Mobile TV: Quo Vadis?

While not imminent, that is no reason for the packaged media industry to be complacent about the threat posed by mobile TV, says BARRY FLYNN, Principal Consultant at Farncombe Technology. Today’s teenagers will grow older, and will bring about sweeping changes in the way handsets are used.

In a speech at the CeBIT international summit in Hannover, Viviane Reding, the EC Commissioner responsible for Information Society and Media, suggested that 200 million Europeans could be viewing television via a handheld terminal by 2015 and that the total mobile TV market could be worth €20 billion by then.

It is perhaps unsurprising that this prospect makes the packaged media industry nervous. Could a surge in mobile TV viewing depress overall DVD consumption, for instance? And what might happen to the portable DVD player market, in particular, if it became easy to watch broadcast video on the move?

Before panic sets in, however, it is worth reviewing how much evidence there really is for statements such as Reding’s, which have become surprisingly common over the past 12 months.

Broadly speaking, there are three places one can look. First, one can ask how non-voice applications such as data and rich-media services have performed so far, and extrapolate from this how mobile TV (a non-voice service) might perform in the future.
Second, one can investigate how successful video and TV have been on 2.5 and 3G mobile phone networks, where it is already a commercial reality.

Third, and finally, one can assess the results from mobile TV trials, and some of the limited early deployments of the new platform.

In all three areas, it is safe to conclude that there are no serious grounds for concern – yet.

In the first case, it is clear that consumption of mobile content has been very disappointing so far, with revenues from non-voice applications far below industry expectations. This is despite the revolution in mobile bandwidth occasioned by the migration from 2G (GSM) networks to 3G ones and a rapid upgrading of mobile handsets, both of which should theoretically have facilitated mobile content consumption.

For instance, most non-voice mobile telephony revenue still arises from a primitive application originally designed for GSM networks – namely text-messaging using the SMS system. According to the UK regulator, Ofcom, rental and voice made up 80% of revenues in 2005, with SMS accounting for 16%. The rest – i.e. 4% – accounted for all other forms of data revenue (including multimedia messaging, that is, messages comprising photos or video-clips).

While data from Ofcom for the second quarter of 2006, published in January 2007, does not distinguish between income from SMS and other forms of data, it remains the case that the vast majority of revenues (around 85% for three out of the four mobile operators) still derive from voice alone.

It also seems that photo-messaging has all but stalled, despite a boom in the sales of camera-phones. According to IPSOS-Mori’s Technology Tracker for December 2006, while around 85% of the UK population use a mobile phone, only around 19% use photo-messaging, a figure that has remained roughly static since the middle of 2005.
Crucially for the future of mobile TV handsets, it appears that simply including a feature in a phone handset is not enough to guarantee usage.

Has video content on advanced mobile phone networks fared any better? The short answer is ‘not on the evidence so far.’
In its recent Audience Measurement Report on the UK, for the third quarter of last year, research company Telephia found that only 3% of phone users accessed mobile TV or video, compared with 85% for SMS. In fact, mobile TV had the lowest usage of any data application across all 13 different types surveyed (including playing games, music, and so on).

To be fair, this is no doubt at least partly due to the fact that Telephia was researching all types of phone owners. Indeed, in separate studies, Telephia found that 3G users do generally consume more rich media than 2.5G ones – as perhaps one might expect, since access and downloads are both easier and quicker. Even so, that research found that only 10% of 3G phone users consumed ‘streaming TV.’

It is equally true that a minority does seem prepared to pay. As Dr Hyacinth Nwana, Managing Director of Mobile Media Solutions at transmission company Arqiva puts it, “We’ve gone beyond proven demand.” Referring to the Vodafone Sky Mobile service, which launched in late 2005, he pointed out that “Of every 100 customers on the [initially] free service, 75% actually chose to sign on to pay. Of that 75%, 60% were actually paying for the three-package service, so they were paying £10 a month.”

But put that into context: Vodafone had only 100,000 subscribers for the Sky service by last summer, equivalent to 10% of its 3G customers at the time (a figure in line with the Telephia research cited above, incidentally). On Nwana’s figures, just 4.5% of the operator’s subscribers were prepared to pay the full monthly fee.

Moreover, usage-levels are hardly encouraging. In April 2007, Vodafone said it had experienced “no major drop-off” since launching TV in its figure of one million streams per fortnight. With 4.7 million customers able to access the service, that’s less than one stream per customer every two months.

Orange France fares rather better: it boasts that it registers five million TV/Video ‘sessions’ per month, for instance. But with 2-2.5 million subscribers equipped with video-phones, that’s a viewing-rate of just 2.5 ‘sessions’ a month at best, hardly evidence of massive interest.

Moreover, there remains a question mark over the length of the sessions, and how much of such usage is actually paid-for (Orange’s claim that around 200,000 subscribers take advantage of its ‘unlimited’ mobile video offer at weekends is a double-edged sword in this respect).

Meanwhile, consider the performance of 3’s UK television service last summer during the World Cup. 3 said soccer boosted viewing by 61% compared to the previous month.

But over the entire course of tournament, 3 said there had been just 3.6 million viewings. Average across 3.5 million customers, that’s just over 1 viewing per customer – for a service that lasted several weeks, was free, and related to the year’s most popular sporting event!

It can be argued that both sets of evidence cited above are irrelevant: after all, isn’t actual broadcast television (as opposed to sending video-clips as messages, or watching soccer clips on demand) a palpably different application whose popularity on other platforms is almost bound to make it a ‘killer app’?

It is certainly the case that early broadcast mobile TV trial results show a remarkable level of coherence. The table above shows some illustrative findings, which suggest that there is at least an apparent willingness to pay between €5 and €15 per month for between 6 and 16 mostly free-to-air broadcast TV channels, corresponding to around €1 per channel per month.

From the figures, viewing minutage correlates closely with choice of channels available (the highest usage in the table is to a 16-channel service, the lowest to a 6-channel one). Significantly, as we shall see later, between a third and a half mainly viewed mobile TV in the home – a totally unexpected finding.

Meanwhile, there are some limited real-world experiences, notably in Italy, where 3 Italia launched a commercial DVB-H service in June last year to coincide with the World Cup.

By the end of the year, 3 Italia had around 400,000 DVB-H subscribers out of a total of 7.1 million 3G customers, having predicted 500,000 only three months earlier.

The relatively poor take-up – equivalent to 5.6% – may be due in part to the cost, which is on the high side based on the evidence of the trials cited above: €3 for a day’s viewing, €9 for a week and €29 for a month (there is also an all-in voice, Internet and TV bundle available for €49 a month).

On the other hand, the service was launched on the back of the World Cup to a country whose populace is not only obsessed with football, but actually reached the final, so the environment could hardly have been more propitious.

The other side of the picture is, of course, the capital expenditure involved in building a mobile network. This is an expensive undertaking: at least €800 million. If subscriptions are the only form of revenue, break-even (defined as a million users) could take as long as 13 years.

Adding in advertising revenue could reduce the pay-back period substantially, but it is worth pointing out that this is a so-far-untested model. Would mobile TV users be prepared to put up with ads on phones if they were already paying to watch free-to-air channels?
In fact, the picture could be even worse: the finding that between a third and a half of mobile TV consumption takes place inside the home, if replicated in practice, means that this portion of potential usage is ripe for cannibalisation by ‘portable’ TV (pay-TV based and free-to-air) when it eventually takes off.

‘Portable’ TV could also compete against mobile TV outside the home: where a DTT signal is available, it would offer more channels, for instance, than a DVB-H one – and critically, free-to-air TV would not have to be paid for. This could further depress mobile TV revenue prospects, lengthening the years required to break even.

Meanwhile, on the issue of costs, it should be pointed out that there is considerable fragmentation of standards – even within the technology most likely to succeed in Europe, DVB-H. Quite apart from having two alternative content security solutions in place, there are two separate upgrade paths for this standard already being discussed, one terrestrial (DVB-H2), the other satellite-based (DVB-SH). This militates against economies of scale in handset production.

Meanwhile, as we have seen, the costs of building mobile TV networks are high, particularly if the industry tries to maximise the number of channels available within the home to counter the challenge from ‘portable’ DTT. This would require high signal strength, particularly where compression is maximised, which in turn would require more transmitters to be built.

All of which means that constructing viable business models for mobile TV to generate Reding’s €20 billion market is a major challenge for telecom operators.

That is no reason, however, for the packaged media industry to be complacent about the threat. While most mobile phone users today still use their phones for voice-calls, there are big differences in data-usage across the generations: in Japan, for instance, teenage girls use email and SMS in preference to voice. Today’s teenagers will grow older, and will undoubtedly bring about sweeping changes in the way handsets are used.

There is also a persuasive argument to be made that mobile operators have suppressed take-up of non-voice applications, video included, by charging for data-usage at costs that are, in effect, prohibitive. If they can see the error of their ways and change their business model, they could well unleash considerable pent-up demand.

Meanwhile, the mobile TV market in Europe is in its very early stages: handset costs are high, and operators are keen to unload as much of the costs of their network build as they can onto early adopters. If Reding is successful in her bid to get Europe-wide harmonisation of mobile TV standards and spectrum (which is what her CeBIT speech was about), that could bring down costs and jump-start a pan-European market.

The question then arises as to how, if at all, such an eventuality might impact the DVD sector. First off, it should be pointed out that the threat is not an imminent one: frequencies are scarce, and fully-fledged mobile TV networks will take time to build.

Second, mobile TV is likely to be more of an ‘additive’ medium than a ‘substitutive’ one: there is, clearly, ‘unused’ airtime outside the home, when people are travelling, or on work-breaks, for which demand has arguably been suppressed through lack of any viable technology to exploit it.

An increase in video consumption here is unlikely to lead to cannibalisation of DVD viewing. DVD is a long-form medium focused on movies, whereas mobile TV (given reduced consumption-time) is a short-form medium likely to skew towards news, sports and possibly ‘catch-up’ TV.

If there is a risk at all for the sector, it lies in the fact that there is some evidence from Korea that mobile TV could affect in-car DVD take-up. However, while this would impact player sales, its effect on DVD sell-through and rental is debatable. After all, the DVDs the kids watch on long journeys tend to be the same ones they watch at home.

Thus, even if the mobile TV future is as Reding describes it, the threat to DVD is not likely to come from that direction. The real challenge will probably arise from the evolution of a broadband-based ‘podcast’ model addressing handheld video players. But this may be the subject of another article!...

Article Comments

comments powered by Disqus