Analyst Angle: Thoughts on Mobile TV

Editor’s Note: Welcome to a special edition of our Monday feature, Analyst Angle. This week we’re introducing four new contributors, Current Analysis’ Avi Greengart, Compete’s Miro Kazakoff, Jupiter Research’s Julie Ask and Iain Gillott. Please join us in welcoming these excellent analysts in the weeks and months to come.
In the week that Verizon Wireless launched its MediaFLO-based Vcast Mobile TV in a few markets (not mine!), I thought it appropriate to offer some thoughts on this interesting market. While VZW should be commended, there is some way to go to realize the full potential. Or, to put it another way, the current business model is completely wrong and needs a rethink. Let me explain.
Firstly, the current adoption rate of mobile television and video services is very low, with just 1.2 percent of U.S. subscribers using mobile TV and video services from the mobile operators. The situation is not much better in Western Europe, where subscriber adoption rates are less than 3 percent. Given the addiction of both regions’ populations to TV, and not withstanding the relatively poor quality of the services, these current adoption rates are pathetic.
Now some good news: Despite the low adoption, the potential uptake in mobile TV programming is high, with nearly 50 percent of those aged 34 years or younger saying they are interested in such services. And, of course, mobile operators in most regions of the world are just starting to explore the option of offering mobile television and video services to their subscribers. This is a new market and they are many kinks to be worked out.
Mobile operators and media companies are convinced that mobile television will be successful because most of the population is already addicted to television. For example, the average American watches more than 4 hours of television per day. In addition, television sets can be found in 98 percent of households in the United States, and more than 41 percent of households have three or more televisions. So, given the level of interest from consumers and the potential for advertising (an important factor we will discuss further in a minute), this segment should grow considerably in the next few years.
The current low uptake of mobile TV and video services can be attributed in large part to a thus far poorly defined business model. Consumers either pay per view or with a subscription model. Either way, the charges can quickly accumulate and the perception is that with the relatively poor quality of current offerings mobile TV/video services are too expensive. This is partly a reflection of the fact that many people view broadcast TV as free, even when viewed through cable systems.
Certainly, Verizon Wireless’ new service improves the quality of the mobile TV service and makes the service look more like a premium cable TV service. But the pricing is still relatively high, with subscribers paying mobile TV fees in addition to their regular cellular rate plan. For market-wide success to match that of broadcast or cable TV, a fundamental change is required.
As the market develops, iGR believes that the business model will reverse itself, with the content providers paying the mobile operators to distribute video and TV content free to consumers’ cellphones. Advertising will then be interspersed into the programming and detailed tracking will show an increase in regular TV viewing as a result of mobile TV. This will result in a win-win ecosystem for all involved.
For example, consider regular TV advertising today-advertisers pay to place messages in specific time slots or on specific programs, assuming that they know who is likely to be watching. But the reality is that the advertiser does not know if a specific demographic is actually watching or when they are watching-or if they’re making a sandwich when the ad appears.
With the mobile TV service, the operator can determine who is watching and when they are watching with a far higher degree of certainty. While this is not foolproof (I may have fallen asleep on a train while watching Desperate Housewives on my phone), the operator will know far more about my behavior (usage, location, movement, contacts, communications, etc) than they would care to admit. And certainly that operator will know more about me than a cable TV operator knows.
The way in which wireless subscribers utilize mobile television will, of course, be different than how they use the television sets found in their homes. While it is unlikely that users will watch an entire episode of their soap opera on their mobile phones, it is possible to imagine content scenarios that will find their way on to mobile services, i.e., short clips that wrap up an episode, sneak previews of upcoming shows, outtakes or certain clips that have been left out of the original episode. This presents a significant opportunity for advertisers and media companies. Note, as well, that video iPods are helping to make small-screen video formats more palatable to consumers’ eyes. Given the number of flights I take in a typical month, I spend a significant amount of time watching video on my iPod-and I am not alone. Look on any typical flight and 90 percent of the laptops are being used to watch downloaded programming or DVDs. Doesn’t anyone work anymore?
As we discussed, the mobile TV market is off to a slow start in the United States. Many market statistics show that the percentage of subscribers using mobile TV and video actually decreased in the first half of 2006. The market potential is there (given the reservations about the current business model) and by 2010 iGR forecasts that over 12 million subscribers will use cellular-based mobile TV and video services. This represents just 4.6 percent of the total subscriber base. Clearly there is a way to go.
Look at Verizon Wireless’ new service as the technology of the future and as a good example of the typical experience. Now imagine some form of advertising in the mix (either targeted messages or short videos before the programming). And then start to imagine a free service. Now assess your level of interest and the type of programming you would like to see. It is not hard to see the potential. All we need is to reverse the flow of dollars.
Questions or comments about this column? Please e-mail Iain at iain@igr-inc.com or RCR Wireless News at rcrwebhelp@crain.com.