The Smaller Screen's Next Big Thing

To snag elusive user/viewers, TV networks are making “i contact” with mobile applications

Major media companies, especially television networks, are continuing to increase their presence in the mobile space. Meanwhile, the smartphone market keeps growing, and platforms such as the Apple iPhone are reaping market share. And at the same time, sales of applications—one-click programs that provide easy access to content—have been surging.

Which brings us to, as Stephen Colbert would call it, Today's Word: iPhone app.

On Oct. 16, Comedy Central launched an iPhone application based on “The Word,” the signature segment that runs each night on The Colbert Report. The app features every “Word” bit from every episode of Colbert—some 560 blocks of comedy—and costs 99 cents; it also has Stride gum on board as a featured sponsor.

Apps have been an especially big seller on Apple platforms, where the iTunes App Store now has nearly 100,000 available for download. Since Apple takes 30% of all app revenue, every purchase of “The Word” app nets Comedy around 70 cents. The network can then add revenues from the Stride deal and any future sponsors.

With iPhone, BlackBerry and Google Android fighting for download dollars in the mobile market, the app subset of the space is starting to emerge, and the industry, hungry as ever for caché and cash, is buying in.

Given the relative pittance of app development costs, networks such as Comedy Central are discovering the “truthiness” of yet another good stream, creating a variety of applications for their brands. Some of the apps are little more than quick links to mobile Wireless Application Protocol (WAP) sites, but others deliver a more customizable—and monetizable—experience.

CNN released its iPhone app in September for $1.99, with Lexus and Chevron on board as featured launch sponsors. Because CNN is a go-to news source and has a rich multimedia library, executives at the company were comfortable with the price and features.

“We are building a mobile business, and we expect this to be sustainable on its own,” says Louis Gump, VP of mobile at CNN. “In the case of applications, we think the best way to do that is to have a dual revenue stream.”

The app features breaking-news stories and video, as well as the ability for users to transmit video they take with their iPhones through the network's iReport feature. Users take video with their phone camera, then use the app and their 3G connection to upload it straight to iReport.

Gump says the network had seen an “impressive” return on its investment, both in terms of revenue and in unduplicated reach, or reaching consumers who were not in front of a TV or PC.

Double Value Stream

Paul Carton, director of research at ChangeWave Research, said in an October report that the iPhone now has 30% of the smartphone market. Combined with the more than 20 million app-ready iPod Touch devices, and the widely anticipated Apple tablet computer due in 2010, the pool of potential app buyers is more than 40 million strong and growing.

And as users get more comfortable with the concept of paying for what in many cases has been a free promo item, business models are developing further. This is manna for the TV industry; in the last year, every major network has developed from one to several apps.

“We like them for their marketing value, but we are intrigued by their possibilities as modest revenue generators,” says Erik Flannigan, executive VP of the MTV Networks Entertainment Group.

Two executives familiar with application development, one at a network and another at a third-party developer, both pegged the entry level cost for a high-quality, polished app at around $10,000. As the level of complexity rises—perhaps adding the ability to pull information or content from a database, or putting in additional interactive features—the price pushes upward, topping out at around $40,000.

For large media companies, that is a relative bargain, and a cost that can be recouped quickly with the dual revenue stream of purchases and advertising the applications provide. Premium functionality also makes an app more valuable to a consumer, and is a good excuse for boosting a price tag.

Advertising is key to driving revenue in the app world. A purchase will only provide returns once, while ads keep delivering.

Featured sponsors can put up a low-five-figure number for application sponsorship, according to one network executive. That would typically include an exclusivity component, with no other advertisers getting placement in the app. CPMs and CPCs can hit $15 and 25 cents, respectively, on standard WAP sites when valuable demographics are being targeted, but can draw a premium of as much as 50% in apps.

“The rates are typically going to be higher today for many apps than on some mobile Websites, but [these sites] are extremely powerful as well,” Gump says.

Maintaining Presence

Revenue from networks apps is, especially now, not likely to shift business models in the short or medium term. Their primary purpose is similar to the reason networks have a presence on Twitter and Facebook: They expand a brand's reach. With viewership groups splintering further each day, media companies need to reach users wherever they are.

“We entered the apps arena because the viewer entered the apps arena,” says Rick Haskins, executive VP of marketing and brand strategy for The CW. “I think it is more important for our viewers to use the apps than [for us] to make a ton of money on them.”

The CW has two free iPhone apps. CWTV features video and content from the network's Website, and CityWize uses mapping technology to direct users in New York and Los Angeles to landmarks featured in shows such as 90210 and Gossip Girl.

While the apps have ads (CityWize was initially sponsored by Target, with the maps having Target stores listed—a format likely to continue for future advertisers), their real purpose is to lead potential viewers to CW platforms.

The network is now developing an app dedicated to its most successful new show, The Vampire Diaries; features and details are still being worked out.

Untapped Revenue

As the BlackBerry and Google Android application stores get more robust, executives say those platforms will be getting more app support, most likely beginning next year. There are also untapped app revenue streams. Showtime, which launched a free, ad-supported app in October, included a “click to call” button to connect users to their cable or satellite provider, giving them a special sign-up rate.

“We wanted to use the app to engage fans and as a subscriber acquisition vehicle,” says Robert Hayes, senior VP and GM of digital media for Showtime. Hayes adds that the click-through rates on the app feature “exceeded expectations.”

As app development grows, it will sow the seeds for a possible subscription model. But with many apps still available for free, the trick will be getting consumers to start paying for them—not to mention doing so monthly.

“I think subscriptions could be in the mix, but not all the parts of the ecosystem are ready for it,” Flannigan says. “[It is] not happening anytime soon, but it's possible that we might look at it in a year or two.”

It is perhaps best said that the money value attached to mobile apps will keep shifting. They won't be the biggest slice, but in the changing industry paradigm, they're certainly on the pie chart.

“It is still too early to tell,” Gump says, “but we think it will drive viewership to other platforms.”


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