Insight Wireless: the Next Frontier for the Media & Entertainment Industry

insight Wireless: The Next Frontier for the Media & Entertainment Industry

By Hamilton Sekino, Jamil Husain and Sujit Acharya

Digital technology is revolutionizing the production, distribution and consumption of video games, music, television, news and other information services. Consumer preferences are migrating toward online and wireless channels. While wireless distribution captures a relatively small share of media & entertainment revenues today, we believe mobile phones are emerging as key devices for the delivery of content. Wireless media & entertainment growth will be driven by the adoption of new business models, new technology enablers and new content and applications. Diamond sees important new business opportunities in four media & entertainment industry segments—video games, music, television, and news & information. While content owners can choose from a wide range of physical and online channels, wireless distribution will depend on cooperation of the carriers. Content providers and wireless carriers must work closely and on equitable terms. Only then will they be ready to venture into the next frontier of the media & entertainment development and distribution. This report provides the rationale behind these opportunities in the wireless space and reviews the challenges media & entertainment companies will face as they pursue new opportunities in wireless channels. Introduction Media & entertainment companies are retention efforts with new and compelling already experiencing the impact of new wireless content and applications. information technologies. High-speed Internet Media & entertainment companies will is behind the growth of new forms of content benefit as well. Large producers of traditional, such as Massive Multiplayer Online Games physically-distributed content (e.g. record (MMOGs) (e.g. World of Warcraft), single- labels, TV studios and newspapers) are song music downloads (e.g. iTunes) and user- struggling to boost their revenues as new generated videos (e.g. YouTube). Meanwhile, entrants (e.g. iTunes, YouTube and Craigslist) emerging mobile data networks (and enabled find new ways to use online channels to handsets) have contributed to the adoption capture a share of content revenues. For of new forms of wireless content such as 3D media & entertainment companies, wireless games and polyphonic ringtones. Wireless represents a new channel to which they can may acquire an even more important role as directly market their content and services. Slingbox and other “place-shifting” products and services enable users to transfer content Diamond believes that several specific from physical and online channels to their initiatives hold the key to accelerating the mobile phones. Such technologies will help growth of wireless media & entertainment alter consumer perceptions of mobile phones revenues. In this paper, we identify three as important media consumption devices. important questions that wireless carriers Wireless carriers and media & entertainment and media & entertainment companies companies can seize these evolving must address. preferences to create new revenue streams. • How does the wireless value chain Wireless carriers can leverage these function for each media & entertainment table of contents evolving preferences to create profitable industry segment?

Introduction 2 new business opportunities at a time when mobile penetration in the US is near its • What are the new business models, Market Assessment 3 peak. Revenue growth from voice services technology enablers and content & Growth Opportunities 9 is declining, and although revenues from applications that will accelerate adoption of Implications 15 data services continue to rise, carriers still wireless media & entertainment content? need to look for new growth areas to offset About the Firm 17 • What are the priority initiatives of voice revenue losses. Additionally, carriers About the Authors ...... 17 media & entertainment companies and should make an effort to support customer wireless carriers?

For more information contact: Hamilton Sekino, Partner Telecom & High Tech Practice [email protected]

2 Market The total size of the US media & entertainment distribution (Figure 2). Content production Assessment industry, as defined to include video games, includes content development (creation music, television and news & information, of content) and publishing (financing and was $207 billion in 2005 (Figure 1). Content production of content). Designing video producers depend primarily on physical games, recording music, scripting TV shows, channels, although online and wireless and reporting news are in the domain of channels are becoming increasingly relevant content developers, while financing and for all four industries. Major brands that production are in the portfolio of publishers. cater specifically to the online and wireless These companies include video game channels are emerging in each industry. publishers such as Electronic Arts, record Examples include World of Warcraft and labels such as Universal Music, TV studios Second Life (video games), iTunes and such as NBC Universal and news agencies Rhapsody (music), YouTube (television) and such as Reuters or the Tribune Company. Salon, Craigslist and blogs of every color The second half of the value chain comprises and stripe (news & information). the three steps of aggregation (organization We analyze the structure of the media & and/or licensing of content), platform delivery entertainment industry by looking at its (use of platforms or hardware to enable value chain, which can be divided into two content delivery) and distribution (delivery segments: content production and content of content to end-users). The significance

Current State of the Media & Entertainment Industry

US Media & Entertainment Industry Revenue—2005 Wireless Online Physical

$.6B $.4B $.06B $.05B 100% $3.3B $.7B $1.5B $.8B 80%

60%

40% $7B $11B $126B $57B

20%

0% $8B $12B $127B $60B Video Music TV News & Games Information

Sources: PwC, IDC, Juniper Research, MMA, Yankee Group, Ovum Research, Diamond analysis

Figure 1

3 of aggregation and platform delivery varies Most of revenues the revenues that flow revenues include commercials on television, according to the structure of content into the media & entertainment industry ads in print publications, and online search ownership in each segment of the media value chain originate from one of three major and banner ads. & entertainment industry. The purchase sources—one-time purchases by end-users, In the next part of this section, we take a of third-party content by Web portals for ongoing subscriptions by end-users, or deeper look into each of the four media distribution to their viewers, or the acquisition advertisements by third parties competing & entertainment industry segments that we of syndicated content by TV stations, are for the attention of content users. One-time describe in this paper. (We only focus on both examples of content aggregation, purchases apply to the vast majority of those segments with the greatest potential while the coding of songs to MP3 format video game sales and are also an important for monetization over wireless channels. or the manufacture of video game consoles contributor to music and print news media Segments such as movies and radio are represent different types of platform delivery. sales. Subscriptions apply best to cable therefore excluded from consideration). We Distribution is universally important. Examples or satellite television and newspapers or describe the total revenue amount of physical, of distributed content include video games magazines, although new business models, online and wireless-distributed content. at Wal-Mart, MP3 files on iTunes, TV programs such as Rhapsody’s MP3 subscription We also analyze the value chains for each of on CBS and Associated Press articles service, are emerging in the music industry. these channels and identify key players. published in local newspapers. Advertising is the one important stream not fed directly by consumers. Advertisement

Media & Entertainment Industry Value Chain

Content Producers Content Distributors

Content Content Platform Developers Publishers Aggregators Delivery Distributors

• Design and develop •Finance content • Aggregate media •Provide technical • Deliver content to content development content capability to deliver consumer via either • Exist as either • Market finished •Own or license content content to consumer retail, subscription, or independent entities products libraries •Produce software/ advertising models or housed within •Maintain ownership •Prepare content for hardware delivery larger media enterprise of content delivery to consumers solutions Video Games Physical Music e Onlin TV & less re Info Wi News

Figure 2

4 Video Games Online games are downloaded to Wireless games are developed by game The US video game industry was worth PCs and are typically played over the developers and publishers and marketed to about $8 billion in 2005 (Figure 3). Physical Web or through proprietary software carriers for distribution. Carriers tend games (console and PC) account for the of the game developer. Online games range to prepare content for delivery by using either bulk of revenues, although the share of online between simple, casual games such as Sun’s Java-based or Qualcomm’s BREW and wireless games is growing. poker or chess, found on sites such as Yahoo! wireless content platforms. Wireless games Games and Pogo.com, to highly sophisticated, typically fall into two categories—those Physical games are packaged in cartridge time-consuming MMOGs such as World that are downloaded for offline play, or CD formats by video game publishers such of Warcraft or Second Life. Advertisements and others that are played online over the as Electronic Arts, Activison and Nintendo, are the primary source of revenue for mobile network. Offline games usually and distributed to retailers such as Wal-Mart, casual games, while monthly subscriptions have a one-time charge, while online Best Buy or GameStop (Figure 3). These support MMOGs (some MMOGs also games are more likely to feature a monthly games are most often played on dedicated derive revenue by “taxing” transactions of subscription. Revenues are majority- consoles that are made by companies such virtual goods). Since publishers of online controlled by carriers, because of their lock as Microsoft, Sony and Nintendo, although games (with the occasional exception on available distribution channels. some are made for PCs. Revenues are almost of casual games) also control distribution, always generated from the sale of the revenues are kept in-house throughout games, and content producers capture about the value chain. two-thirds of all revenues.

Video Game Value Chain

Value Chain Description—Video Games (2005) Distributors

Content Content Platform Revenue & Development Publishing Aggregation Delivery Distribution Distributor’s share

• Development of • Development •Design and •Retail channel games, either financing, manufacture of distribution independently or product hardware for via contractual manufacturing playing video relationships and marketing games $7B with publishers of games

Physical 65% 35%

•Management of •Web portals a central online where users

e location for users can download $0.8B to purchase and and/or play play games games

Onlin 70% 30%

• Development of • Distribution via standards to walled garden, interface between carrier Web site $0.6B

less devices, games and or 3rd party

re mobile networks off-portal 45% 55% Wi

Sources: Pricewaterhouse Coopers, Bernstein Research, Forrester Research, International Game Developers Association and Diamond analysis. Figure 3

5 Music Physical music products include CDs, DVDs, Wireless music encompasses products Music industry revenues totaled $12 billion cassettes and other media, which are such as ring tones, ringback tones and in 2005 (Figure 4). Revenues from physical distributed through retailers (e.g. Wal-Mart, full-track songs. End-users access these channels reached $11 billion, while online Best Buy or Tower Records). Distributors products via “over the air” download or and wireless revenues were $600 million typically take about 30 percent of the revenues. side-load from PCs using file transfer and $400 million, respectively. Online mechanisms such as Bluetooth. Wireless Online music includes both streaming music and wireless channels have been growing carriers leverage their home decks to and downloaded files, which are distributed much faster than physical channels, due effectively control “over the air” distribution through Web-based retailers such as Apple’s largely to iPod-fueled sales at Apple’s iTunes through their own music stores, thus iTunes and RealNetworks’ Rhapsody. store, and the widespread popularity of making it possible for them to capture These sites rely on pay-per-download ringtones for mobile phones. as much as 50 percent of revenues from fees (iTunes) or subscriptions (Rhapsody). wireless music. There are signs that Currently, content providers hold their sway With the exception of specialized ring tones, operators may be willing to trade some of in the value chain, capturing 95 percent Content development is identical for all their control for an expanded market: of revenues from online music sales. This channels of music. Singers and musicians For example, Cingular has announced it will skewed balance of power owes partly write and perform songs, which record allow its subscribers to access music from to Apple’s strategy of driving iPod sales with companies (e.g. Sony BMG, Warner Music Yahoo, Napster and eMusic. Group) package and distribute. near-cost pricing of songs sold over iTunes.

Music Market Value Chain

Value Chain Description—Music (2005) Distributors

Content Content Platform Revenue & Development Publishing Aggregation Delivery Distribution Distributor’s share

• Creation of • Financing • Ownership of • Manufacture of •Retail channel content by recording and, libraries of CDs and artwork distribution artists and marketing of music licenses (key players are songwriters music (publishers the record labels) $11B are known as 70% 30% record labels) Physical

•Web portals, which, through licensing agreements with record labels, develop $0.6B

e digital music libraries for distribution via download or streaming by one-time purchases or subscription agreements 95% Onlin 5%

• Provide software • Distribution via standard to interface walled garden, $0.4B between the device, carrier Web site or

less the MNO, and the 3rd party off-portal 50% 50% re music download

Sources: Pricewaterhouse Coopers, Forrester Research and Diamond analysis. Figure 4

6 Television DISH) which in turn bundle the content and is becoming very popular, evidenced by the The US television industry accounted for sell it to end-users in monthly subscriptions. emergence of hugely successful sites such as more than $128 billion in revenues in 2005 In addition to collecting license fees, cable MySpace and YouTube. Second, VOD and (Figure 5). Physical channels accounted networks also capture all the revenues from Slingbox are enabling people to watch TV when for the overwhelming majority of revenues, ads placed on their programs. When cable they want it, and even where they want it. although online and wireless channels are networks require external content to fill Wireless TV is still in its infancy in the US. expected to grow significantly as streaming their schedules, they also turn to syndication Streaming video is available through the data video and mobile TV become commonplace. companies. Ultimately, content producers packages of major network operators (e.g. (independent studios, broadcast and cable Verizon V CAST, Sprint Vision). Quality is still Television content (comedies, reality shows, networks and syndication companies) capture sub par, and costs can be high. Mobile TV sports, news, etc.) is typically created by either about 55 percent of revenues, which they obtain experiences will improve with the arrival of independent studios and pitched to broadcast from advertisements and license fees. The advanced broadcast networks such as DVB-H outlets (e.g. ABC, FOX) or cable (e.g. ESPN, balance goes to distributors (TV stations, cable or MediaFLO. These networks broadcast TBS) networks, or developed in-house by the and satellite operators). networks. In some cases, independent studios video content, avoiding slow and bandwidth- retain control of their content and market Online TV encompasses all television content intensive streaming technology. it directly through syndication companies. which is accessible over the Web. Content The relative immaturity of online and Broadcast networks and syndication companies may be found on network (e.g. nbc.com) wireless channels means the distribution both distribute to TV stations (e.g. WNBC, or non-network portals (e.g. Yahoo! Videos, of revenues between content producers KTLA). Broadcast networks capture a share YouTube). Online TV also includes cable and content distributors is in flux. Currently, of revenues from TV commercials aired during operators’ Video-on-Demand (VOD) services revenues are evenly split. Looking to the their programs, while syndication companies and Slingbox’s place-shifting technology, future, the abundance of online channels charge license fees and also demand a share which enables users to stream TV programs favors producers, although distributors of advertising revenues. Cable networks sell to their PCs, smartphones or other digital (i.e. wireless carriers) may use their control rights (license fees) to their content to cable and devices. Two phenomena are driving the growth of a limited number of TV-capable networks satellite network operators (e.g. Comcast, of online TV. First, user-generated content to negotiate a higher revenue share.

Television Market Value Chain

Value Chain Description—Television (2005) Distributors

Content Content Platform Revenue & Development Publishing Aggregation Delivery Distribution Distributor’s share

TV Stations

$67B* Cable, satellite, 55% 45% Broadcast Networks

Physical and PTV service providers

Slingbox

$1.4B

e Network Web Portals Cable Networks 60% 40% Onlin Non-Network Web Portals

Mobile TV enablers Wireless Carriers

n $0.06B s less 50% 50%

re Wireless Carriers and MVNOs ductio o Wi Pr Studio

*Advertising revenue only. Sources: Pricewaterhouse Coopers, Raymond James Financial and Diamond analysis. Figure 5 7 News & Information channels, whereas others (e.g. location-based to vending machines, newsstands, retailers News & information industry revenues service) are enabled by wireless technology. and individual subscribers. They also leverage surpassed $60 billion in 2005 (Figure 6). the physical value chain by sharing the Newspaper companies such as the New York Physical channels totaled $57 billion core editorial content and then add tailored Times Co., The Tribune Co., Gannett and Knight- in revenues, while online and wireless online content for distribution through Ridder develop, publish and distribute news channels were $3.3 billion and $50 million, the Web sites of their papers (which depend articles, photographs and classified advertising. respectively. (Our value chain assessment primarily on advertising revenues). They also populate their papers with articles considers only newspapers for the purchased from third-party wire services Wireless operators’ control over distribution physical and online channels. For wireless, such as the Associated Press, Dow Jones and outlets prevents news & information companies we consider newspapers as well as other Reuters. Advertisements and subscriptions are from also dominating the wireless value information services, such as classifieds, the primary sources of newspaper revenues. chain. Wireless news is supported by carriers’ location-based services, weather and data fees, as well as by ads on the newspapers’ traffic alerts). Some of these new wireless Newspaper companies have built wireless Web sites. Carriers capture about information services (e.g. classifieds) complementary physical and online value 45 percent of wireless revenues. are also offered in the physical and online chains. They distribute their publications

News & Information Value Chain

Value Chain Description—News & Information (2005) Distributors

Content Content Platform Revenue & Development Publishing Aggregation Delivery Distribution Distributor’s share

•Creation of • Publication, aggregation & distribution of content through physical media content

$57B* 100% Physical 0%

•Creation, publication, aggregation and distribution of content through physical media $3.3B e 100% Onlin 0%

• Creation, publication of mobile content • Aggregation, platform delivery and distribution of content $0.05B

less 55% 45% re Wi

Sources: Pricewaterhouse Coopers and Diamond analysis. *Physical and online revenues include only newspaper companies.

Figure 6

8 Growth We believe wireless channels are expected four industry segments. We believe content Opportunities to register strong growth in each of the four producers and distributors can benefit from the industry segments. Projected compounded emergence of wireless content if they pursue annual growth rates over the next five years three classes of opportunities. To stimulate for wireless Video games, Music, TV and News demand for wireless content, they must & information are 29 percent, 39 percent, identify new business models, leverage new 93 percent and 152 percent, respectively technology enablers, and develop new content (Figure 7). At these growth rates, wireless and applications. Below, we describe each will account for 18 percent, 14 percent, 2 category of opportunities. In the second part of percent and 2 percent of total revenues this section, we apply these opportunity sets in each industry by 2010. This equates to to the industry segments: video games, music, around $2 billion in revenues in each of the TV and news & information

Potential Wireless Media & Entertainment Growth

Revenue ($Billions) CAGR Wireless: 28.6%

o 2005 0.6 (2005-2010) Total: 8.9% de

Vi 2010 2.3 Wireless Share 2005: 7.7% Games of Revenues 2010: 17.5%

CAGR Wireless: 38.9% 2005 0.4 (2005-2010) Total: 4.8%

Music 2010 2.2 Wireless Share 2005: 3.4% of Revenues 2010: 14.0%

CAGR Wireless: 93% 2005 0.06 (2005-2010) Total: 6% TV 2010 1.7 Wireless Share 2005: 0.1% of Revenues 2010: 2.1%

CAGR Wireless: 152% & 2005 0.05 (2005-2010) Total: 2.9%

Info 2010 2.0 Wireless Share 2005: 0.05% News of Revenues 2010: 1.80%

Source: PwC, IDC, Juniper Research, MMA, Yankee Group, Ovum Research, Diamond analysis

Figure 7

Growth Opportunities by Industry Segment

Video Games Music TV News & Info

• Content Cross- • Content and Data • Monthly Platform Bundling •Advertisement Revenue Model Bundling Subscription Plans •Ad-Based Mobile TV Based Content s Service

Model Distribution •Mobile Content •Partnership with •Partnership with Partnership •Mobile TV Off-Portals Off-Portals Online Music Stores Carriers New Business Model

y Handsets & Devices • Handset Middleware • 3G/MP3 Handset •NA •NA chnolog

Te • Advanced Networks Enablers Networks •NA •Advanced Networks •Content Transfer •NA

New Technology & Personalization • Search & Sample • Search & Sample • NA •Personal Profile

•Innovative Advertising Format • Branded Casual •NA • “Made for Mobile” TV Applications Made for Mobile Games •Time Sensitive Local New Content Content

Figure 8 9 Opportunity Categories

New Business Models • Revenue Models: Content producers • Distribution Partnership Models: For their part, carriers may consider and distributors will be able to experiment Content producers will have the forming strategic partnerships with new revenue models, which may opportunity to tear down the carriers’ with content providers to cross- include subscription- or advertising-based dominance of mobile content subsidize mobile data with ad revenue. models. They will also be able to consider distribution by forming partnerships cross-platform bundling and/or content- with emerging off-portals as well data bundling strategies. as with existing online distributors.

New Technology Enablers • Handset & Devices: Technological • Networks: MediaFLO, WiMAX and other advancements such as longer next-generation networks will open battery life and larger memory size new business opportunities for producers will be essential to make the mobile and distributors of high-bandwidth handset more media-friendly. content, such as music and video.

New Content & Applications • Personalization: The small form- stimulate demand but also improve suitable for mobile consumption. factor of the mobile handset makes overall consumer satisfaction. “Made for Mobile” content will address content discovery a very painful the limitations of the mobile platform • “Made for Mobile”: Content developed experience. Personalization of the and address the unique preferences of specifically for physical or online mobile experience, based on consumer mobile consumers. distribution channels may not be profile and usage history, will not only

10 Video Games Opportunities

New Business Models • Content and Data Bundling: Consumers, content beyond their home decks, game framework offers a win-win situation particularly casual gamers, resist paying publishers will have the opportunity for all involved parties: off-portals would twice for mobile games—for the game to pursue off-portal strategies. Direct boost revenues, while carriers would itself and then for the data download. distribution is one option. For example, gain a stake in new distribution channels. Mobile game publishers complain Electronic Arts offers a limited selection Meanwhile, consumers could explore that the inability of consumers to sample of mobile games on its Pogo.com Web new distribution channels without entering games before purchase inhibits the site. Content providers might also pursue into contractual billing relationships. adoption of less popular titles. Carriers relationships with emerging third-party Small content providers might also could stimulate demand among casual off-portals such as Jamster, Thumbplay benefit. The cost of advertising via users by either eliminating data or Blinko. To gain the cooperation traditional methods like mass media or charges for downloads or bundling the of carriers, off-portal operators could print is often prohibitively expensive. data charge into the game price. set up relationships whereby carriers bill A Web-based off-portal could act as consumers for the content purchased on a launching pad for non-traditional • Mobile Content Off-portals: As off-portals and then keep a portion of marketing campaigns that use viral or wireless carriers begin to loosen those revenues for themselves. Such a word-of-mouth strategies. restrictions on the distribution of wireless

New Technology Enablers • Handset Middleware: The growing handset OEMs should invest in new or make it easier to develop high quality number of handsets makes the porting enhance existing (e.g., BREW, J2ME) mobile games with minimal porting of mobile games very expensive. mobile gaming platforms to make costs. An example of such is Adobe Furthermore, mobile games have game development truly handset and Flash Lite, a lightweight version of to be customized for different geography independent. These players Adobe Flash Player optimized for mobile geographies. Mobile game developers should adopt middleware that will phones and other devices. and publishers, wireless carriers and standardize the user interface and also

New Content & Applications • Search & Sample: The constricted play-before-you-pay experience that Solitaire— are all casual games. The space on the carrier’s home deck allows consumers to try any game first scope is limited for expansion of generic results in a poor content discovery and subsequently choose to purchase titles based on popular card or board experience when compared to the a monthly subscription service. games. However, branded casual games online experience. Users should be able offer an interesting new opportunity for • Branded Casual Games: Development to search, download and sample mobile players looking to tap into this genre. of attractive new casual games is games. In addition, to encourage casual For example, Nickelodeon and MTV likely to boost adoption of mobile games. users, carriers should not charge for are leveraging their brands by licensing Casual games currently dominate the downloading sample versions of mobile mobile games based on the “Spongebob marketplace: the three top sellers (for 1Q games. For example, RealArcade’s Squarepants” and “Pimp My Ride” 2006)—Tetris, Bejeweled and Platinum new mobile games store provides a brands, respectively.

11 Music Opportunities

New Business Models • Monthly Subscription Plans: While direct competition with music download players (resulting from carriers’ active mobile phones are a great platform services. Vodafone plans to launch disablement of media file transfer ports for listening to music, they are not a service along these lines, providing in handsets and incompatible digital perfect substitutes of dedicated MP3 its users with unlimited access rights management (DRM) standards). To players, which offer enough memory to streaming music for a flat daily or boost mobile music revenues, carriers and space to accommodate entire music monthly fee. record labels could partner with online libraries. Carriers may succeed music stores to allow music downloading • Partnership with Online Music by promoting a differentiated service on multiple devices. Such efforts are Stores: Mobile music’s popularity has whereby subscribers pay a monthly already underway. Cingular, in partnership been blunted by an inferior “search and subscription to access music and with Napster and Yahoo! Music, recently purchase” experience (compared to other mobile content. In this model, launched a music subscription service online stores such as iTunes) as well as “subscribed” music files would have which allows transfer of music from PC by incompatibility with dedicated MP3 limited play lifetime, so as to avoid to mobile phones.

New Technology Enablers • 3G / MP3 Handsets: The small user (via Bluetooth) of music to other audio such media over existing 3G wireless base of MP3 enabled phones, as devices such as car speakers. Such networks. With the eventual upgrade well as the small memory size and is the case with Verizon’s new VCAST- to high-bandwidth networks such limited battery life of these phones, enabled LG VX8500 “Chocolate” as WiMAX, EV-DO RevC and HSUPA, contribute to mobile music’s relatively phone, which has EV-DO and Bluetooth streaming music will be more economical. low adoption. Carriers should press stereo features. People may even stream music from vendors to develop handsets with MP3 their PC using Slingbox-like devices, • Advanced Networks: The popularity of functionality, bigger memory size, and although content producers and carriers live music streaming has been blunted longer battery life. New phone models will be challenged to monetize this kind by the high costs of transporting should also allow for wireless streaming of technology.

New Content & Applications • Search & Sample: Limitations of space easily search, download and sample are working with specialized mobile on the carrier’s home deck work against mobile music. As with the case search companies to implement a a rich content discovery experience, of games, carriers should not charge new kind of search software (similar especially when compared to online for downloading sample versions to Google Desktop) on their home channels such as iTunes. Carriers will of music. In the US, certain initiatives decks, thereby easing content discovery be able to sell more music if users can are underway. In one case, carriers of music.

12 Television Opportunities

New Business Models • Content Cross-Platform Bundling: add-on wireless content subscriptions • Mobile TV Off-portals: Content When mobile broadcast TV becomes at discounted prices. providers may be able to secure billing widely available, attractive pricing models agreements with wireless carriers • Ad-based Mobile TV Service: will need to be in place to encourage so as to create off-portals that offer Subscriptions alone may not be enough its adoption. Consumers may be reluctant branded TV content directly to end- to support mobile TV, especially since to pay for mobile TV when they have users. Using off-portals, content wireless carriers will demand a large share already paid for programming at home. providers could improve access to and of revenues from content providers, and Working with carriers, television content quality of mobile content, which to subscription fees have to be low enough distributors may bundle mobile with home date have been limited by carriers’ tight to unlock a mass market. To enable mobile access. For example, Sprint and its cable control over accessible mobile content. TV, content providers will have to pursue operator partners could offer wireless TV In the UK, BBC has demonstrated advertising, pitching wireless to advertisers at a discount to existing cable subscribers. the potential benefits of this strategy as a potentially highly effective medium Another possibility is that cable networks by developing a WAP-based off-portal for reaching and capturing the attention of such as HBO or ESPN could allow that is now visited by 28 percent of target segments. home TV service customers to acquire mobile Web users in the country.

New Technology Enablers • Advanced Networks: Existing 3G Verizon Wireless is deploying a mobile able to support as many channels as networks based on EV-DO and HSDPA broadcast TV network based on terrestrial or satellite-based networks. are not able to support high-quality Qualcomm’s MediaFLO technology, Wireless carriers may work with video delivery at economical prices. while Sprint plans to roll out a national handset vendors to incorporate content Fortunately, wireless carriers are mobile WiMAX network covering transfer and place-shifting technologies committing to the deployment of new 100 million POPs by the end of 2008. such as Bluetooth and Slingbox into broadcast and broadband networks next-generation phones, so as to enable • Content Transfer Technology: Mobile that will dramatically reduce the the transfer of TV content from cable broadcast television technologies price of mobile video distribution. or satellite set-top boxes, PCs and DVRs. face an important limitation of not being

New Content & Applications • “Made for Mobile” TV: Content producers as opposed to half-hour programs that leveraged brands from popular TV shows looking for a slice of the mobile TV are a mainstay of traditional TV content. such as “24” and “Prison Break.” For market may want to consider developing Producers have an opportunity to the latter series, Toyota reportedly paid “made-for-mobile” content. Mobile exploit branded, made-for-mobile content, $10 million for an exclusive, series-long TV consumers prefer short-length clips such as Fox’s “mobisodes,” which have advertising contract.

13 News & Information Opportunities

New Business Models • Ad-based Content: The difficulty launched a beta direct-to-consumer, carriers. Content providers may foster of most newspaper providers to charge ad-supported mobile news service. growth of their wireless sites by for digital content suggests that forming revenue-sharing deals with the • Partnership with Carriers: To date, advertising models will be necessary carriers. In such agreements, carriers wireless news and information content to support wireless news. Some would withhold data traffic charges to and services have not been very wireless content providers have already consumers in exchange for receiving successful, partly due to the started testing ad-based services: a slice of the ad revenues flowing into high data access fees charged by MSNBC.com and Action Engine have the sites of the content providers.

New Content & Applications • Personal Profile:Cumbersome and • Innovative Advertising Formats: • Time Sensitive Local Content: Information at times counterintuitive navigation Wireless ad formats will need to content and service providers could create routes undermine the effectiveness be adapted for the small screen if they new revenue opportunities by delivering of wireless Web content as a are to support news & information time- and location-sensitive information complement or alternative to physical content. Innovative new formats, such such as traffic maps, driving directions, and online news. Content providers, as “pay-per-click” for Web browsing, weather reports, flight schedules, stock wireless carriers and handset vendors or “pay-per-call” for some products, quotes and phone directories to could work together to improve would be more suitable for their compact consumers’ mobile phones. Such an end-users’ access to information by size and targeted nature. Ingenio, a opportunity is illustrated by wireless allowing individuals to customize pay-per-call provider, runs ads for directories provider Go2 Systems, which wireless Web menus, create bookmarks clients such as Microsoft Windows Live recently launched college-specific and use histories to track previously Mobile and AOL Mobile, commanding sites where users can search for local visited sites. rates as high as $8–10 per call. businesses, weather, movies and nightlife.

14 Implications Media & entertainment companies need to address specific opportunities and wireless carriers will each need to regarding the application of New Business undertake a series of initiatives, if they Models, exploitation of New Technology are to overcome the constraints that Enablers and development of New Content currently hinder mass-market adoption of & Applications. mobile content. Specifically, they will

Media & Entertainment Companies

New Business Models • Emphasize Direct Distribution users’ general unfamiliarity with most • Consider Subscription and and Off-Portal Partnerships: Media off-portals means their popularization Advertising-based Models: companies can strengthen their will depend on innovative and targeted Media companies that choose direct position in the wireless value chain marketing campaigns. For example, distribution will need to employ if they reduce their dependency on video game publishers could place different revenue models, depending carriers’ home decks for distribution TV commercials on targeted cable on the content. They should consider of their games, music, TV programs programs or buy insert ads in console pay-per-download, subscription, and news & information. Mobile game packages. ad-supported or hybrid revenue models.

New Technology Enablers • Exploit Advanced Networks: Media their content to exploit the relative porting of content across handset companies will want to commercialize strengths of MediaFLO, WiMAX models, as well as geographies. They more attractive versions of their content and upgraded 3G mobile networks. would benefit from reduced distribution to even more people once US network costs if they could sell their wireless • Lobby for Content Portability: Media operators roll out MediaFLO and content to any end user, regardless of companies should pressure handset WiMAX, as well as future generations phone or service provider. OEMs and mobile data platform of EV-DO and HSDPA. They should tailor providers to reduce the barriers to

New Content & Applications • Develop “Made-for-Mobile” which a small phone screen is a suitable popular as a large portion of Internet Content: To attract content consumers platform. searches are for directions, weather to the “Third-Screen,” media companies forecasts and other information that is • Develop Time- and Location- should place greater emphasis sensitive to time and location. Mobile Sensitive Content: Providers of news on specifically “Made-for-Mobile” phones represent an ideal platform for & information products will want to content. Examples include simple games accessing such “on-the-go” content, and place a special emphasis on time- with easy controls, music singles, media companies will benefit if they can and location-sensitive content. Such short TV episodes, news blurbs, stock harness the potential of mobile devices content has been proven to be very quotes and any other content for to relay this kind of information.

15 Wireless Carriers

New Business Models • Eliminate “Double-Taxation” agreements with content providers, revenues from content sold via external Perception: Wireless carriers should whereby they forego traditional data channels, off-deck. address customers’ frustration transfer charges on the expectation • Open up Home Decks: Additionally, with having to pay for data transfer that lower prices will drive sales volume carriers should open their home decks costs on top of content prices. Carriers and therefore increase revenues. to a wider range of content providers. should explore alternatives such as • Partner with Off-Portals: Carriers This may better prepare them to “all-you-can-eat” data plans. Carriers should pursue partnerships with online weather the challenge from off-portals. should also pursue revenue-sharing distributors to capture a share of

New Technology Enablers • Deploy Advanced Networks: allowing for more feature-rich content that combine large screens, intuitive Carriers should drive demand for at much lower prices. controls, expanded memory and longer content by accelerating the deployment battery life and also produce them • Develop Media-Friendly Handsets: of mobile broadcast TV and high- at lower prices. Carriers should push handset OEMs speed data networks. These networks to develop new advanced handsets will stimulate demand for content by

New Content & Applications • Improve Content Search Functionality: • Allow for Personalization: Carriers history. This has the potential to drive Carriers and handset OEMS need to work and handset OEMs should work wireless content consumption by together to improve search functionality together to develop user interfaces improving the browsing and shopping on handsets, so that end users can that allow end-users to customize experience on mobile phones. easily and intuitively locate the wireless their mobile phones’ content and content they want. Voice search may application decks, according to their be one approach for facilitating this. content preferences and usage

16 About the Firm Diamond (NASDAQ: DTPI) is a premier global management consulting firm that helps leading organizations develop and implement growth strategies, improve operations, and capitalize on technology. Mobilizing multidisciplinary teams from our highly skilled strategy, technology, and operations professionals worldwide, Diamond works collaboratively with clients, unleashing the power within their own organizations to achieve sustainable business advantage. Diamond is headquartered in Chicago, with offices in Washington, D.C., New York, Hartford, London and Mumbai. To learn more, visit www.diamondconsultants.com.

About the Authors Hamilton Sekino is a Partner in Diamond Telecom and High Tech practice. Hamilton has experience across North America, Latin America, Europe, and Asia in launching mobile operators and helping them grow through new technologies, new products, channels, and MVNO programs. He also has experience in generating growth for wireless handset OEMs, infrastructure vendors and media & entertainment companies through the introduction of new technologies, services, business models and strategic partnerships with mobile operators

Jamil Husain is a Senior Associate in Diamond’s Telecom and High Tech practice. Jamil has significant experience in the telecom, networking, and media & entertainment industries. He has collaborated with clients on MVNO market entry strategy, media & entertainment business opportunities assessment, organizational assessment, brand strategy, and word-of-mouth marketing strategy. Prior to joining Diamond, Jamil worked for telecom and networking companies on product development and business intelligence.

Sujit Acharya is a Senior Associate in Diamond’s Telecom and High Tech practice. Sujit has experience in sales & distribution, product and MVNO strategy for wireless & wireline operators in the US. In addition, Sujit has deep experience in defining product strategy & requirements for large Telecom vendors.

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