The clash over content delivery

Content providers and mobile operators could collide over who markets directly to consumers.

Who would have thought that something as silly as a sputtering, animated frog could become a top-selling ring tone and wallpaper image throughout the world and prompt the release of a top 40 song?

That's exactly what happened to Jamster's ringtone Crazy Frog, whose popularity in Europe spawned the hit song "Axel F," which reached No. 1 on the U.K. singles charts. The ring tone has been marketed widely not by a particular mobile operator but by Jamster itself, which advertises the ring tone on instant messaging windows, Internet sites and TV advertisements.

Mobile content developers in the United States, meanwhile, are following their counterparts in Europe as they look for ways to market their ring tones, wallpapers, songs and even TV shows directly to customers.

Currently most of the mobile content downloaded to phones in the U.S. comes from a mobile operator's own portal. Carriers such as Verizon Wireless, Cingular and Sprint Nextel strike deals with individual content providers and list the offerings in a nice easy-to-use menu that appears right on the cell phone's screen. Wireless subscribers search the menu and purchase the content they want. Customers are then billed directly through the carrier's existing billing system.

But a growing movement is afoot among content providers to market their content directly to consumers so that they can buy ring tones, music and other digital content from the providers' own mobile portals instead of going through the carrier's portal. Because content providers typically pay anywhere from 25 percent to 30 percent of the revenue generated through the carrier portal to the operator, some of them are thinking of ways to bypass carriers altogether. The trend has already begun in Europe. News Corp., for example, is marketing mobile content from two of its print titles--The Times (London edition) and The Sun.

"There's a battle brewing," said Albert Lin, an analyst with American Technologies Research. "Content owners are starting to want direct access to their customers without having to pay an intermediary. But the carriers feel they have to be the intermediary because that's a huge source of profit for them. They also are afraid that direct access to content could spawn higher churn, and they want to control the quality of the user experience."

Mobile operators in the U.S. have spent billions of dollars over the past few years building new 3G wireless networks to handle emerging data services. And as the networks are being completed, they are faced with the challenge of filling these fat pipes. By owning the portal, they are strapped with the responsibility and cost of marketing the new services and the content that they offer. Direct marketing from content providers could help them fill the pipes faster.

There are roughly 180 million cell phone subscribers in the U.S. today, but only about 74 million currently buy content for their phones, according to Bango, a company that helps mobile brands get paid for content they market directly to consumers. The remaining 106 million mobile consumers who are only using their phone's voice services could turn into data customers down the road.

Expanding a brand
This is a highly coveted market because on average people who subscribe to data services typically outspend voice-only subscribers by about $6 per month. And some users who become regular content grazers will often spend up to $20 per month on content they've downloaded onto their phones, according to Bango.

"There's a battle brewing. Content owners are starting to want direct access to their customers without having to pay an intermediary."
--Albert Lin, analyst, American Technologies Research

Key brands in the U.K., such as Channel 4 New Media, the creator of the successful British reality show "Big Brother," have already seen great success. The TV channel launched a mobile portal back in May to coincide with the launch of Big Brother 6.

The site combined the best elements of the official "Big Brother" Web site, plus exclusive Big Brother content. It got viewers to log onto the site by showing short SMS text codes at the end of every show. Once on the site, fans could read news stories, information and gossip on the housemates, view live video clips and download ring tones and games around the "Big Brother" brand.

Channel 4's mobile Web site was developed by a company called Volantis, which also hosts the portal. Using the Volantis technology, the portal could recognize more 1,300 different mobile devices to generate content specifically formatted for each device.

It's easy to see how brands in the U.S. could also benefit from direct marketing. MTV and its sister channels, such as Comedy Central, have already started offering some of their content directly to consumers on their regular Web sites.

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