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The Quest for Monetization

Jan 22, 2007  •  Post A Comment

Fueled by news of Apple’s upcoming Cingular cellphone and the pending launch of broadcast-quality mobile video services from Verizon, television content producers are now wondering what role advertising will play in monetizing this new medium.

That was the big issue at last week’s NATPE Mobile++ conference in Las Vegas, where attendees were eager to learn how and even if advertising can underwrite their efforts to produce programming for the smallest screen.

Advertising on mobile video is uncharted territory in the United States; there have not been any significant efforts to monetize video via ads. While the addition of advertising should speed penetration for mobile TV services and usage this year, some mobile experts don’t believe that ads will ever significantly benefit the content providers and instead will only boost bottom lines for cellular carriers. However, there is early data from Europe that ads work there.

For instance, television producer Endemol UK generated a tenfold increase in usage of mobile video clips for “Big Brother” in the United Kingdom when it transitioned to an ad-supported model for the clips. The current season in the U.K. of the celebrity version of the show has generated 10 times the number of mobile downloads for the ad-supported clips, up from last year when the show attracted more than 100,000 paid downloads, Peter Cowley, managing director of digital media at Endemol UK, said during a NATPE Mobile++ panel session. “We are big believers that you can’t fleece the consumers for too much money. You’ve got to get the advertisers to pay,” Mr. Cowley said. “The market in the U.K. for video-based advertising is just starting to kick off.”

Matt Straznitskas, senior partner with media agency MEC Interaction, said his clients are starting to inquire about mobile strategies. The money earmarked for mobile advertising this year is still small, but could check in around 5 percent to 10 percent of an overall digital budget, he said. In some cases, clients will use existing TV or broadband spots for mobile video, with the money coming from the video budget, he said. In other instances, clients will buy banner ads or graphic ads on mobile phones, with the money coming from Internet budgets.

Experts disagree on whether this new business model for mobile television is viable. Many consumers still view the phone as a personal device-its greatest benefit and also its greatest drawback when it comes to ads. A study by the Cabletelevision Advertising Bureau last fall found that the mobile phone is the screen on which consumers have the lowest tolerance for ads.

“It’s very easy to get the wrong message and piss people off,” said Graeme Ferguson, a mobile content consultant.

But when the message is right the potential is huge. Phone users are more apt to click through an ad on their cellular phone than on the Internet. New media research firm eMarketer said Internet banner ads generate a 0.2-percent click-through rate, while mobile banner ads garner 2 percent to 3 percent click-through rates.

PriceWaterhouseCoopers has studied consumers’ overall reaction and interest in ads in digital forums and found that advertising is not an either/or proposition for consumers. “The view is if you are providing me relevant information, you are engaging me,” said Howard Homonoff, director of entertainment media and communications advisory services for PWC. For cellphones, that would include geographically relevant information, such as local sales or offerings, he said.

While advertising has the potential to underwrite the mobile TV business, advertising won’t be viable until mobile TV counts more subscribers. According to mobile research firm Telephia, by the end of the third quarter of 2006, the United States counted about 5.1 million mobile video subscribers, double the number at the end of the first quarter.

“We need an audience,” said Levi Shapiro, director of audience metrics with Telephia. “Potential is great but we need an audience. Advertisers want eyeballs. Where there is an audience they will advertise.”

Mobile TV will likely transition to an ad-supported model in a few years, but along the way business issues will need to be resolved among carriers, content owners and handset makers. The quality of the network must also improve.

Carriers are most likely to reap the benefits of advertising and get the greatest revenue share of ad dollars. That makes business tough for the little content producers who are hoping to make it big on mobile video. Operators will get a bigger cut of revenue from mobile ads because they do the heavy lifting of trafficking, delivery and collecting the money, said Karl Spangenberg, VP of integrated advertising and commerce for AT&T. The telco is looking at how to integrate advertising into both its emerging TV service, U-Verse, and its mobile video business via Cingular. “It’s not a TV model. It’s not a pre-roll online model,” he said. “It’s a kind of a very truncated, eight to 10 seconds, `this is brought to you by’ type of model.”

But smaller content players are keen to try their hand at mobile ads. Niche video-on-demand network Anime offers mobile video on Sprint for $4.95 per month and plans to explore advertising models this year with its subscription package. About 3,000 customers subscribe to the service each month and that number should rise to 5,000 shortly, said Kevin McFeeley, VP of affiliate sales and new media at The Anime Network.

For broadcast and cable networks, advertising and subscription revenue from mobile TV will be an incremental revenue stream, but the value in mobile video is as a promotional tool driving viewership back to the primary linear channel, Mr. Shapiro said.

That’s what CBS has found through its partnership with YouTube, where it provides clips from shows such as “Late Show With David Letterman” and “Late Late Show With Craig Ferguson,” which rank as some of the most popular clips on the site.

“What you are doing is creating a level of engagement with the brand that actually enhances overall viewership,” said David Poltrack, chief research officer for CBS Corp., who also spoke at a panel at NATPE Mobile++. “A significant number of people watched our new programs this fall for the first time on the Internet before they saw any of them on the TV, and 53 percent are now regular viewers. … Our position is we want to be as ubiquitous as possible and be in as many formats as possible.”