Mobile video: Is there a there there?

[Reposted due to a correction. Sorry if you get this twice on your feed.]

I recently I spent a couple of days at the Global Mobility Roundtable, an annual conference that brings together mobile-related academics and a selection of people from the mobile industry. This year's conference was in Los Angeles, so it also drew a number of attendees and speakers from the major entertainment firms. It turned into a kind of a mobile meets entertainment event, and the results were interesting. Mostly, they underlined how far we still need to go in bridging the gaps between the tech industry, mobile, and entertainment.

There's a lot of information to cover, so I'm breaking this post into two parts: mobile video in this part, and in part two the status of mobile data in general and the relationship between Hollywood and the operators.

Is there a pony in the stable? If so, it's a very small pony.*

There was a lot of disagreement about whether mobile video will take off, which may be just as well because the economics of it are seriously dodgy. It's not certain that users really want it, no one knows whether the revenue will come from sponsors or from user fees, and even if video does take off, it's not at all clear that the mobile operators can deliver it without bankrupting themselves.

Other than that, the prospects look great.

One panelist compared the situation in mobile video to a company running a health club: they want to sell a lot of memberships, but they don't want anyone to actually use the facility.

The information below is drawn from a series of different sessions I attended. I've mashed them together so I could organize the information by topic. All quotes are as accurate as I could make them. They are definitely correct as to message, but I probably missed a few words here and there.

Who wants mobile video? A segment of the market.

There are plenty of people in the industry who are enthusiastic about mobile video. One presenter quoted Rob Hyatt, executive director of mobile content at Cingular, as saying, "Watching video on cell phones could eventually easily surpass [demand for games, ringtones, and wallpapers], to reach 100% of the population." That's pretty remarkable, since even SMS doesn't reach 100% of the mobile population yet. (You can find the original quote from BusinessWeek here).

Telephia, a mobile industry research firm, reported that revenue from mobile video is growing rapidly, from $35m in Q3 2006 to $146m in Q1 2007. In that same period, the number of mobile subscribers in the US using video services grew from 5.7 million to 8.4 million (for comparison, there are 77 million MMS users and 148 million SMS users). The Telephia numbers imply that revenue per video user has grown from $2 per month to $5.80. Unfortunately, they didn't give any details on which particular services are growing.

The base is still very small, so it's dangerous to extrapolate from those numbers. But they're definitely hopeful. A number of other speakers were much less optimistic, though.

At the conference, USC presented the results of the sixth annual Worldwide Mobile Data Services study. It showed that about 30% of 18-24 year olds and 20% of 25-34 year olds in the US felt that video downloads to mobiles were an important feature, about the same percentage as wanted games on their mobiles. That's nice, but not the universal usage that Cingular talked about.

Sanjay Pothen, CEO of Pliq (a mobile video production company), claimed that 44% of mobile users are interested in mobile video -- but only 4% are willing to pay for it. That's the typical pattern for mobile data features -- most people don't want them if they have to pay anything for them.

Frank Chindamo, CEO of Fun Little Movies, which produces short video for Sprint, asked the audience how many people in the audience had Sprint phones. About five people raised their hands. "If you all subscribe, that will double our revenue for next month," he joked. [For the record, Frank asked me to make clear that he was only joking; he says he's actually quite happy with the Sprint relationship.]

Is the glass half full or half empty? As I've said before, I think there's abundant evidence that the market for all mobile data products is highly segmented, and we need to learn to make money from products that appeal to ten or fifteen percent of the users. I heard nothing at the conference to change that view.

But overall demand for mobile video is just the beginning of the story...

What sort of video will people watch on mobiles?

This one is still very much undecided. The usual assumption is that because short video is popular on the Web, it'll also be popular on mobiles. For example, Funny Little Movies is creating original short animated films for mobiles. (The place is run by a USC film professor who has his students create a lot of the content.)

Pothen of Pliq said the ideal sort of video for mobile is neither short individual clips (like YouTube) or long-form video (like a TV show), but chunked content -- an engaging story told in two-minute segments. He said excerpts from reality shows can work well -- highlights from America Idol, for instance. But original content seems to be his main target: soap operas, telenovelas, and cooking for young women, comedies and dramas for young men. The goal is to get people hooked by an ongoing story so they'll keep coming back to watch every segment.

Derek Brose, SVP of business development for Paramount Digital, was also excited about short video. He said the company is cutting all its movies into clips of different lengths, for various mobile usages. Two second clips -- something like Harrison Ford saying, "trust me" -- are for embedding in an MMS message. Twenty second clips are for use in ringtones. Two minute clips are for streaming your favorite scene from a movie. Paramount's goal is to teach consumers a variety of different things that they can do with mobile video.

But some people were skeptical about the prospects for short video on mobiles. Bill Sanders, VP of mobile programming at Sony Pictures, said that in Japan people are watching broadcast TV shows on their mobiles rather than short video streamed over 3G. He said 3G in Japan is great for certain kinds of applications, such as e-wallet. But he said data is priced so high that streaming video barely exists on 3G at all.

"The only thing you find in 3G is porn, because it's the only form of video where people will pay $10 for three minutes of content." --Bill Sanders, Sony

USC's mobile survey also strongly implied that the biggest demand is for broadcast TV. More than 40% of users said they thought that was the most interesting type of video for a mobile, compared to about 20% for short video.

David Tilson of Case Western University supported that view. He said that in a UK test of DVB-H (a broadcast video standard for mobiles), users watched three hours a week of television on their mobiles, with viewing concentrated in the lunch break and commute hours. That's very intriguing, because it implies that mobile video might add new television viewers at times when people don't usually watch TV. Unfortunately, the users were not charged anything in the test, so it's very hard to tell how much usage mobile TV would get if operators started charging for it.

I have no clue what the answer is on this question. People may say they prefer broadcast television just because that's what they're used to. Their actual purchase behavior might be very different. I think price will make a huge difference in adoption, which brings us to the next subject...

Who will pay for mobile video?

You've got two choices -- users pay, or advertisers pay. There are good arguments on both sides.

Sanjay Pothen of Pliq made an interesting case for having the advertisers pay. Since his company is involved in that business, his argument was not a surprise, but it was still interesting.

Pothen claims that neither paid nor ad-supported video are taking off today in the mobile world. As I noted above, he said few users are willing to pay for video, which stops the user-funded scenario right there. But ad-supported video is also problematic on both PCs and mobiles because users are not very tolerant of watching even a short commercial in order to see a two minute video. So what Pliq does is build the sponsor into the video itself, through placement and other promotion within the video.

Pothen said advertisers are willing to pay significant sponsorship fees for these videos. He wouldn't go into details on his financials, but someone I talked to privately said the revenue can be dollars per viewer for a three-minute video. That's impressive, and far more than you could charge a viewer for a few minutes of video.

Unfortunately, Pothen said, the operators want to take 50% of the revenue from these videos. He said that's not acceptable, that the revenue split should be more like 20% of revenue to the operator. "If we work in collaboration and the walled garden is down, we're willing to create original content (for mobiles)....We can drive mass adoption." But he said that won't happen in the current revenue situation.

My take: I don't think it has to be one or the other. Apple's selling a lot of video downloads to iPods, and that won't just dry up. But I think it's going to be very hard to make paid downloads the leading mobile video product, because they'll be competing with free video from places like YouTube, and because ad-supported TV teaches people to expect their television for free. Besides, if advertisers really are willing to pay dollars per viewer, there's no need to make people pay.

The revenue split is an ongoing problem in every mobile data category. There's no immediate solution, at least in the US. I think we're stuck in a chicken and egg situation in which the revenue split discourages the kind of programming investment that might drive a lot of usage, thereby justifying a more generous split.

That may be just as well, though, because video might break the mobile networks if it did take off.

Can mobile video be delivered?

This was the most disturbing topic of all. Even if we can find the right users, the right product, and the right pricing scheme, most of today's 3G networks are not well suited to delivering video.

Tilson of Case Western quoted some very sobering statistics on the economics of mobile video. He said one megabyte of data delivered as SMS messages yields £268 of revenue to an operator in the UK. That same megabyte delivered as video yields 20 pence of revenue, roughly 1/1000 the revenue. Of course, a single user of video is much more likely to consume a meg of data than is an SMS user, so the billing per user might still be fairly good. But video quickly exceeds the capacity of a typical 3G data network. He said no more than six viewers per cell can watch video at one time, and if 40% of users on a typical 3G system watched six minutes of video a day, they would saturate the entire network.

Hardly the basis for achieving Cingular's dream of 100% viewership.

Some of the operators at the conference confirmed this perspective. Francois Thenoz, Director of Strategic Marketing at Orange, said it takes seven minutes to download a 60-90 second video clip on a standard 3G network. 3G "evolved" takes 90 seconds (so you can just about stream in real time). The CDMA 1X network I use to connect my notebook PC is a lot faster, but GSM is the standard for most of the world, so his point was that in most places the wireless network simply isn't ready for video.

Higher-capacity networks are in development, of course. But Tilson said that in the UK, spectrum for a DVB-H wireless video system won't be available until 2102 at the earliest. That implies that for the next five years, mobile video in the UK is more of a science experiment than a serious commercial project.

In the US, the functional equivalent of DVB-H is MediaFlo, which is already deployed in Verizon's VCast system. MediaFlo transmits video one way, using a separate wireless signal, so it gets around the network saturation problems you get in 3G. Similar systems are already being used in Japan and Korea, and reportedly account for most of the mobile video usage there.

A drawback of the broadcast technologies is that they're not streamed on demand. You watch whatever's been programmed at that time. It's like a cable television system, but with far fewer channels. Tilson said one driver of mobile video usage is the availability of a lot of different programming, so limits on the number of channels might eventually restrict usage.

The other challenge for broadcast systems like MediaFlo is that they compete with people using SlingBox or similar products to retransmit their home cable television signals to their mobile devices. "Why get HBO Mobile when you can already get HBO home slinged to your phone?" asked Sanders of Sony. He pointed out that the Three network in the UK is bundling Sling services with its flat-rate 3G service offering.

"Three is like an airline that just bought a bunch of 777s and now they're flying with a bunch of empty seats," replied Brose of Paramount. He claimed that Three has to be betting that video usage will grow slowly enough that faster data networks will be available before the usage of video saturates the network.

The "encoding nightmare"

Then there's the question of standards. Unlike the PC, there aren't one or two video standards for mobiles. Because of the huge array of different screen sizes and software environments, a company that wants to stream video to mobiles supposedly needs to encode it in up to 150 different formats (seriously, that's the figure I was given by a couple of people). An executive I talked to called this the "encoding nightmare." Some companies are starting to offer server appliances that encode the video in real-time from one or a few base formats. But this adds expense to the business model, and real-time encoding is not as high-quality as pre-encoded video, especially if you're trying to compress the video heavily -- which is exactly what operators need to do in order to conserve bandwidth.

What does it all mean?

I think there's a role for mobile video, but considering the limits on user interest, and the huge technical and business challenges, it's not going to be the great horizontal application that drives the mobile data market. At best, it'll be a nice add-on for entertainment-focused users who want video in addition to their MP3s and games.

*This is a reference to an old joke about a boy who desperately wanted a pony. One day he saw a stable stall full of manure, and began furiously shoveling it out. "What are you doing?" his parents asked. "Well," the boy replied, "with all this manure, I figure there has to be a pony in here somewhere."


M said...

Well, in denmark where I come from both 3 and tdc (The old national monopoly) have been selling TV streaming (The normal regular channels live) over 3g for some time.

You pay a fixed amount to get access but no charges for data.

It seems to work pretty well for them.

Anonymous said...

"Don't be smarter than the market"

Mobile Video will be a big thing - along with many other big things.

I, as an example, currently watch news every morning while commuting to work (streamed over 3G to my N95). Works like a charm.

When travelling on airplane, I watch Divx movies, same screen (when not playing games / writing emails with bluetooth keyboard).

DVB-H services have just been launced here in Finland. Beautiful.

People who say that mobile video will not take off are the same telco execs or other wiseguys who told me back in 2000 that ringtones will not take off in (add country here) because why would anybody pay 1eur for a lousy tune? Or when I was told that it's stupid to pay money for virtual furniture ( List goes on and on.

I say: "let the end users decide".

Michael Mace said...

Ahhh, excellent, information from real users -- a perspective that was pretty much absent from the conference.

Please give us more information. How much are you using video on your phones, when do you use it, and what sort of video do you watch?

Thanks for posting.

Anonymous said...

Hi Michael:

Whew.. alot there to chew, but would humbly suggest that 1Seg. is doing just fine here since roll-out about a year ago now.

- The service is free with the telco getting 3G data traffic revenues from the embedded menus.

- The signal comes via same (existing) terrestrial broadcast network so no issues on bandwidth.

- Est. 30mln enabled handsets shipped already, about 30% of market share, and we def. see users watching in public places.

- The digital image quality is really great with almost Zero block-noise and signal strength is certainly much better than the original analog reception we 1st saw back in 2003

It would certainly seem worthwhile for some of these events to have delegates on-hand who could provide this sort of advanced info. 8-)


Wireless Watch Japan

Michael Mace said...

Thanks, Lars. Excellent stuff.

>>Whew.. alot there to chew

That's why it took me so long to write it up. The second part of the post is going to be even longer, unfortunately. But I think there will be some good tidbits in it.

>>The service is free with the telco getting 3G data traffic revenues from the embedded menus.

Wow, completely free? That's the way to build a mass audience. The folks at Pliq would love that.

>>Est. 30mln enabled handsets shipped already, about 30% of market share, and we def. see users watching in public places.

Very impressive.

>>It would certainly seem worthwhile for some of these events to have delegates on-hand who could provide this sort of advanced info. 8-)

Well, as usual, things are more advanced in the mobile world in Asia.

I'm starting to believe we should think of mobile video as two totally different things -- broadcast and streamed. They seem to be on different paths and have different dynamics.

Bill Sanders said...

Broadcast/multicast TV over a separate non-cellular network (such as DVB-H in Europe, MediaFLO on Verizon in the US, or the terrestrial system in Japan) is a very different animal from streamed-on-demand, downloaded, streamed looped or PPV formats delivered via 3G. The Japanese porn reference was to the latter format, which in Japan is referred to as "mobile video" and very overpriced, as opposed to the broadcast model, which they call "mobile TV". However, the broad/multicast model is a 70-year-old breed, wih limited number of choices, driving the most eyeballs at the same time to the same program to attract advertising revenues. Will it thrive in today's 1000-channel, You Tube-crazed, personalized, DVR-spoiled TV watching universe?

Anonymous said...

Hi Michael:

Indeed the current 1Seg broadcast content I mentioned is totally free while there is a 3G data back-haul opportunity for telco and content owner micro-revenues. It would be a fair guess that we'll see the 30% installed base growing rather dramatically over the next year or so as more models are available and considering typical handset ownership churn rates.

Indeed the broadcast vs. streamed channel distribution method might best be noted seperately in order to make fair comparisons.. maybe by the time we start seeing 4G rolling-out, with majority adoption, those lines will start to blur.

I'm looking forward to part 2.. your observations are interesting as always!

Hi William:

Your point's duly noted, although it's at least somewhat predictable that mass usage for starters at least is coming from regular tv-style content consumers who are not typical utube content junkies. As you may know the current trial license for broadcasters, which requires that only the exact same content broadcast for television can be made available to mobile, will expire in spring 2008. The space will have had a chance to mature by that point with perhaps closing 50% of the user base carrying enabled handsets.. it will become much more competative after that point.

It will be interesting to see if Qualcomm and their open to all broadcaster MediaFlo model will manage to get spectrum in the coming months as the ministry recently dealt an un-expected blow to their lobby partners which has left everyone scrambling for a new strategy.. stay tuned 8-)

Anonymous said...

I've noticed an interesting article (in Italian) about the state of Mobile TV in Italy:


Anonymous said...

Tilson said that in the UK, spectrum for a DVB-H wireless video system won't be available until 2102 at the earliest.
WOW! 2102
I don't know if i can wait 95 years?