Verizon Wireless revs up mobile video

The telecommunications giant announced Wednesday that starting in early December it will offer content from the video-sharing Web site Revver, a YouTube competitor that allows users to upload and share videos, as part of its V Cast video service. The deal came a day after the wireless operator, jointly owned by Verizon Communications and the European giant Vodafone, announced that it would offer clips from video heavyweight YouTube.

At the heart of Verizon Wireless' newfound enthusiasm for hip video-sharing sites is a big need to entice its 57 million subscribers into spending an additional $15 per month for its mobile-video services, which would help make big investments in so-called next-generation high-speed networks (also known as 3G networks) pay off.

Verizon Wireless and other big mobile operators like Sprint Nextel have spent billions of dollars building these networks, and now they need to generate revenue through new services such as paid video. Certainly, these 3G networks are also ideal for carrying other data services such as mobile e-mail. But using them to deliver music and video wirelessly is a much sexier concept to sell to consumers. The hope, of course, is that user-generated videos will help goose what has so far been lackluster demand.

"Watching video on a mobile phone is still a niche application," said Jill Aldort, a senior analyst with Yankee Group. "It's still too expensive. I don't think we are at a point in the market right now where users find it compelling enough to spend $15 more a month on 24/7 video."

According to IDC, only 6.9 million, or 3 percent, out of 230 million mobile-phone subscribers in the U.S. are expected to view video on a mobile device by the end of 2006. And even though that number is expected to grow, analysts don't believe mobile TV watching will hit the mainstream anytime soon. By 2010, IDC predicts that only 9 percent of cell phone subscribers in the U.S. will tune in to TV on their mobile phones.

By contrast, roughly 46 percent of subscribers sent or received a text message via SMS in the past three months, according to IDC. That figure has nearly doubled in the past two years.

Like the deal with YouTube announced on Tuesday, Verizon Wireless doesn't plan to make the entire catalog of videos on Revver available to its V Cast customers. Instead, only a subset of Revver's videos will be available. Revver editors will select video clips each week to be used on the V Cast service. As it does with YouTube, Verizon Wireless will have a period of exclusivity as the U.S. mobile distribution partner for Revver.

Revver differs from YouTube and other video Web sites because it actually allows content creators to share in the revenue generated by airing advertisements along with the videos. The company plans to extend its revenue-sharing relationship with content creators on the mobile platform, too. But because V Cast does not include advertising, Revver will share the fees Verizon Wireless pays for access to the content with the video creators.

When the new V Cast YouTube and Revver channels are launched in December, they will initially allow subscribers to view video clips. Down the road, the company expects to let users upload videos directly from their phones to the YouTube and Revver sites.

The addition of the YouTube and Revver content to V Cast adds another dimension to the service that launched in the spring of 2005. Initially, Verizon offered video clips from major TV networks such as NBC. Then it added video clips from cable stations such as Comedy Central. Now it is offering content from popular Web sites.

"Short-form video suits mobile," said Robin Chan, associate director of entertainment programming for Verizon Wireless. "There is also synergy between broadband consumption and watching video on mobile phones. And we view this as a new form of entertainment that we can make available to our subscribers."

Verizon charges a flat fee of $15 per month for its V Cast service, which includes access to downloads of video, music and games. The mobile operator began offering a special 24-hour subscription in October for $3.

Verizon's prices are actually cheaper than what other providers, such as Sprint Nextel, charge for mobile video. Sprint, which was the first company to offer video service on its mobile phones, includes some video as part of its Power Vision data package. These packages offer different levels of access to video content and range in price from $15 to $25 per month.

Sprint plans to offer an additional 40 channels of mobile TV to customers who buy service through its joint venture with cable operators Comcast, Time Warner, Cox Communications and Advance/Newhouse Communications.

Just like with Verizon's V Cast and Sprint's Power Vision services, mobile subscribers from the Sprint/cable joint venture will also be expected to pay an additional $15 a month for access to some of the same TV content they already watch at home as part of their cable TV package.

And herein lies the problem that carriers face in getting people to watch video on their phones, say analysts. Why would people pay a hefty monthly fee to watch the same TV programming they already get as part of their cable TV package at home or that they can access for free on the Internet?

"While YouTube may be very popular on the Web, it's also very free," said the Yankee Group's Aldort. "So I don't see people signing up for V Cast to get access to this content."

If mobile operators truly want to entice mainstream consumers with their video services, they will have to change their business models, said Iain Gillott, founder of iGillottResearch. Instead of putting the cost burden on consumers, carriers need to find a different way to pay for the service.

"They have to flip their business models around so that the service is advertisement-driven rather than subscription-based," Gillott said.

While mobile operators have begun experimenting with text-based advertising, they have not introduced any advertisements into their video services. But that could change.

"Advertising is something that we think about a lot," Chan said. "We want to make sure the experience is optimal. And when the time is right, we will consider how or if we add advertising."

For now, some analysts, like IDC's Lewis Ward, believe mobile operators don't need to lower prices because they can still generate a significant amount of revenue from the higher priced services.

"It may always remain a niche service, but they'll make money from it," he said. "The ARPU (average revenue per user) on video is about $6 or $7. So it doesn't take deep penetration to generate the same amount of cash it would take with a lower margin service, like SMS text messaging."