Nets Wait by the Phone

May 29, 2006  •  Post A Comment

A piercing disconnect exists today in the nascent business of cellphone video-while television networks are investing heavily in the development of content for the smallest screen, research indicates that both interest in and use of video on cellphones are surprisingly low.

NPD Group reported that as of February, 28 percent of mobile phones were capable of playing video but only 1 percent of customers used such services. In addition, 12 percent of customers said they were likely to use mobile video in the next six months.

Bolstering NPD’s findings, a report by Points North Group also determined that use of and interest in mobile video are low. Together, these findings suggest that mobile video purveyors will have to do some heavy lifting to get the return on investment that nearly everyone in the TV food chain expects.

But a lot of smart people in the TV business are convinced consumers will watch video on their mobile handsets. That raises the question of whether they know something consumers haven’t yet figured out. In fact, TV networks and mobile phone carriers are wagering so heavily on the accuracy of their predictions that they have anticipated the next gigantic change in consumer viewing behavior before the phone even rings. Qualcomm alone has invested $800 million to deploy nationwide the technology for its so-called MediaFlo platform, slated for an October debut, that delivers broadcast-quality frame rates for cellphone video.

Better-Quality Video

Of course, most consumers don’t yet know they want that service or that kind of lightning-fast, super-crisp quality for video on their phones. Nor did they know they wanted to watch ABC’s “Lost” or NBC’s “The Office” on tiny screens before those networks took the iTunes/iPod gamble.

“Think of the puzzled expressions you would’ve received from people in the ’80s if you told them that one day they would pay $3 for coffee in a paper cup from this Seattle-based chain called Starbucks when they could buy a pound of Folgers at the Kroger for $2.50,” explained John Gauntt, a senior analyst for market research firm eMarketer. “If the carriers and the video content providers can execute a similar riff with mobile TV, they’ll be able to charge a premium price for something we look at now as either free because it’s broadcast or flat-rate over cable or satellite.”

Consumers also scratched their heads over why they would want high-definition TV four or five years ago, when that business was just developing. This year, sales of HDTV sets will outpace sales of analog sets, according to the Consumer Electronics Association.

“If you … show [HDTV or mobile video] to people, they are going to be a lot more interested,” said Clint Stinchcomb, senior VP of new media at Discovery Communications, which is launching a mobile video service in the third quarter. “The same thing is going to happen with mobile video.”

He’s also basing those predictions on a number of developments expected to hit the mobile video market within the next year. According to mobile market researcher M:Metrics, the U.S. penetration of so-called 3G, or third-generation, phones, capable of delivering better-quality video than previous handsets, has risen from under 500,000 a year ago to about 4.8 million today.

Since U.S. consumers replace their cellphones about every 18 months, they will likely swap out current models for the full-throttle video phones with 3G capability over time. Also, cellphone technology providers Qualcomm and Crown Castle plan to introduce new systems for mobile video that will elevate the consumer experience. Finally, wireless carriers are expected to invest heavily in marketing of their video plans.

“It’s undeniable that people are going to watch TV on cellphones. Look at what’s happened abroad. It’s like looking into a crystal ball in the U.S.,” Mr. Stinchcomb said.

Content providers also point out that they don’t need everyone to buy into cellphone video, just a sliver of consumers.

Filling Interstitial Moments

The ubiquitous cellphone is in the hands, purses and pockets of more than 217 million Americans, according to the Cellular Telecommunications & Internet Association. If only 5 percent of those signed up for mobile video service, the business would produce return on its investment, said Cyriac Roeding, VP of wireless at CBS.

“Anything above 10 million cellphone users is a big success,” he said. “The 20 million range is 10 percent of the potential audience, and then it becomes a mass market.” JupiterResearch predicts that mobile video subscribers will grow from 1 percent of cellphone users in 2005 to 5 percent in 2010.

But the business has to be built properly. “We have to be careful not to confuse the cellphone as a constrained TV,” Mr. Roeding said. That means snack-size content tastes best, tailored for cellphone video consumers who are hungry for short bites. Think video snippets, such as news or entertainment clips from CBS and “Entertainment Tonight” or the mini-soap that CBS is developing for an August debut, he said.

Cellphone video fits life’s interstitial moments-stuck in traffic on a crosstown bus, waiting in the doctor’s office, marking time before the kid’s soccer game starts. Programmers want to fill those moments with phone food. That includes news, which has proven to be popular. NBC Mobile’s Salil Dalvi, VP of digital media and wireless at NBC Universal, said usage of the service doubled during Hurricane Katrina, for instance.

Discovery’s Mr. Stinchcomb described the content his company is developing as “one- to four-minute knowledge nuggets” from Discovery shows “MythBusters” and “Deadliest Catch” and Travel Channel’s “No Reservations,” with expert travel advice from host Anthony Bourdain.”

The short-form fare will be massaged to appeal to the younger-skewing users of cellphone video as well. For instance, wildlife content won’t rely on the traditional “voice of God” narration. Instead, Mr. Stinchcomb said, think of a quick caffeine fix. “Here are the top five predator takedowns. We’ll show you the cheetah taking down the gazelle, the saltwater crocodile taking down the wildebeest,” he said.

Such short clips will be easier to digest come fall, when Qualcomm introduces MediaFlo, allowing for quicker access to video and channel changes of two seconds or less, said Jason Kenagy, VP of product management for MediaFlo. That compares to lollygag speed associated with most mobile video services today. “We think it will be a game changer. … Voice service on phones has been the killer app, and I think there is a very good chance based on quality and content deals that this could be the second killer app for cellphones,” he said.

A smoother viewing experience could also mean more willingness to watch longer pieces of content. Mr. Kenagy said Qualcomm’s internal tests indicate consumers are willing to watch 20 minutes of content on MediaFlo as well as the quick hits.

If the user experience is more akin to TV, the migration to TV watching on a handset will feel more natural, said Seth Cummings, senior VP of content for Amp’d Mobile, a mobile virtual network operator that sells phone service and video under its brand and targets the 18- to 34-year-old market.

Working the New Space

The consumer experience should improve in other ways. Mobile service MobiTV has introduced a new program guide for the mobile phone that more closely approximates the home TV experience.

Other issues have been resolved over time. When MobiTV launched more than two years ago, the matter of rights to content was fuzzy, said Jeff Bartee, VP of content and business development for MobiTV. Now, cable and broadcast networks are aware of the need to negotiate for mobile rights.

“Every major broadcaster we work with now has a dedicated team working on this new media space, and they are working with current properties to see which they can clear and making sure they have clearances,” Mr. Bart
ee said.

The service has grown too. In its first two years, MobiTV attracted 500,000 customers. Then, in the six-month period that ended in March, it added another 500,000 customers. “Watching video on your phone is just going to be standard,” Mr. Bartee said.