Bad news?

Thomas Husson | February 01, 2007, 09:59 AM

We recently issued the following press release .

It was interesting to see how some of the press coverage took a quite different angle from that of the actual release.

Few journalists said we were announcing bad news for operators, which is not exactly the case. Here is why:

- Many in the industry expect mobile content and entertainment to be mainstream. We don't. Well, to be precise the report says that the paying audience for mobile video/TV or mobile music will not reach mass market (that we defined as a penetration rate>50%). Reaching a critical mass (between 15 and 25% depending on services) of users effectively paying for services is not what I would call a bad news. Actually, we forecast mobile content to reach almost 8 billion euros (I am going to write it down differently: 8,000,000,000 euros) by 2011 in Europe, which will represent more than 8 times the current level of the ringtones market. Free content (music sideloaded from the PC, mobile video created by end-users) will co-exist with a premium model and with ad-funded services (not captured here).

- Personalization services such as ringtones and logos will struggle to move beyond the core youth market. Indeed, attempts to reach relatively older demographics have been unsuccessful to date, essentially because they answer the identity needs of tweens, teens and young adults. I am not saying you have an identity problem if you download a classic or a jazz ringtone!! I am only saying this will never be mainstream. Most new content category growth occurs at the expense of growth of traditional ring tone formats: young consumers have limited budgets. In addtion, third-party and pure-mobile players have relatively lower margins on real tones, tending to decrease advertising pressure that had stimulated the market as a whole. So, the market is maturing, which again does not mean there is no room for a limited growth for new innovative products.

- Messaging will continue to dominate European mobile services revenues. We did not say SMS. Actually we forecast a decline in SMS revenues. In revenues not in volume, which means that the volume increase will not compensate for the decrease in price. So, new mulitmedia services are finally being introduced (e-mail, IM) for the mass-market and in addition with the not-dead yet MMS, we do expect messaging revenues to increase in absolute terms, event though their relative share will decrease down to 72%.

- It does mean that mobile phones will remain a personal communication platform, even beyond voice. It means that at the end of day, it may be a good idea to implement sort of a "virtuous cycle" between messaging and content.
Consumers discovering new mobile Internet sites, new content, or interesting offers can send these discoveries to peers through mobile phones. Also, they can receive regular newsletters from content providers. The trend to send WAP push (i.e., SMS with a link to a mobile operators’ WAP site) is an attempt to replicate the succesful Japanese e-mail/i-mode cycle, and should be fostered. The fear that Bluetooth marketing could represent a new pirating issue for the music industry in the mobile space and the increase of consumer-created content are further highlighting mobile’s status as a viral marketing platform revolving around communication—like does the Internet (with e-mail representing the Internet’s main application).

Those forecast do not include data charges but only look at the premium mobile content and services market. So, it is true they will increasingly have to be shared with Internet players, media companies and content providers. But guess who keeps the data traffic revenues....
One final thing, the figures are for the European market which makes sense as a whole, even if still quite fragmented compared to the US. So, yes there are much lower than the dozens of billions you may have seen elsewhere...

So again, there is no doubt that the market will grow significantly in the coming years and that mobile phones will have a huge and yet unknown impact on our daily lives with new innovative services that have not even been conceived yet. I was told once that 3G was conceived at a time when GSM was not even launched commercially. It seems to me the same is happening today with 4G or 3G Long Term Evolution. But let's keep both realistic and optimistic: build the foundations first and the house second. Give consumers HSDPA handsets, revamp data tariffs, educate the market, create a sticky audience (yes mobile Internet use is increasing but no the 15M+ monthly unique sessions on the likes of Vodafone Live, Orange World, 02 active and i-mode does not necessarily mean mobile Internet is mainstream in the UK) and then monetize it.

This was a very long post but my last one before 3GSM since I am gonna have a short break to look after winter sun in some remote French Islands...:-)

So, see you in Barcelona