It wasn’t long ago that wireless operators had a simple business plan for content and applications: Ink a boilerplate revenue-share deal, put the stuff on the deck and hope users download it.
But mobile video is changing all that. As wireless TV begins to get legs-spindly, staggering little legs-operators, content providers and multimedia network owners are scrambling to figure out how to split up the money. Increasingly, they’re looking to the cable industry.
Big-name content providers such as ESPN and MTV have long demanded money on a per-subscriber basis to make their offerings available to cable and satellite TV operators looking to carry their programming. That paradigm has moved into wireless video, with carriers paying well-known media companies for every consumer who subscribes to the broadcasters’ mobile TV services.
“We think there are a lot of similarities between cable and mobile video delivery,” said Louis Gump, vice president of mobile for The Weather Channel Interactive. “Our point of view is that the sustainable way to roll out these video products is on a per-sub fee basis. Regardless of the platform, when The Weather Channel is included in a video product-when any content provider is included in a video product-it’s reasonable to have a per-sub amount that goes to that content provider.”
That amount can vary drastically. A lesser-known channel may charge a quarter or two per subscriber per month for placement on a network, and ESPN-which is widely acknowledged as the most expensive and desirable media brand-charges about $3 monthly for every viewer.
Wireless carriers generally pay a dollar or less per month for every subscriber to a mobile video offering from a major video provider, although different types of services require alternative arrangements. Sprint Nextel Corp. can use a simple revenue-share model for its premium branded channels such as CNN and Fox Sports, for instance, and pay-per-download services can employ equally simple models, while packaged services with a lineup of channels require more complicated deals.
“They’re all over the place,” ICEtv Chief Executive Officer William Stack said of wireless video business arrangements. The Phoenix-based company is hoping to partner with operators as it offers mobile video directly to consumers with smart phones.
“I think it’s an issue of trying to sort out what’s appropriate in this type of an environment,” Stack continued. “How do you share revenue? The market and the model are changing rapidly.”
And things are about to get more complex as dedicated mobile networks for multimedia content come to market. Qualcomm Inc.’s MediaFlo is set to come online this fall, and Crown Castle International Corp.’s Modeo is expected to serve 30 U.S. markets by the end of next year. Hiwire, Aloha Partners’ network, plans to come online in Las Vegas later this year before expanding to other cities.
The new players add another link in the value chain, forcing operators and content providers that use the networks to create a place at the table. And, because each company will carry only 10 to 20 channels of wireless video, network operators actually may charge content providers for access to the network, creating an entirely new revenue stream.
“I think once we as a platform operator are in a position where we have a significant number of subscribers, we’ll have the disadvantage of having fixed capacity,” said Michael Ramke, Modeo’s vice president of marketing and business development. “So it will be an economic decision. Do you take the subscriber money to acquire the programming you think is best, or (will there be) an opportunity to auction off capacity?”
Of course, advertising revenue brings another layer of complexity to the issue. Most mobile video services are ad-free today, but analysts and industry players agree marketing campaigns will help drive wireless video revenues for all the players.
Content providers such as MTV Networks and the Fox Television Network are actively working with advertisers, and the new multimedia networks are sure to cut their own deals for airtime. And carriers, which continue to “own” the customer, will enjoy a share of ad revenues regardless of who cements the deal.
But while television has Nielsen and radio has Arbitron to track usage, the viewing behavior of mobile TV fans is difficult to gauge. Traditional media companies and big brands are opening their wallets in an attempt to gain face time with consumers on the third screen, but the efficacy of mobile marketing campaigns will remain in question until the industry develops software that can track usage on mass-market phones.
“What you’re seeing more and more are advertisers who are sponsoring content to carry it across all platforms,” said Greg Clayman, vice president of wireless strategy and operations for MTV Networks. “We know that we’re able to extract some value from that, but one of the mitigating factors on mobile advertising is that it is still in an experimental phase. Mobile video numbers are still quite small relative to other platforms.”
Indeed, advertising agencies and their clients are already signing cross-platform deals that cover traditional TV, radio, Internet and wireless. Business models from cable may have provided a blueprint for the players in mobile TV, but those models will quickly evolve as marketers begin to pour money into the space.
“I think it’s important to understand that it’s not just a stand-alone business model,” said Ramke. “It’s all part of the economics of how much distribution (is there)? How many people are watching? As those underlying drivers increase in the TV space, you’re going to see a lot of jockeying for position as to who controls those ad dollars.”
