Andre Hardy:
Welcome to the Industries in Motion podcast from RBC Capital Markets, where we will be exploring what's new and what's next in today's fast-moving markets and industries to help you stay ahead of the curve. Please listen to the end of this podcast for important disclaimers. My name is Andre Hardy, and I am head of Canadian and Asia-Pacific Research. Let's get into today's episode.
Andre Hardy:
I'm very pleased to introduce our guest Drew McReynolds. Drew is a Managing Director at RBC Capital Markets and is responsible for our equity coverage of the Canadian telecommunications and media sector. Drew has over two decades of experience in equity research and has consistently been among the top-ranked analysts in investor surveys in both telecom and media. I've had the pleasure of working with Drew for 15 years, and I've always learned a lot from his insights on those sectors, which are deeply embedded in our daily lives.
Andre Hardy:
Today, we'll be discussing the Drew's insights into the significant structural changes occurring across the telecom and media spaces, including the rise of 5G, augmented reality and virtual reality, and the metaverse. So let's perhaps start with some context on these structural changes. Drew, you've spent more than 20 years covering the Canadian media sector and have seen a significant amount of digital disruption due to the Internet. During this period, you've identified some interesting inflection periods where the rate of disruption has accelerated. The one that is on the horizon is a mid-2020s content inflection period. Can you please start this podcast by explaining all that to us?
Drew McReynolds:
Sure, Andre. In 2006, we identified a potential 2012 to 2015 broadcasting inflection period, which essentially was the period when we believed broadcast television in Canada would come under greater pressure, largely due to the Internet that allowed essentially for on-demand viewing. Now, that largely played out, with the broadcasting industry struggling through most of the last decade. In 2011, we moved on and identified a potential 2017 to 2019 over-the-top inflection period, which was the period when we believed streaming services would become a more viable substitute for the current television system in Canada. And that too has, and is largely, playing out with the launch of the global streaming platforms we're all accustomed to.
Drew McReynolds:
And then finally, in 2018, we moved on once again and identified a mid-2020s content inflection period, which we believe will be the period when we expect there to be acceleration in how content evolves and the types of content we consume. Catalysts here would be the full digitization of traditional media content, a technology stack with 5G that can support new technologies, as you mentioned, augmented reality and virtual reality, as well as new privacy regulation to protect our personal information. I'll just flag, we recently discussed this outlook in a thought leadership report, entitled “RBC Imagine™ Preparing for Hyperdrive”. It was published by our Global Research team in November of 2021, and it outlined key cross sector global themes that we believe are important to understand as we prepare for the years ahead.
Andre Hardy:
That is very helpful background and a reminder of how much our world has changed in the last 15 years. Let's drill down into some of these technologies you brought up, starting perhaps with 5G. There's been a lot of hype around 5G for years now, yet it still seems very early days. What do you believe is the game changing aspect of 5G that perhaps people are not fully appreciating?
Drew McReynolds:
Well, first to put 5G into perspective, I think we have to look back. If you look at 3G in wireless, it essentially ushered in the smartphone, and the smartphone took the Internet mobile. When you look at 4G, which is the current wireless generation that most of us are on, it ushered in mobile video. So what 5G does, in our view, is blanket the world with broadband connectivity, often referred to as the “Internet of things”, and it essentially will connect every physical structure and device across our entire economy. And that will be at the retail level, wholesale level, and certainly manufacturing level.
Drew McReynolds:
So in this respect, when you look at 5G, it has the potential to be a general purpose technology. So certainly a transformational impact that is significant, and we'd put it right up there with the printing press, electricity, the telegraph, the automobile, and even the Internet itself. So 5G should be the technology and generation of wireless that finally enables the Internet to fade into the background. Nobody should care about what 5G is, but rather all the millions of use cases that 5G will deliver under the hood. And from a consumer point of view, 5G will be a significant enabler of new emerging technologies. I think some of the biggest ones would be augmented reality and virtual reality. And of course, on each of these platforms, there'll be a variety of killer applications that will emerge.
Andre Hardy:
That is eye opening. Thank you. So let's shift then to augmented reality and virtual reality, two emerging technologies that are not quite yet ready for primetime but are expected to become mainstream over the next few years. What makes AR and VR different from the various media that came before them?
Drew McReynolds:
Yeah, that's a great question. Our time spent consuming media, first of all, continues to rise, which is generally been the case since the invention of the printing press. And the most interesting aspect of media that people don't really consider is rarely, if ever, does a medium ever get fully replaced. What happens is, when technology creates that next medium, like the Internet, the older media become embedded or turned into art forms, but they rarely disappear entirely. So you can look at painting, you can look at the musical, vinyl, even the pinball machine. So, in addition to consuming the new thing, we also consume a lot of the old things. So when we look forward, what's on the horizon is we have a technology stack, which is really computing power, 5G and fiber to the home in the cloud, that within the next three to five years, we think will be powerful enough to support augmented reality and virtual reality. And the game changer here is that these technologies, and particularly virtual reality, will be significantly more immersive than anything that has come before it.
Drew McReynolds:
So to humanize this, our desire to escape reality really has been around since the dawn of time, and whether that's for entertainment, enjoyment, survival, or even just through plain addiction, the ways we escape and the many different forms it takes, which could include a good book, a good movie, the amusement park, alcohol and drugs, listening to music, travel, sports, hobbies, or a walk in the park. Whatever the escape and however we choose to do it, we're essentially transcending ourselves to another time and place. And with augmented reality, and particularly virtual reality, the types of escapes that we can create will only be limited by our imagination. And due to the incredible immersion that AR and VR will enable, these escapes for the first time, and this is key, will be largely untethered from physical reality. So as a result, when you step back, really, there could be some unbelievable outcomes that are very likely to emerge.
Andre Hardy:
So speaking of time spent consuming media, the time spent video gaming has been explosive, not just because of the pandemic, but really in the 10 years that preceded it. What explains the tremendous appeal of video gaming?
Drew McReynolds:
Well, the best living example of the progression of the technology stack and what it means for immersion, we believe is video gaming, video games are now fully morphing into holistic platforms that converge entertainment, information, communication. And these platforms also embed very powerful social sport and commercial elements. And it's really the amplification of these elements with today's technology that's resulted in a whole level of engagement, that's simply unparalleled in our view across the media landscape. In fact, gaming is now substituting for in-person interaction in physical activity; not necessarily all positive outcomes, but certainly illustrative of the power of these platforms to engage. And there's no doubt in our mind that gaming is already an identity and a lifestyle. And at the center of pop culture, frankly, for the majority of Gen Z and most Millennials.
Drew McReynolds:
So looking forward, it doesn't take much to see that the powerful gaming platforms sit at the front of the current technology stack and that these computer-simulated platforms are really natural environments for VR and AR. And in fact, video games and these broader gaming platforms by design, look to us to be a natural precursor to what is widely being referred to today as the metaverse.
Andre Hardy:
So let's dig into that and talk about the metaverse. Facebook put the concept of the metaverse on the mainstream map when it changed its name and later disclosed the company invested billions in 2021 on putting various pieces together to create it. Early days, of course, but what is the metaverse and what do you think its biggest impact will be?
Drew McReynolds:
Yeah, it's a great question. And certainly, there are a number of opinions out there on what exactly the metaverse is and will be. In our view, the appropriate starting point is that, the metaverse is really the next iteration of the Internet, in one where the construct is three dimensional or even four dimensional. So what's important is that, the metaverse is not any one particular virtual world and won't be owned by one single company, but rather will be a new set of network protocols that support these virtual worlds, connecting them in a seamless, persistent and unifying way.
Drew McReynolds:
And taking it from another perspective, one common theme for media history is humanity's innate quest, what I call to transcend physical time and space and how we interact therein. So, a case in point of physical time and space being our push now to land on Mars or simply that Zoom call that brings people from around the world into one video stream in real time. So, while we're clearly not done pushing out or changing the physical boundaries of time and space, what's very obvious to us is that, there's now a notable acceleration in the human transcendence of digital time and space. And as we increasingly immerse ourselves in a variety of digital platforms, the metaverse simply takes digital time and space to a whole new level.
Drew McReynolds:
And finally, Andre, just bringing all of this back to our mid-2020s content inflection period, the metaverse fits very nicely into our content framework where we believe coming out of this inflection period will be the emergence of very powerful, personalized platforms that are capable of mediating both our reality and our intelligence, and it's a state that we refer to as intelligent reality. So the metaverse could be that next iteration of the Internet that simply makes it all happen.
Andre Hardy:
Well, that was a really interesting and exciting vision of the future, Drew. Thank you very much for your insight into how these major structural changes in telecom and media could unfold and the impact it could have on all of us.
Andre Hardy:
What else lies ahead in today's ever evolving markets and industries? We'll be keeping track right here on Industries in Motion. We also ask that you listen to Lori Calvasina's podcast Markets in Motion, provided by RBC Capital Markets. Until then, thank you for joining us on this episode recorded on February 15th, 2022. Make sure you subscribe to Industries in Motion, wherever you listen to your podcasts. If you'd like to continue this conversation, or if you're interested in more information, please contact your RBC Capital Markets representative directly, or visit our website at www.rbccm.com/industriesinmotion for further insights. Thank you.
Speaker 3:
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