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TV To Go

Cellphone video is the hottest thing on the media menu. But is there money in it for programmers? 9/23/2005 08:00:00 PM Eastern

While other networks approach cellphone TV like a cautious golfer eyeing a putt, ESPN has jumped in like an extreme skier flying off a cliff. The sports giant—cable's most profitable network—likes the idea of a video-phone service so much, it's launching a cellular company. The service is built not around phone calls but on delivery of the network's own programming: everything from e-mail alerts about players on a subscriber's fantasy football team to “pushed” highlights of each game from the hometown baseball team.

Merely tossing cellphone users a few video clips a day isn't enough to exploit the growing capabilities of cellphone networks. Says ESPN Mobile Senior VP Manish Jha, “We're going to create the most immersive experience possible.”

Mobile entertainment has suddenly emerged as a priority for TV programmers, with virtually everyone sending video to tiny handheld devices that did not exist a decade ago.

These days, cellphone users can catch content repurposed from major networks, such as highlights of desperate housewife Felicity Huffman's Emmy acceptance speech on CBS or a live news feed of MSNBC's Dan Abrams. They can also tap non-network fare, such as a $3.99 Green Day video.

In the flurry of announcements about newfangled services, almost everyone seems to agree on one thing: It will take a while before TV companies make big bucks off cellphones.

Over the past few decades, TV has morphed into portable devices that can be viewed on airplanes, car seats, even clothing. The Sony Watchman was only the beginning.

Today, TV companies are targeting cellphones, primarily through Verizon and Sprint Nextel. But video connectivity is coming to other gadgets, such as iPod-like video devices. Two companies are planning rival video networks that could be tapped by either cellphones or video iPods. Next month, EchoStar's Dish Network and consumer-electronics manufacturer Archos will launch the PocketDish, a portable video player that can download movies from a home Dish Network receiver.

Programmers are salivating at the chance to squeeze new revenue from existing content. “Our goal is to take the content and use it any way we can,” CBS Chairman Leslie Moonves recently told an investor conference. “How do we do a two-minute version of CSI and get paid for it? Or how do we provide sports and news highlights and get paid for that? All things that are going to be happening in the next few months.”

Right now, mobile video is primarily a short-form format. Even for the networks available full time, viewers are generally watching for just a few minutes at a time. One programmer says usage spikes as subscribers start work, then again as they break for lunch. The big limitations include screen size—not many users can get seriously engrossed in Lilliputian actors—and heavy drain on cellphone batteries.

At the moment, cell TV users are “snacking,” says Lucy Hood, president of Fox Mobile. “They want a comedic laugh, a news brief or sports highlight.”

Some U.S. programmers are already generating profits selling ringtones and sports scores, but can they make money off video? The market for all data and content could explode to $16 billion by 2010, after U.S. cell carriers fully upgrade their networks, according to Boston-based research firmYankee Group.

A closer look, however, shows that most of that revenue is expected to come from text news, sports scores and messaging. Estimated revenue for entertainment services comes to $4.5 billion, which includes gaming and video. Further, it's likely that wireless carriers would keep most of that money.

Sanford Bernstein media analyst Michael Nathanson believes it will be at least five years before TV networks and producers see a material license fee or ad revenue from mobile video. “The more immediate benefits will accrue to handset manufacturers, network-equipment makers, wireless telco operators, rather than media conglomerates,” he says.

Clear business model

By 2015, however, the numbers could be more substantial, with customers paying cellphone carriers $12 billion for content and generating an additional $6 billion in ad revenue, according to Sanford Bernstein.

That's pretty far in the future, but major media executives are excited already. Cellphone TV is one of the new media products in which they see a clear business model out of the gate.

Unlike Internet users, cellphone customers are accustomed to paying for the convenience of mobility. Unlike TiVo and DVRs, cellphones don't allow users to skip commercials. And unlike video-on-demand, for which cable operators want content for free, wireless-phone companies are willing to pay to license content.

Mobile syndicator SmartVideo pays programmers anything from a few cents to $1.50 per subscriber monthly. By comparison, Kagan Research estimates that MTV collects 27¢ per sub from cable and DBS operators.

“I don't think we're looking at it as the savior and the ultimate business model,” says VH1 President Tom Calderone, whose programming includes “pushing” new mini episodes of celeb-news recap Best Week Ever to VH1 fans. “We're excited because we hear from our audience that they're excited.”

However, networks aren't yet putting TV's best shows—ABC's Lost, CBS' Survivor—on cellphones. They probably won't be until the financial model proves itself.

A major force behind mobile entertainment is the rapid spread of cellphone-TV handsets. The Consumer Electronics Association predicts that 70% of U.S. homes will have a video-capable phone by 2006, less than four years after their introduction. By comparison, CD players took 15 years to penetrate that many homes, DVD players seven years.

One major factor in the spread of cellphones: Subscribers switch phones relatively quickly, an average of every three years.

Of course, just because consumers have the gear doesn't mean they'll use it for more than making phone calls. For example, millions of subscribers have camera-phones, but many won't pay extra for the service to send pictures to friends. The same goes for customers with phones capable of surfing the Web. Frost & Sullivan estimates that less than 1% of carriers' revenue comes from products other than phone calls and text messaging.

Right now, Verizon Wireless and Sprint PCS are leading the charge into video. In February, Verizon launched V Cast, which runs on its speedy EVDO wireless network. V Cast offers access to high-quality downloadable clips, ranging from bits of network entertainment programs to regularly updated network newscasts. A subscription costs $15 monthly and handsets capable of receiving V Cast cost as little as $99.

Sprint PCS offers Sprint TV on its newest, high-end phones and MobiTV on lower-end phones. Sprint is upgrading its network, so the video quality can be spotty. MobiTV offers entirely live network feed, while Sprint TV has networks, clips, NFL TV and Fox News. Wireless Internet access costs $15; TV costs $10 more.

Cingular and T-Mobile are sitting on the sidelines for now. Both offer access to MobiTV but don't heavily promote it.

TV companies are taking three different approaches to mobile entertainment. The most common—and limited—is licensing network feeds to mobile syndicators, which package video content and reformat it for cellphones. ABC, for example, simply feeds its Internet video channel ABC News Now to syndicators like MobiTV or SmartVideo. They, in turn, make it available to cellular carriers or directly to subscribers who access the Web through their cellphones.

Programmers are also creating special video just for mobile platforms. Fox has been particularly aggressive creating original one-minute “mobisodes.” Sold at 99¢ cents a pop, one series of shorts featured outtakes from Paris Hilton's reality hit The Simple Life while others were original and not tied to any Fox show. NBC News updates short newscasts up to 20 times daily.

A third approach is treating mobile entertainment as a true expansion of a network's brand. Nickelodeon, for example, operates a profitable business selling Sponge­Bob ringtones (more than 500,000 sold) and graphic backgrounds, or wallpapers, downloaded to cellphones. Parent company MTV Networks discloses that it already generates $100 million a year in mobile ventures around the world.

Mobile virtual network

ESPN's move outshadows others. The network has already been transformed into what the telecom trade calls an MVNO, a mobile virtual network operator. ESPN Mobile will appear to its customers as a full cellular operator. The phones will be branded ESPN; the bills will come from ESPN, which will lease capacity and customer-service support from Sprint.

The company will start market-testing this fall to determine pricing and packaging. But the service will be aimed at the most fanatic of fans.

Highlight reels will be regularly refreshed and “pushed” to subscribers.

The next phase of mobile entertainment will be broadening beyond cellphones by setting up a separate network for video. Tower com­pany Crown Castle and hardware manufacturer Qualcomm have competing plans to broadcast video live over the air to mobile devices. A cellphone using one company's technology won't put a drag on cellular networks. But more important, it will allow devices less sophisticated than cellphones (the next generation of iPods, for example) to tap networks.

In the months that Crown Castle has been testing its system in Pittsburgh, mobile division President Michael Schueppert has noticed one major change in the market. “A year ago, we were going out to content providers and they were saying, 'Mobile en­ter­tainment? What's that?'” he says. “Now we're getting interest from everyone.”

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