Mobile: Taking Control

After years of dipping their collective toe into the wireless waters, entertainment companies are now jumping in en masse, making bold moves to more directly control their mobile content destinies.

In some cases, this means establishing direct-to-consumer sales channels, such as what News Corp.'s Fox Mobile Entertainment is doing with Mobizzo—an online store where customers can buy ringtones, wallpapers and other wireless content—and have it delivered directly to their mobile phones.

In other situations, it means bringing wireless development activities in-house and no longer using outside developers—such as the decision of Vivendi Universal Games to launch its own mobile division.

Both moves speak to a common philosophy gaining traction within the entertainment community—wireless is just too important to be left up to the wireless industry.

Key players involved in the emerging business will gather April 4 in Las Vegas for Billboard MECCA (Mobile Entertainment Content Commerce Applications), the official conference of CTIA, the wireless industry trade association.

The worldwide market for premium mobile content is expected to reach $40 billion by 2010, according to research firm iSuppli, up from $5.2 billion in 2004.

And interest runs deeper than just revenue. Entertainment companies do not expect wireless-content sales to contribute more than 5%-10% to their bottom line. But wireless content is considered a valuable marketing asset expected to drive sales of traditional non-wireless content such as CDs, DVDs and videogames.

However, media companies are not confident the wireless industry can grow the business by itself. The experience behind finding and buying multimedia content on today's phones is still less than optimal, they claim. With a few exceptions, carriers still organize content by product categories, such as ringtones, games and wallpapers.

That works if all consumers want is a ringtone. But for fans seeking to purchase a variety of applications common to a single artist or TV show it can be cumbersome.

The problem is only magnified when content—like video and full-song downloads—is more sophisticated. And so, the increased corporate interest in controlling how wireless content is created, sold and distributed.

"The missing piece is getting people comfortable with using the phone for all this stuff," says Paul Maglione, president of the newly formed Vivendi Universal Games Mobile unit. Content providers "are impatient for the carriers to undertake that effort. If you look at any form of entertainment, it's always been the content developers who have made that entertainment come alive. That will make the big difference."

As a result, the entertainment industry wants to offer customers another option—the ability to find and buy content from sources other than that sold on mobile phones.

Imagine visiting Fox's "Family Guy" Web site and finding a link to download a Stewie voicetone that leads to the Mobizzo site, or seeing an ad for the site while watching the show. You could probably find the same tone if you searched through all your phone's options, but making it directly available via the content provider shortens the hunt.

Talk to any record label, TV network or movie studio, and they will publicly tell you how excited they are to work with network operators to deliver existing and original entertainment content.

Talk to them privately, however, and they say they are diligently working to establish a direct-to-consumer relationship as quickly as the market will allow.

That is not to say carriers are completely cut out of the loop. Content purchased through Mobizzo, for example, is billed to the monthly phone statement, and carriers take a cut.

But some say network operators will lose a degree of control over the distribution of wireless content as the entertainment industry muscles its way in.

This "off-deck" content, as it is called, is already taking off. According to QPass, a company that manages the off-deck transactions for wireless operators, direct-to-consumer exchanges over wireless are almost 35% of all content sales, up from 6% in 2004.

"Finally, the consumer wave is here, but the carriers have grown a little numb waiting for it to happen," says Jorge Fuenzalida, VP of consultant firm InCode's Strategy and Technology Group. "And now it's happening much more quickly and with more force than they expected."

This effort is not without challenges. The entertainment industry is known more for creating content than selling it. Until recently, TV studios have relied on middlemen to create commerce around the product. Now, they are trying to do it directly.

"When Apple introduced video distribution," says Mark Kirstein, VP of multimedia services and content for iSuppli, referring to the iTunes Music Store, "everybody just kind of dropped the starting flag and began to run like hell. They don't know how this will unfold, but they want to make sure they have a good value proposition as the business models formulate."

Wireless analysts urge caution, though. It is easy to become enamored with the potential for anytime, anywhere access, but executing that requires planning.

"If you look at everyone else who charged full-steam ahead into wireless thinking it's a utopia, they found the [adoption] rates are slow," says Andrew Seybold, founder of wireless consultancy Outlook4Mobility. "It's not going to happen overnight. If you want instant gratification, you better stay the hell out of the wireless business."

And wireless can be a tough market to crack. It has its own language, technology requirements and business models. It is full of career insiders who tend to migrate from one wireless company to another, only solidifying the clique and making it more difficult for outsiders to do business.

But that is changing. During the last two years, entertainment firms have been on a headhunting spree, hiring top talent away from mobile operators and other wireless industry veterans with the lure of sexy, entertainment-industry jobs.

Matt Corbett, CEO of executive search firm Idealwave, which focuses on the wireless industry, says his company now spends 40% of its time conducting searches for entertainment firms seeking wireless executive talent.

"There's a general feeling that the carrier-dominated distribution model no longer represents what subscribers want," Corbett says. "The who's who in the wireless industry is changing profoundly. It used to be the C-level executives at wireless operators and vendors. Now, it's the digital guys at Disney and MTV."

In addition, a new breed of content-driven wireless operators has emerged to challenge the status quo. Companies like Amp'd and Helio rent airtime from the major carriers to offer their own wireless entertainment services. They focus on edgier content, sexier phone designs and sleeker user interfaces to set themselves apart.

Even wireless operators admit they need help if the wireless-entertainment market is to reach its fullest potential.

"There is so much in the way of available content in the media space and so much interest on the part of our customers, that it really just isn't practical to assume we can service them completely," says Jim Ryan, VP of consumer data services at Cingular, which has perhaps the most liberal stance for off-deck content.

But Ryan resists the idea that the wireless industry is moving too slowly.

"We could not possibly move fast enough to meet the needs of the content providers," he says. "But we're not here to serve them. We're here to serve the customer. So, when you hear content providers gripe about the speed at which we're providing access or serving their content, you really got to ask if people are clamoring for this stuff or is [it] that they're just trying to push their business model."

Ultimately, it is clear the content and wireless industries will have to partner to best serve customers. But a healthy degree of competition certainly cannot hurt either.

To date, wireless operators have competed only with one another, under the same set of rules. The media and entertainment industry plays a different game, one expected to shine a much brighter spotlight on the mobile space moving forward.

"It's going to come down to the people who have mass-market TV reach," says Michael Nash, senior VP of Internet strategy for Warner Music Group. "Companies like Fox have the ability to leverage touch points with consumers and really popularize mobile entertainment on a mass cultural level. As much as we are going to work hard on direct-to-consumer messaging, it's the powerful media and entertainment players that have mass audience reach that are going to be the big forces in the popularization of mobile entertainment." ••••