Recession Threatens to Stall Mobile TV

Downturn may prevent technology from gaining market share
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For the last few years, the promise of mobile TV has turned itself into one fascinating and challenging puzzle. What to do with it? How to monetize it?

Throwing in a recessionary economy adds more financial uncertainty. “Mobile TV, like anything else, could get hit hard,” says William Ganon, senior VP of advertising strategy for GoldSpot Media, a Sunnyvale, Calif., mobile ad technology company. “Any discretionary dollars are going to be under sharp scrutiny by consumers.”

The idea of mobile TV seems to mesmerize the industry, though so far very few people have phones or devices capable of receiving it—and few of those who do ever watch it.

Mobile TV has already had its stops and starts, what with new technologies, faster networks and a diverse number of new video-enabled mobile phones, such as the iPhone. Now, with the economy apparently in the midst of a recession that analysts say could linger, consumers may be looking to cut back on their extra spending where they typically pay an additional $10 to $25 a month for mobile video.

Brad Adgate, senior VP and corporate research director for media agency Horizon Media, says there could be a cooling for mobile media. On the other hand, he says, “The one thing cellphones have is their popularity with the youth market. They want all those bells and whistles. The youth market may be less susceptible to an economic slowdown.”

But Ganon and others say it is imperative that the industry look to move to free or nearly free mobile TV service that is advertising-supported, just like mobile TV's digital cousin, the Internet. “Until we get to free or near-free TV—untethered mobile TV service—we are not going to know what is highly successful and what isn't,” he says.

New technologies may be accelerating the business in this direction. New mobile standards are being pushed by the Open Mobile Video Coalition, a group of broadcast companies that own more than 800 TV stations (see related story). Mobile technology will allow local TV stations to send live programming—simulcast with traditional TV signals—to mobile phones.

Come this February, with the changeover from analog to digital TV signals, new so-called wireless “white spaces” will be available to companies to develop products and programming, though that won't happen instantly. Eventually that could mean faster speeds, quicker downloads and clearer pictures.

Right now, total revenue for mobile video is microscopic compared to that for other platforms. According to J.P. Morgan, mobile advertising revenue was $805 million for all of 2007, a fraction of the Internet advertising market estimate of $18.9 billion.

Overall, according to Nielsen, there are 258 million mobile phones but only 11.4 million mobile video subscribers. That's just 4% of the market. About 44 million mobile phone users also use the Internet on a regular basis.

During the last couple of years, major TV programmers have struck scores of deals directly with phone-company mobile units including Verizon V Cast, AT&T Mobile TV and Sprint Nextel's mobile group. They have also partnered with big video aggregators such as MobiTV and MediaFlo that offer video platforms for phone carriers containing scores of channels, full-length shows, short-form videos and clips, and most recently live TV, especially sporting events.

MobiTV, the oldest video aggregator to phone companies, began service in 2003. It now has 4 million subscribers, streams more than 50 channels, and has deals with more than dozen phone operators including AT&T and Sprint. It offers shows from NBC Mobile, NFL Network, Disney Channel, A&E Mobile, Discovery Mobile, ESPN Mobile TV and Fox Business.

One of the biggest growths area for MobiTV and other programmers comes from live TV, especially news, weather and sports. Sprint Nextel recently made a direct deal with the NFL to air six live games this year from the NFL Network. MobiTV is the video platform for Sprint for those games, and swaps local cable advertising spots to sell its own mobile avails.

It's not just sports. According to ComScore, which measures digital viewership, in August, out of 6.5 million Americans who watched mobile TV, 727,000 watched a complete TV or movie. Another 1.2 million watched amateur video of the YouTube variety.

And viewers gravitate to news. “The largest viewership on MobiTV was from live election results,” says Ray DeRenzo, the company's senior VP of product, programming and marketing. “It was a clear spike. Before this, [its highest viewership] was from the Sarah Palin-Joe Biden debate.”

MobiTV is not alone. MediaFlo, a subsidiary of Qualcomm Communications, also offers a big selection of channels. MediaFlo resembles traditional television: A user tunes in to a specific channel at a certain time to get programs. For the most part it is simulcast with a traditional TV signal, running on a UHF broadcast signal and available to consumers with Flo-chip- enabled mobile phones.

Virtually all mobile TV programmers get paid from phone carriers and/or video aggregators in the form of license fees and advertising revenue-sharing agreements. “In the most general sense, it looks a lot like a cable affiliate model,” says Greg Clayman, executive VP of digital distribution and business development for MTV Networks.

Mobile TV distributors, like cable affiliates, pay fees from a few cents to $1 or more per subscriber per month to programmers. Additionally, like cable affiliates, mobile TV distributors receive, for example, a couple of minutes of advertising time per hour of programming to sell.

Some individual programmers are seeing big success, especially among young users, the big consumers of mobile video. For example, MTV Networks streams nearly 10 million clips a month—some 100 million a year. It has eight or nine channels on virtually all phone carriers that have video offerings.

“Those numbers are significant,” Clayman says. “It now goes beyond experimenting. What we are seeing working well with people in general is music, comedy, kids and sports.”

Now MTV is moving its business model to the next step. “One shift we are working on is how to bring advertisers more into the fold,” Clayman says. For example, for a recent original mobile video series, The How-To Show, MTV got the U.S. Air Force as a sponsor.

PLANNING FOR THE RECESSION

As the reality of a recession takes hold, some big advertisers said they would cut discretionary media spending. But as Brian Kracik, director of worldwide telecommunications markets for Oracle Communications, notes, the recession won't hurt mobile TV's advertising too much because “it was such a small spend for advertisers to begin with.”

Even before the question marks of the economy, advertisers weren't rushing to buy into mobile. “To get the scale and threshold of where advertisers would pay attention to mobile video, it would have to be of the level of display advertising or radio advertising,” says Andrew Corry, VP and director of Amphibian, a hybrid media buying digital group for media agency Initiative. “The tipping point has yet to come.”

That may work to the advantage of the mobile video operators' current business models. “I don't think you'll see advertising fully funding the mobile TV experience,” says MobiTV's DeRenzo. “The revenue stream is going to be insufficient to draw in brands like NBC, CBS, ESPN and Disney.” But DeRenzo believes more phone carriers will offer customers free TV channels, just as Sprint Nextel does in teasing consumers to buy other programming packages. Now the challenge is to get consumers to buy mobile TV units.

MobiTV is gathering statistics on who's watching. For example, it says peak mobile viewing time is after work, from 5 p.m. to 10 p.m; that male users dominate female users, 67% to 33%; and that most mobile video users, 82%, are between the ages of 18 and 39. But Michael Nevins, director of mobile for GroupM Interaction, notes that only half of the consumers who can access mobile video actually choose to view it.

FREE CONTENT COULD BE GAME-CHANGER

Mobile TV, like any other growing media platform, needs scale to get more viewers. Many predict the big game-changer will come when new technology allows mobile phone users to get free-to-air content, something that beleaguered TV stations are itching to do. It's a move analysts say could rapidly increase the number of mobile viewers, and become a big revenue generator for broadcasters.

“This could be the next generation of over-the-air broadcasting,” says Tim Hanlon, executive VP/managing director of media agency Publicis Groupe's VivaKi Ventures division.

At the same time, many believe this could also be a threat to phone carriers, as well as video aggregators who back their subscription consumer models. “Right now on the Internet, content is ubiquitous,” says Mike Berkley, CEO of SplashCast, a video channel application for social-networking Internet and mobile businesses. “MobiTV [and others] have been very fortunate to be early in mobile, where content is in high demand but short supply. That's going to change when content become ubiquitous.”

Jonathan Barzilay, senior VP of programming and advertising for MediaFlo USA, believes new free-to-mobile phone technology will expand the business, but won't eliminate major players. For example, with the digital changeover in February, MediaFlo's distribution—because of its technology, which uses part of the vacated spectrum—will go from 62 markets to nationwide coverage. “We think it's going to build the category,” he says.

In any case, an abundance of free or nearly free TV programming on mobile phones with hundreds of video channels supported by advertising would change everything.

“It is the unlocking on the scale of cable TV,” says GoldSpot Media's Ganon. “If I'm doing a subscription service, it is a sincere threat.”

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