers. There arethree categories of intermediaries: sales, implementation andinformation services. The complement cell includes thecompetitors which offer additional products and services toexpand the capacity of the value network. In general,complementary products and services are created using theinfrastructure provided by the telephony service company. Anexample of this is the provider of value-added services. These

interactions are typical of the companies that seek innovationin services [48], and within the RBV scope they are relevantresources for telephony companies that are trying to boosttheir businesses through AEC.

Based on the value chain shown in Fig. 4, in thedescription of the steps and business models that can bedesigned from it, we highlight three resources that telephonycompanies have developed in the initial convergence phase:the high capacity of investment in and management ofnetwork infrastructures, enabling them to offer convergingservices, and the capacity to price their products and servicesthrough the capacity of identifying the products and serviceswhich can have higher prices to clients.

B. Alliances and partnerships of telephony companies forAEC services exploration under digital convergenceWith digital convergence, the access to several good-

quality networks of communications will become trivial,according to a study by Telebrasil/Telesindibrasil [49],transferring the creation of value to content. Therefore,consumers will draw their attention to service providers thatoffer the best of the news, their favorite sports games, films,music etc. This research verified a trend of reduction inrevenue from access and availability and an increase inrevenues from services that offer contents that should bemore valued by clients.

The voice service is still the flagship of the company, interms of market, and will probably continue to be for a long

while considering the Brazilian market (interviewee ofcompany F). However, companies from this segment think itis important to have alternatives for the market, movingtoward this converging context, notably toward AEC, sincethey expect that in the future this service may become theirmain source of revenue.

For the telephony companies, strategic partnerships standout as a key resource to explore AEC in digital convergence.

These partnerships can be established with content producers,companies offering mobile applications, Internet servicecompanies etc.

[] in relation to the partnerships we believe that

with the technology boarders being torn down theadvantages of associating with the owners of specific

know how on these services is what is most important

[] when we establish a partnership with Google weknow that their knowhow is very good, solid in some

topics and that we as a communications channel with

the consumer will act as an advancing agent [] and

we will be delivering to the client a service that is infact relevant, he can also use it in his mobile [] when

we establish a partnership with UOL, Brazils best

content provider, with the highest audience [] when

we make this content available in our mobiles we knowthat we are providing relevant material to our user, we

are advancing the application of web content in the

mobile world. So this is the reasoning behind thepartnerships for content(interviewee of company G).

According to those interviewed, normally thesepartnerships are based on annual contracts, which can berenewed. But we note that despite partnerships with content

producers being an opportunity, it can also be a threat.It is an opportunity because these partnerships, until now,

are how telephony companies can acquire importantresources (knowledge and learning) to explore AEC. It is amove which, depending on how these companies settle

partnership agreements, can help train internal humanresources of telephony companies for this service. But it canalso be a threat to operators because parallel to having accessto good-quality content they are also helping increase

audience ratings for the content producer, which mightstrengthen this producers position as a potential competitoragainst operators in the programming and distribution ofAEC.

Content producers are interested in such partnershipsbecause they provide greater reach and audience for theircontents. However, telephony operators can regard them as athreat since the content producers can themselves (and theyhave capacity for such) distribute their contents, thus alsocompeting with them in these phase of the AEC value chain.

Easy settling such partnerships depends on the closenessand the convergence of interests of these competitors with thetelephony companies. The producers of international

contents, which have been in the market much longer than us,look at us favorably. Ultimately, they have more people

paying for their content.(interviewee of company E). Thesecompanies see as a great advantage in the possibility these

partnerships provide of sharing knowledge and learning []knowledge usually comes from the partnerships [] we have

the expertise of the content producer, of those in the TV area,and we add it to our experience in mobility [] so we make

this exchange(interviewee of company H).


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In addition to negotiating with large national contentproducers, such as Globo, Band, and international contentproducers, such as the large studios in Hollywood, theexploration of AEC by telephony companies is also givingspace to independent producers of various sizes and also tothose specialized in the production of segmented content,such as TV Timo which is the TV station of CorinthiansFootball Club religious contents, small producers of gamesetc. The interviewees declared that in general the offering ofcontent from producers is greater than what they can actuallyabsorb.

What I found interesting is that I thought we wouldonly receive projects of small to medium-sized

producers, but we also received projects from large

producers. The idea was to actually open a

communications channel that was more democratic, adoor to those who acted in the area, or a small

producer with an interesting idea and that would have

through this the opportunity of presenting a project(interviewee of company E).

The telephony service companies are also diversifyingtheir sources of revenue through advertising and sponsorship,which are the main sources of revenue of the free-to-air TV,as seen in the previous section. In addition to attractingtraditional advertising and it is expected that good-qualitycontent naturally attracts advertising another format thatcan further explore this business in convergence is thesponsoring of content, i.e., a company can sponsor an AEC

program or film in which its products and/or brands areinserted.

For the operators of the business based on advertising, it isstill a world to be explored and the scenario that appears

possible for this business is [] travelling, waiting, workbreaks, because people watch TV in their mobile to maketime go by, relax, update themselves, watch a program

different form what their family is watching, watch a program

with privacy(interviewee of company E).Another type of partnership that has been considered by

operators is advertising with interactivity, i.e., mobilizing twoexpertises: mobility with interactivity and advertising throughsponsorship.

[] we can establish partnerships in this area, for

things that are more segmented, campaigns, for

example, the advertiser can sponsor a mobile program

with content that is of his interest and/or with focus on

the product he wants to advertise, and the operator isresponsible for the interactivity part, for example, for

the part the user sends a text message(interviewee ofCompany G).

For telephony companies, one of the purposes of thebusiness models based on advertising or sponsorship for AECis to cheapen this service to the consumer and also encouragethe creation of business models targeted at specific consumerniches. This business model can also be explored to reach the

clients in the C, D and E classes (Brazils mid-low incomeand low income segments), who usually use prepaid mobiles.They (classes C, D and E) only have one TV set per

household, and they can have this TV experience in their own

mobile(interviewee of company H).Prepaid clients account for 80% of the subscriber base of

operators in Brazil3, and that is why today the maximumexperience they get is short videos, because including datatraffic for AEC in their mobile account is still a veryexpensive service. Therefore, the inclusion of this segment(prepaid) or at least part of it is a challenge for operators. Onthe other hand, telephony operators are reaching these clientswith packages of pay-TV via satellite at more attractive

prices.It is also important to emphasize the need for protecting

the privacy and the desire of the client of receiving or notreceiving advertising or sponsorship messages, whichaccording to some interviewees is closely related to theinfluence and importance that an advertising message has ormight have with the client.

Mobile telephony operators are also organizingthemselves to standardize the way they will exploreadvertising in the mobile phone. An example of this was thelaunch in 2009 of a good practices guide for mobilemarketing, through a partnership with the InteractiveAdvertising Bureau (IAB Brazil), an association betweenagencies and interactive media vehicles with the MobileMarketing Association (MMA). This guide lists generalrecommendations, concepts of metrics, a glossary andstandards, and will be updated as the market evolves anddemands customization.

The closer we are to the user, the closer we get to

knowing how he decides what to purchase, and we

become more efficient in interacting with the user inthis case [] the option the user has of receiving or notreceiving advertising information is mandatory in our

company [] what will happen to a music producer, a

label which wants to market their CD? Well say: we

have three thousand users who love jazz, buy jazzthrough their mobiles and who want to receive up-to-

dates. Can you imagine how this can compete with a TV

campaign? [] and technology for such already exists[] the MMA coming to Brazil and the operators

participating with other content-producing companies,

advertising agencies, all this will produce standardized

definition and names that will also optimize this

business model for AEC. This skill we have of relatingto the user and paying attention to what he has to say is

what allows us to develop customized offerings and

solutions by niches, segments, different needs(interviewee of company G).

3In Brazil, this is a prepaid phone service in which the consumer credits acertain value to the operator, from which services and connections made aredebited. In this system the service charge is more expensive than in the

postpaid service (subscription), but there is no collection of subscription fee.


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Up to now within the scope of digital convergence inBrazil, free-to-air TV companies still have the largest shareof investments in advertising, i.e., 63.3% of the R$ 28.5

billion for 2011, followed by newspaper companies (12.1%),magazines (7%), the Internet (5%) and pay-TV (4%). AsAEC business intensifies, it is likely that the advertising piechanges, and this can affect TV companies. It is worthmentioning that the strategic scope of multinational telephonycompanies, and also of the Internet, not only includes theBrazilian advertising market, but also the global advertisingmarket that in 2011 totaled US$ 464,3 billion [50].

VI. FINAL CONSIDERATIONS

The qualitative research under analysis of the selectedtheoretical framework enabled us to understand that the

digital convergence process has been based on the evolutionof technologies and business strategies, and has led to: i) theentry of new competitors in the market; ii) the increase incompetition among players which operate in different

businesses; and iii) the need to have AEC traditionalcompanies (TV) and new companies (telephony) collaboratewith traditional and new partners in this service.

Table 1 presents a summary of the main empiricalfindings of this research, by stressing the major trends andchallenges in strategic alliances and partnerships at this earlystage of digital convergence for both TV and telephonycompanies, considering the audiovisual entertainment contentvalue chain. Such partnerships and alliances have beendesigned as a consistent way to build the skills and resourcesrequired by the development of the AEC service marketunder digital convergence

TABLE 1 CHANGE TRENDS AND CHALLENGES FOR STRATEGIC ALLIANCES UNDER DIGITAL CONVERGENCE IN THE AEC VALUECHAIN (TELEVISION X TELEPHONY COMPANIES) IN BRAZIL

AEC service

value-chain

Actors involved Change trends and challenges for strategic alliances under digital convergence

Television companies Telephony Companies

Production

Free-to-air TV companies,independent content producers,large global content produers (eg.Hollywood movie studios), Internetservice companies, appdevelopment companies,electronic game developers andtraders, consumers/customers (eg.at YouTube/Google) etc.

Remain focused on their own production ofAEC, but need to build / refine skills tonegotiate alliances and partnerships withother actors.

Strategic alliances and partnerships are keyto acquire and develop skills in AEC.

Programming

Indigenous (ex. Globosat) andmultinational pay-TV companies(ex. Fox e HBO) and Internetservice companies (ex. TV UOL,Globo.com, YouTube/Google,Blinkx etc.)

Maintain fixed grid programming modelbut need to adapt their resources andexpertise in order to also offer AECanywhere, anytime in new media.

Adopt fixed grid programming model inpay-TV and develop skills for AECanywhere, anytime, in new media.

Distribution

and Delivery

Fee-to-air TV comapanies, pay-TV companies, telephonycompanies, Internet servicecompanies, e-game companies,deviced suppliers etc.

Extensive business vertical integration

continues (producing, distributing anddelivering), not only in traditional media,

but also in new media, but need to build /refine skills to negotiate new alliances and

partnerships with actors in the AEC multi-platform chain and from other value-chains.

Building multi-platform distribution anddelivering skills, by means of buying outspecialized companies and hiring AECspecialists.

Advertising

market

Advertising companies specialisedin both digital and conventionalmedia (eg. Young & Rubicam,DM9DDB, AdMob, AdWords eDoubleClick/Google etc.) andmarketing and communicationsareas in advertising clients

Keep their resources and skills to negotiateadvertising for traditional media, but theyneed to build up skills in order to createand adapt new advertising languages fornew media / platforms.

Building skills in order to negotiate withtraditional advertising market andexcelling in production of sponsored AEC.Also mobilizing resources in search fornew languages and ways of exploiting thismarket in new media.

Technology,

infra-structureand device

suppliers

Large, global suppliers (eg.

Samsung, Huawei, Nokia, Sonyetc.).

Deepening dependence on this chain link.Political resources (strong influence onregulation authority) may minimize risksstemming from such dependency.

Provision of network infrastructure

becoming an increasingly valuableresource.

Consumers Mass consumers/ niche consumers

Expertise in AEC producing for the massmarket remains a competitive advantage,

but need to adapt and build skills forgreater interactivity in AEC for bothtraditional and new platforms.

Mobilizing and adapting skills inindividual relationship with customers andin AEC producing and distributing forniche markets.

Seek to build competencies in AEC consumer relationship in new platforms.Source: fieldwork


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Considering the purpose of this article, the empiricalmaterial sumarized in Table 1 suggests that some of

partnerships and strategic alliances stem from existingbusinesses and value chain of television and telephonycompanies, while others have been developed as new movesunder the convergence context. On the one hand, TVcompanies have been seeking collaboration in order todevelop new AEC distribution and delivery options departingfrom editing and / or producing its contents also for "newscreens" (tablets, smartphones and Internet). On the otherhand, telephony companies have been collaborating as a wayto build skills in order to enter and explore this market. In

both cases, they aim at developing shared learning in this newAEC market they are building under digital convergence.

As seen in section 2, Tidd et al. [10] suggest variouspossible forms of collaboration that business firms mayimplement. However, they draw attention to the fact that noform of collaboration is ideal, since they all possessintrinsically advantages and disadvantages. Taking intoaccount the AEC service value chain features and changes it

is undergoing in the context of digital convergence (sections4 and 5), it can be noted that the most common form ofcollaboration is strategic alliances, since what is at stake is:1) market risk and cost sharing, 2) market testing in order tocheck under what conditions the convergent AEC will beaccepted by consumers and 3) flexibility in collaboration timelength. These features seem to be adequate to the currentchallenge of defining what the new multi-platform serviceswill be in the coming years.

If AEC offerings in a convergence context is relativelynew and experimental [4], so are the partnerships beingmade. TV and telephony companies still have not adoptedsystematic and coherent management practices for these

strategic alliances, both regarding the adoption of routines tosource and select sources and partnerships and regarding thepreparation and management of partnership agreements.

The challenge of TV and telephony companies in thisconvergence scenario, with regard to the management ofstrategic alliances, lies on their managerial capacity tounderstand the changes in AEC services and in consumers

behavior and, consequently, source those partnerships thatcan effectively contribute to the actual creation of value in adigital convergence scenario. We must point out that thecontinuing evolution of technology and the dynamisminherent to the segments addressed herein will probablycontinue driving new partnership possibilities.

Further research is needed in order to understand theunfolding and implications of the context of digitalconvergence addressed in this paper, both for traditionalcompanies (TV AEC) and for new entrants (telephonycompanies). Yet, insights raised by this research in regard tothese segments can inspire business (re) positioning not onlyfor companies in the mentioned segments, but also thosesegments that have been hitherto distant from this market,which now stands as an alternative for revenue and valuecreation. From a public policy point of view, it is clear the

need for regulators to monitor ongoing changes in order toensure a good level of competition between companies, to

protect and assure consumers rights and ensure the quality ofAEC.

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