Mobile TV in search of a viable business model

BARRY FLYNN, Principal Consultant at Farncombe Technology, sees no reason to review the conclusion he reached in these pages last year, namely, that concerns that the growth of mobile TV might cannibalise the DVD business are still misplaced. Mobile TV is yet to find a way of becoming a mass-market proposition.

A year ago in these pages, I concluded that there were – as yet – no serious grounds for concern by the DVD industry that the growth of mobile TV might cannibalize their business. Twelve months on, I see no reason to review that conclusion: constructing viable business models through which mobile TV might transform itself into a mass-market proposition still remains a major challenge for the operators.

Let us look – again – at the most recent evidence. I want to concentrate on the UK market this time: it has a population with high disposable income, a thriving mobile telephony market and a vibrant television sector, whose broadcast content is recognized to be amongst the most high-quality in the world. If the sums don’t add up in the UK, it seems to me they are unlikely to do so anywhere else in Europe (it may be a different story in Asia, but I’ll come back to that!).

The first question – assuming we are talking about a subscription-based model – must be ‘where is the money going to come from?’ Well, in the UK, it seems that the amount of cash being spent by mobile phone users has remained surprisingly constant over the past few years, at around £17 per subscriber per month (if anything, there has been a slight decline recently).

While this does not leave much room for manoeuvre, it does seem that there has been slow but steady growth in the proportion of revenues accruing from data, a category which includes expenditure on messaging and content – the ‘pot’ from which any spending on mobile TV would presumably derive. Might this be enough to sustain a viable paid-for model?

Probably not. Figures from the UK’s Office of Communications (Ofcom) for 2006 show that – within this overall data segment, around two-thirds of revenue went towards messaging, leaving only around £1.30 per month for all other content purchases (e.g. ringtones, music downloads and the like).

For would-be providers of mobile TV, the issue is exacerbated by the fact that viewing video on a handset is just one of many non-voice applications competing for a share of consumer spend. For mobile TV to succeed, consumers would need to prioritise it above all the others.

Unfortunately, the reverse seems to be the case: consumers are currently not only largely unaware that their handsets can be used to play back video, but even when they do realise this, they are notably reluctant to use the application (at least in comparison to other possible uses).

Why is this? Some interesting light on this issue was cast by some independent research separately commissioned by Ofcom from Ipsos-Mori for its Digital Dividend Review. Published in November last year, this study sought to gauge the perceived value of competing types of service that might be deployed on the spectrum released by analogue switchoff – and one of those services is, of course, mobile TV.

Interestingly, Ipsos-Mori asked respondents to provide both an objective and a subjective ranking: i.e. to state both how consumers ranked the services in terms of their perceived public benefit to the UK and how they ranked them in terms of their own personal needs and desires.

In Ofcom’s own words, “Mobile TV was the lowest-ranked of the six services from both a UK citizen perspective and from a consumer/personal point of view. The service was lowest ranked across all sub-groups – including those who currently make use of a mobile device to view video content [my italics].”

So – consumers (at least in the UK) just don’t seem to value mobile TV as an application – either for themselves or for society as a whole.

One can adduce many reasons for this, chief amongst which is the poor quality of current video viewing experiences on mobile handsets, which is mainly down to small screen-size as well as lack of bandwidth. If this were to change – as indeed it should if dedicated spectrum were put aside for a broadcast technology such as DVB-H – then one might possibly find mobile TV rising through the application pecking-order. On the other hand, it might simply be that consumers prefer to use mobile phones for what they were originally designed for: communication.

It is also arguable that the foregoing analysis is fundamentally misconceived. Perhaps potential expenditure on mobile TV should not be viewed as a subset of mobile telephony expenditure, but rather as just one additional element in total household entertainment and communications spending.

After all, the recent history of video delivery is that consumers have seemingly been quite easy to persuade to pay extra for new delivery media such as DVD and HD-Ready displays, and a substantial portion have been converted from free TV to monthly subscription TV. If the quality issue can be cracked, why should mobile TV not benefit from the same effect?

But, again, we need to address the question ‘where is the money going to come from?’ Just as with spending through mobile phones, the total amount UK households are prepared to spend per month on entertainment and communications has proved to be remarkably stable in recent years, having hovered between the £85 and £95 mark since 2003. As you can see, the recent trend is actually downwards.

Of all these categories of expenditure, it is household spending on TV and radio that appears to demonstrate the highest levels of inertia. The implication is that in order to carve out a niche for itself, mobile TV needs to persuade consumers to substitute some of the money they currently spend on ‘fixed’ TV or radio in favour of the mobile variety.

While an advertising-based model might seem to offer an answer to this dilemma, recent data about Korea’s free-to-air mobile TV offer, often pointed to as a success in this regard because it has attracted 6 million users, in reality show it to be heavily loss-making.

The T-DMB platform’s six founders spent £60 million building it but garnered only £0.75m in revenues in the first six months of the platform’s existence, which coincided with the World Cup. Since then, revenues have decreased, with advertisers saying they will only begin to take the platform seriously when it hits the 10-million user mark. It seems that the amount of viewing taking place, even with 6 million users, has not been enough to create an attractive advertising vehicle.

This is worrying because on the face of it South Korea would appear to be one of the world’s most propitious mobile TV environments, with gadget-crazy consumers, long commute times, popular local content, and a densely-populated urban environment (Seoul) where building a mobile TV network has proved to be relatively cheap.

None of this means, of course, that mobile TV will never take off. As mentioned earlier, one can make out a fair case for saying that much of mobile TV’s current unpopularity is down to the quality of the viewing experience. But even if that were to change, the scope for generating new revenues, whether from subscriptions or advertising, appears to be constrained.

This needs to be set alongside the cost of building a new quasi-cellular network, the need to bid for expensive UHF spectrum at auction, and (probably) an initial requirement to subsidise the high-quality handsets required to offer an attractive viewing experience to the user.

For some significant players in this market, such as News Corp’s digital technology division, NDS, the sums simply do not add up to support mobile TV as a standalone application. As the company’s Mobile TV Marketing Manager, Roy Isacowitz, put it in a recent company newsletter, “The mobile industry has been waiting a long time but still doesn’t know when mobile TV will become a viable business or how anybody is going to make money from it.” Isacowitz goes on to conclude that mobile TV may only be a viable proposition as a supplementary service, either to other TV services or for mobile broadband.

Thus, mobile TV could form part of an overall TV package that includes traditional broadcast to the home, DVR and other services. In this way, Isacowitz suggests, the mobile service could leverage “content that has already been acquired and a TV headend that already exists.” In a way, it’s similar to the idea of bundling free TV in with broadband and voice in a triple-play offer.

In this kind of eco-system, the mobile could also be deployed as a handheld media player for content stored on the home’s PVR, since it would have the right chipset for decoding digital video.

Isacowitz goes on to paint a separate scenario where next-generation mobile Internet devices (MIDS) could be married with mobile TV - drawing on MIDS prototypes displayed by Intel at the recent mobile trade-fair in Barcelona, which all came with an embedded DVB-H chip. But that technology is still some way off, he concedes.
Ironically, the ‘media player’ notion is precisely the o
ne where mobile TV could conceivably compete with DVD – in recordable and portable formats. Somewhat paradoxically, mobile TV would appear to be less of a threat to packaged media as a service in its own right, but more dangerous as part of a bundle. It’s an interesting thought – all the more so for emanating from within the Murdoch empire....

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