• by Steve Smith , Staff Writer @popeyesm, July 20, 2006

Mobile content hasn't caught on as quickly as expected. Can Madison Ave. save the wireless future?

In 2004, the business pitches for wireless data services almost always started the same way. With a phenomenal installed base of 200 million subscribers, the mobile platform seemed to fix all of the Internet's early problems by finding viable business models.

People were already accustomed to paying for additional services on phones: The penetration was enormous at the get-go, and the networks had built-in micro-payment systems. To make the model work on wireless phones, all a mobile game or video producer needed to do was get a "percent of a percent" of that massive base to buy into a $2.99-a-month fee. Then you're talking some serious margins, right?

Um, maybe not so much. When Versaly Entertainment launched its "Hollywood Insider" video channel on Sprint, fewer than 5,000 subscribers showed up to pay the $4.99 monthly fee. "Of course we were hoping for a larger subscriber base," concedes Steven Burke, media director, Versaly Entertainment. "We found that growth does occur, but it's not tremendous, and our subscriber numbers are fairly standard. It's basically slightly more than break-even for us."

So Versaly turned to the perennial patron of content: advertising. Its Fast Lane video channel is slated to launch free to Sprint users this summer, with short mid-roll video spots inserted into each two-minute "mobisode." Blockbuster Online and 16 other advertisers are lined up. Burke contends that the channel's profitability is "almost immediate" and adds, "The amount of money we are seeing come in from ads is five times what we see from subscriptions."

And so it goes. The mobile ecosystem is getting over its early reticence toward banner ads and video spots on handsets, and seems poised to embrace the same ad model that subsidized every mass medium before it. For some members of the value chain, it is none too soon. Mobile content is not taking off in quite the meteoric way many prognosticators foresaw even a year ago.

For several months running, wireless data purchases have been flat across major categories like games and ringtones, according to researcher M:Metrics. Even after substantial promotion of wireless data packages and billions invested in 3G high-speed networks, the major carriers lure less than 10 percent of their customers to access news or buy a ringtone on their handset. A measly 2.4 percent download a new game each month.

"It wasn't supposed to be this way," Robert Tercek, cofounder of MultiMedia Networks, commented recently in Forbes. "The mobile content market has hit a speed bump."

Opinions differ about the actual health and growth rates in mobile content, but it is clear to everyone that incremental wireless fees are not enough to support a robust content ecosystem. "For mass adoption, we basically need advertising as a core part of the mix," says Louis Gump, vice president, mobile, The Weather Channel Interactive.

There will always be room for premium downloadables like The Weather Channel Interactive's fee-based weather applications, but on the whole, most people don't want to pay extra on a phone for content they get free online. Banner ads that are already running on Weather.com mobile pages and forthcoming video pre-rolls are the real drivers for the company's substantial investment in wireless. "It is very likely that advertising will be our largest source of revenue," Gump says.

Making Mobile Mass

Ultimately, advertising on mobile platforms is about distribution, not just dollars. The high penetration rates for TV, radio, and the Internet, as well as the potential for growth in video-on-demand and satellite radio, provide an important historical turning point, says Brian Wieser, director of industry analysis, Magna Global. "Mass deployment will depend on ad support," Wieser says. The evolution and growth of other new media platforms underscores that observation.

The larger world of marketing communications will ultimately drive consumers to mobile, says Mark Kaplan, chief strategy officer, Assembly. The New York-based mobile marketing and m-commerce boutique is a spinoff of Anomaly.

"I believe the most important fact is that unless mobile is integrated into an overall marketing campaign, consumers simply do not discover the content," Kaplan says. Among other mobile ad initiatives, Assembly is working on location-based promotions that could geo-target coupons based on where a user and his phone are located.

The promise of location-based wireless services still feels somewhat elusive. The idea of receiving an alert for 20 percent off at Banana Republic while you're walking down the street near a store seems sensible. But for now, fee-based wireless services and content are more prevalent.

Even so, fee-based services like MobiTV, which claims more than 1 million subscribers to its wireless video service, still represent less than 1 percent of the addressable audience. By moving from fee to free, for instance, Versaly is expecting to increase its reach twentyfold for Fast Lane over previous premium offerings. If the mobile industry wants to get to scale and move beyond the early-adopter niche, where digital video recorders and video-on-demand continue to languish, then it needs the sort of wide distribution that advertising makes possible.

Wireless data services continue to face obstacles in making their case to consumers and advertisers. According to a recent report on a survey of mobile customers conducted by JupiterResearch, 71 percent of wireless users say they don't purchase mobile content because they just aren't interested, and another 32 percent balk at the prices.

Ad support could enable a much broader range of pricing schemes. And more ambitious marketing and education programs by major brands could spur more subscriptions to wireless content. Taking a page from the cable TV business, wireless providers could use a hybrid revenue model, a mix of subscriptions and advertising, to get more mobile content into more hands.

"I would probably have three or four more ringtones if there were some model where I paid for one and then listened to an ad once a week that covered the others," says Dan Flanegan, CEO, SoapBox Mobile.   

Show Me the ARPU

Wireless carriers remain duly concerned about how consumers, most of whom say they don't like ads on phones, will react to marketing messages of any kind. Some operators now worry that ad support could go too far and gore their golden goose: the pay-to-play model that continues to sell a lot of ringtones, wallpapers, and messaging services.

"They are paying for this stuff, and they see the value," Cingular's content chief, Jim Ryan, told marketers at the Mobile Marketing Forum in June. "To trade ads for content devalues the relationships."

On the other hand, after an expensive high-speed network build-out and declining rates for voice plans, carriers need the data channel now more than ever to spout multiple streams and grow their languishing Average Revenue Per User (ARPU).

Carriers see marketers lining up to find and pay dearly for more direct and personal routes to those elusive consumers. In 2005, marketers, content providers, and wireless carriers raced past any tipping point in their attitudes toward wireless marketing's potential.

"The overall enthusiasm for mobile advertising is the belief that because the device is so intimate, you should be able to do targeted advertising at a CPM [cost per thousand] rate that will blow all previous media out of the water," says Mark Donovan, analyst, M:Metrics.

Mobile operators are not about to leave that kind of money on the table, but none of them is talking in anything but the vaguest terms about how they test ads and whether they are staffing up. "The biggest thing I can say is that they are a lot farther along than a lot of people think," says Tom Burgess, CEO, Third Screen Media, a mobile ad-serving network that is helping carriers test dynamic advertising to the handset. The only question now is which major carrier will be the first to deploy the models publicly.

But are wireless providers actually ready to be media companies? Can they serve and measure campaigns efficiently, carve their audiences into lucrative targets, and generate services that meet specific marketing goals? To accomplish these objectives, networks need to build a different infrastructure, massage piles of customer data into usable marketing tools, and integrate accountability measures.

Carriers are finally looking at their customer base as an audience and as an asset, says Flanegan. They don't just want content  they want co-marketing deals from publishers that can help push that content to broader audiences and promote both the carrier brand and greater usage of wireless content. But the carriers themselves are not always able to execute these co-marketing relationships efficiently because they haven't invested properly in editorial staff, and the lead times are long.

"It's far too cumbersome now. The whole process of applying for marketing campaigns and getting something kicked off has got to change," says Flanegan.

Still, at least now it's clear to all parties in the food chain that wireless marketing needs to change  that the money, motives, and means are in place to turn what has been a telecom/technology industry and culture into a new media sector. After all, Donovan observes, "At one point, Google was just a tech company."