Welcome to the Telecoms Hothouse - a series of debates staged exclusively for TelecomsEurope. Each Hothouse debate will feature comment, analysis and opinion from a panel of industry experts
The first Telecoms Hothouse, held in London last month, focused on mobile entertainment - setting the scene for one of the key discussion points at this month's 3GSM World Congress in Barcelona.
Taking part were senior representatives of the GSM Association, MTV, Motorola, Everypoint and the Mobile Media Company. Neil McCartney, a regular contributor to the Financial Times and a respected media analyst, was on hand to take notes as the panel debated the mobile entertainment business model and looked for the silver profit lining.
The growth and profitability of the market for mobile entertainment is currently hampered by the uneasy nature of the relationship between the mobile operators and the content providers - at least that's one conclusion you could draw from last month's Telecoms Hothouse debate. Happily, the overall conclusion was that these problems can and will be solved.
Bill Gajda, chief marketing officer of GSM Association, said that his organization recognized the need to find better ways of engaging with the mobile entertainment companies, to the extent that it was thinking of inviting some of them to become members.
He also reminded the panel that the association's main challenge in the area was to ensure that the principles of roaming and interoperability, which had proved so successful in spreading the GSM technology in the first place, were maintained as the industry moved from voice to a mixture of voice, data and multimedia services. 'The stakes are a lot higher and the technical challenge is much greater,' he said. 'But quite frankly so are the rewards.'
Gajda said that the association would continue to push for uniform standards for the delivery of mobile entertainment services. He acknowledged that not all of the individual operators agreed with this approach - particularly those which were continuing to use walled gardens. 'But I think they will come round to it.'
He argued that it was essential for both sides to come together to reach agreement on issues such as digital rights management, codecs, billing principles and termination principles. 'This is what is really going to get this thing off the ground.'
But other participants questioned the need for mobile operators to move so far into the entertainment area at all. Simon Rockman, creative experience director of Motorola, pointed out that fixed-line telephone companies had traditionally not been involved in content and that ISPs had got their fingers burned when they tried to get into this sector. 'Can't mobile carriers just be carriers‾' he asked.
Gajda rejoined that mobile operators had a much closer relationship with their customers than did their fixed-line counterparts due to the personal nature of the medium and the handset-centric nature of the industry, which had in turn led to the development of a retail environment for distribution. Moreover, the operators' control of the SIM card, which provides the user with connection and identity, helped to place them firmly at the centre of the mobile business model in a way that their fixed-line equivalents were not.
Angel Gambino, VP of commercial strategy and digital media at MTV Networks UK and Ireland, accepted this but added that she, from a personal point of view, was worried about some of the more grandiose ideas that some operators had about their role in the mobile entertainment value chain.
She argued that the development of a successful mobile entertainment proposition was a very difficult thing to get right. But some operators appeared to think that it was a lot easier than that. And some appeared to be ready to make the job more difficult by pushing for a bigger share of customer revenue not only from content but also from mobile advertising, sponsorship and other revenue streams.
Gambino pointed out that MTV's current relationships with mobile operators were not that different from its relationships with broadband ISPs or even from its traditional television carriage deals. 'Perhaps we need to look at how to treat those relationships differently,' she added, 'in order to get more out of the revenue that is generated or to optimize the experience for the consumer.
'The relationships or partnerships that are struck between the operators and the content providers need to work really well. There needs to be a common language adopted by both so that we both understand what we can bring to the table to maximize the revenue that is generated and to develop an easier, compelling and hopefully even addictive experience.'
Gambino predicted that whereas MTV gained benefits from the walled-garden approach, the coming year would see a trend away from this. 'There will be a myriad of ways in which we will want to connect with the consumer. The operators have to recognize that this is going to happen. They can try to work with us or they could find themselves in a tricky spot, more foes than friends.'
Gajda agreed that it was essential for all sides to work on ways of improving the consumer experience and enhancing the amount of revenue generated. In respect to the latter point, he noted that the mobile industry has a number of unique advantages over other distribution media. It offers a ready-made and efficient micro-payments system for sums as little as 10 cents. And it provided a built-in security system that ensures that the medium was safe, private and personal.
But he added that the special aspects of the mobile channel also made it different from other media in terms of revenue share and that this lay behind the drive for operators to seek a cut which entertainment companies might see as disproportionate. On the one hand, spectrum was precious - the most precious resource for the mobile operator. On the other, the security aspects of the mobile channel existed only because the operators have spent a lot of money on developing these. 'Had the Internet and other channels done this, we would probably be a lot happier,' he argued.
Marc Theerman, chief marketing officer at Everypoint, agreed that spectrum was valuable but argued that it should be billed for through traffic charges rather through revenue share. He accepted Gajda's point that in some cases there might be an argument for setting a charge according to the perceived value of the content to the customer rather than the number of bits actually required to deliver it. So the user might, for instance, be willing to pay more to receive a picture of her daughter than they would for another message requiring the same capacity.
But Theerman argued that this should apply only to user-generated content and not to other forms. 'If MTV spends internal resources on creating a mobile episode,' he said, 'why should they pay the operator any revenue share on this beyond what they would pay Visa or Mastercard‾'
Gajda responded that since operators possessed only a finite amount of spectrum they might not want to carry other people's content on this basis. 'If I, as an operator, am deriving a certain amount of revenue from my own content - which has been developed internally or through an exclusive partnership - why would I want to use valuable spectrum to allow competition from someone else's content from which I get less‾'
Learning from cable
Vanessa Vigar, VP of communications at Mobile Media, argued that the mobile operators should be seeking to work more in partnership with the content companies and to take advantage of the latter's detailed knowledge of the entertainment world. They should take a lesson from the experience of the cable companies, stop trying to be all things to all people and accept that it was the branded channels that were going to drive the market.
She pointed to the example of her own company's success in running a games channel for 3 Italy which was the most successful service on the latter's platform after adult channels. 'But even we don't yet know what is going to work,' she said. 'Surely the operators should be trying to open this up, to keep the rates so low that there can be a range of content and we can let the users decide.'
'The walled garden is a nice area and is easy to find,' she added. 'But make it easy to get out of as well.'
Vigar accepted that it was not possible to market everything to everybody and that there had to be some form of niche marketing. But here too, the operators should be taking more advantage of the skills of the entertainment companies that have much more experience in this area.
Gambino agreed that it was important to recognize the power of the brands. 'There are consumer expectations about what you can get from certain brands,' she said. 'Their relationship with the mobile operator is more to do with price and service quality.
'Initially we are going to see consumers gravitating toward the brands that they love,' she argued. 'With the operator, there isn't a direct, immediate, emotional connection for that content experience. The consumer sees it as simply an access mechanism. We don't spend enough time talking about the branded experience and how that is going to drive the mobile entertainment industry.'
Rockman challenged the idea that spectrum was in short supply. He noted that the advance of technology meant that the mobile industry was becoming evermore adept at finding usable spectrum. He added that 'while spectrum may be finite, bits are not,' pointing out that the amount of capacity that could be derived from a particular amount of spectrum was simply a function of processing power and as such was susceptible to Moore's Law.
Gajda accepted this but argued that there was still the underlying principle of the mobile premium - that people were willing to pay more to use services whenever and wherever they wanted and to do so in a secure, private and personal environment. 'The operators argue that they have created this environment through some fairly risky investments,' he said. 'They want to extract most of the value from that.'
Gambino responded that while everyone would agree on the existence of the mobile premium, and in particular on the importance of the ubiquity of access, the operators did not need to seek an excessive share of content revenues to get fair recompense.
Gajda agreed that many operators were looking at moving in this direction, but pointed out that in such cases the price of the bundle would not represent a pure capacity payment, since the charge would include a specific element for entertainment access.
Theerman argued that while ubiquity of access was currently the most important element of mobility, it was important to take into account its other special aspects as well. 'Unlike with other devices, you are always on the go,' he said. 'We need to think about where we can take our brand and what it means on the mobile. We have to think about giving the consumers even more, not just access to existing content.'
Gambino agreed, noting that MTV had already been particularly active in the creation of made-for-mobile content. But she added that this requires a lot of money and resources, and that this could be difficult to justify when the operators were often unwilling to provide the required customer information.
'The operators are notorious for refusing to share information,' she pointed out. 'I can understand why that might be, but it really does restrict the creative process. Either they will have to provide a lot more information or else many entertainment companies will continue to see mobile as a means for distributing existing material rather than for content made specifically for mobile.'
Vigar added that some of the difficulty arose from a difference between mindsets. 'For instance, the entertainment companies talk about audiences and the operators talk about subscribers,' she said. 'We need an approach that is more partnership-based. And we need more openness and clarity.'
Gajda argued that many of the problems expressed around the table should be seen as the growing pains of two industries that would eventually be resolved by bringing together the elements that had been successful in each of them. 'There will be enough to go round once we have established the rules of the road,' he said.
'Once you have done this, it all takes off,' he added. 'Look at SMS. That should be the poster child in terms of new services for this industry. We need to establish global standards and to instill the principles of roaming and interoperability. We said this to the mobile operators about MMS and we are saying the same thing about mobile entertainment.
'The most important thing I will do this year will be to formalize my mobile entertainment advisory group to bring the leaders of the two industries together to define the rules of the road. When we have done that, everything else is possible.'
Telecoms Hothouse debate topics are chosen by the Hothouse editorial panel: Ian Channing, the editor of TelecomsEurope; Alan Cane, senior telecoms editor of the Financial Times; Neil McCartney of McCartney Media; and Kevin Taylor, the Telecoms Hothouse director.
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