Mobile Content Going Slow

Lifestyle Feature

Mobile Content Going Slow Robert Tercek 05.18.06, 12:30 AM ET Despite the recent buzz about entertainment on cell phones, the mobile-content market has hit a speed bump. After an initial burst of growth, mobile content--which can include everything from ring tones to video clips--is struggling to break out of the early adopter segment and achieve mass consumption. It is too soon to forecast the demise of this promising new field, but it is evident that wireless entertainment is wavering during a crucial transition to third-generation mobile telephony, or 3G. According to Seattle-based mobile-market research firm M:Metrics, consumption of wireless content has flatlined. After eight quarters of rapid growth, sales in the two main categories, ring tones and mobile games, have stalled. Every month in the U.S., only 10% of mobile subscribers download a ring tone to their phones, and less than 4% download games. Text messaging is holding steady at about 33%. On advanced 3G handsets, consumption is about three-times stronger than on the older, more widespread 2.5G phones. But 3G unit numbers remain tiny. Two years after the introduction of video on cell phones, 2 million Americans, just 1% of the market, pay $10 to $15 per month for the service. Unless the 3G audience expands rapidly, current levels of investment in the creation and delivery of rich content such as 3-D games and video may be unsustainable. Meanwhile, in Europe there's troubling evidence of price erosion. Industry journal Mobile Entertainment notes that the average price of a mobile game fell from €4.30 to €3.49 in 2005. The value proposition for paid mobile content is in danger of crumbling further before subscribers migrate en masse to 3G. At February's 3GSM convention in Barcelona, European cellcos speculated hopefully about the prospect of embryonic mobile advertising revenue to offset the dwindling consumer fees for content. It wasn't supposed to be this way. A lot more is at stake than games and ring tones. With revenue from voice dwindling, mobile carriers need to sell content to drive mass takeup of new data services. Cheery forecasts for consumer adoption of mobile media were initially supported by evidence from leading-edge markets in Japan and Korea. The world paid attention when iMode, the wireless Internet service run by Japanese giant NTT DoCoMo (nyse: DCM - news - people ), surpassed AOL as the largest ISP on Earth, with 35 million subscribers in 2003. It took AOL 15 years to reach 30 million subscribers, while iMode did it in three years. It appeared that mobile was the fastest-growing new content platform in history.

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But DoCoMo stumbled during the transition to 3G. Second-place rival KDDI stole the momentum with innovative content, acquiring subscribers at a much faster rate. And third place Vodafone (nyse: VOD - news - people ) was annihilated in Japan during the 3G migration. The problem isn't the hardware. Today's mobile phone is smarter than you think. New models from Nokia (nyse: NOK - news - people ), Samsung and Sony Ericsson boast the equivalent processing power of a desktop computer from 1995. Such phones come equipped with brilliant color displays, 1.3 megapixel cameras, the ability to download a wide range of rich media content, including 3D games, MP3 music and video clips. At $400 to $700, the retail price rivals that of a PC, too. But because mobile operators subsidize the purchase of the handset when a customer signs a two-year contract, most consumers get these phones for around $200. The handset subsidy is intended to spur adoption of new data services. But widespread consumer demand has lagged. Why? One reason is unimaginative marketing. Wireless carriers promote themselves as reliable telephone services that offer "four bars" and nationwide coverage. Content is not a primary focus because, until recently, phone companies weren't in the content game. The contradictions in the telecoms' mentality are reflected in operating budgets. The content team at the typical mobile carrier is understaffed and underresourced, tucked away in the bowels of the marketing department. These hardworking souls attempt to match the output of an entire cable TV company on a shoestring budget. In 3G, this area requires more investment because the content is more complex. Failure to segment the market is another reason for the lag. U.S. and European carriers continue to repeat the mistake of selling the same product to everybody. Over 75% of American adults own a cell phone. Yet mobile content is presented in the same way to nearly every segment. The success of mobile-content services depends upon the carrier's ability to identify lucrative niche audiences and cater to their interests. During the past two years, U.S. carriers belatedly began to focus on Latino and African American subscribers. This effort bore fruit immediately, as consumption of mobile content among these subscribers is significantly higher than average. Will the carriers follow through on this effort by tailoring services to other niches? The third reason for the slow takeup rate is lackluster merchandising. Every mobile operator offers a content mall, but these shops fail to match the ease of use of Apple Computer's (nasdaq: AAPL - news - people ) iTunes store. Most mobile content storefronts are difficult to browse, which makes the process of discovery tedious. Small wonder that only die-hard enthusiasts have the stamina to find new content.

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Carriers rely on content providers to stimulate consumer demand. The resultant content offering seems tired, encrusted with the same names that dominate conventional media. This might change. New entrants, such as the MVNOs (mobile virtual network operators, like Amp'd Mobile) aim to differentiate vanilla mobile service with exclusive content. As new competitors attempt to steal existing subscribers, the major carriers should react with innovative content products and services. The last reason is consumer fatigue. Mobile operators hate to admit that consumption per handset tapers off six months after a new phone is purchased. In the content business, the best way to defeat consumer fatigue is peer marketing. Savvy movie marketers know that word-of-mouth can drive box office ticket sales. Likewise, in television, the "water cooler effect" generates awareness within a peer group. This should apply to mobile, too. After all, a telecommunications network ought to be the best environment for word-of-mouth marketing. But carriers have failed to harness this powerful mechanism. They provide no easy way for a fan to recommend content to friends. Now, during the turmoil of the transition to 3G, a new crop of nonphone portable media players threatens to disrupt the wireless market, raising the question of whether the mobile carriers will regain momentum before their best customers migrate to richer media platforms. January's Consumer Electronics Show in Las Vegas showcased a dazzling array of new pocket-sized media players at affordable price points. The key to the success for such devices will be the quality of the content offering. Successful devices like the iPod and XM satellite radio are shipped with integrated access to superb digital content services with quality programming. Now the race is on for mobile operators to improve the presentation of their content services before the hordes of MVNOs and CE companies launch rival offerings. The stakes are high. The winners in this race will establish annuity-billing relationships with millions of consumers of new digital-entertainment services. Having created this new market, the mobile operators will have no one but themselves to blame if it slips from their grasp. Robert Tercek is the co-founder of MultiMedia Networks in Los Angeles. He has produced content for every digital platform, including satellite and cable TV, personal computers, game consoles and mobile phones. He is the founding chairman of the mobile-game summit at the Game Developer Conference, which took place in San Jose, Calif., on March 20 and 21, 2006.

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