How the mobile revenue-share model could work for content owners

Michael Goldstein

With more than 1 billion mobile phones now in use, it’s no wonder video content owners have been sold the dream of a flawed business model-revenue share in the mobile space.

Mobile operators and off-deck distributors are desperate for content but do not help content owners recover costs in ways that are reasonable. To put it simply, content owners have been left holding the bag.

Revenue share is about risk mitigation. Operators are comfortable mandating this model as it represents a low-risk opportunity for them to push data regardless of the content quality (or lack thereof). Similarly, the huge interest in user-generated content works for operators, since access to this content is cheap, low-risk and provides the data usage path they seek under a revenue-share model.

“We understand that carriers who build multibillion dollar networks need strong margins on services to cover data costs and garner real ROI. No argument,” says Daniel Tibbets, head of Studio for GoTV Networks. “But we also need strong margins in order to cover programming, porting and other very real costs of our own. Without that, the carriers won’t see quality. The industry is crying out for a stronger economic system.”

“The dominant revenue-share model starts with the carrier,” notes Matt Feldman, CEO, Versaly Entertainment, an aggregator in the mobile space. “Add to the mix third-party billing partners, and each step has a net 30 payment terms. Each hand in the pot moves the payment date out another 30 days until it reaches the original content owner, which can often be 150 days out.”

The carrot is that if a content owner can bear the payment delays, they can see strong recurring revenues in mobile. Even then it’s unclear what revenues a content owner will see, as operators and aggregators do not pay upfront licensee fees, minimum guarantees or provide any meaningful accountability against which content owners can bank on. Despite this, “some companies are throwing a lot of money at mobile TV,” says Bill Sanders, vp of Mobile Networks Programming at Sony Pictures Television International. “Some are being more opportunistic, trying to leverage existing assets without committing many resources to a still unproven business.”

As advertisers seek to engage targeted audiences, the general belief among panelists of the recent CTIA Wireless and Digital Hollywood conferences is that consumers will be paying for content in ways they never imagined, but not necessarily out of pocket. While revenue share has been a proven model for ring-tone companies like Pocketfuzz, many believe that mobile video content will be compensated through advertisers.

Smart advertisers recognize content as a proxy for audience. Television is often considered a passive medium, and today’s audience is old. By contrast, mobile and Internet audiences are young and anything but passive. To engage this audience, understanding how mobile viewers’ situations differ is essential. After all, it’s a phone—you may just get a call.

“The cable TV industry started repurposing movies and TV series before it began producing its own original content. This proved vital to catching the attention of new viewers. The same could apply to mobile,” says Sanders.

The thing is, mobile TV is not just a portable TV set. Content needs to be created that takes advantage of the addictive nature of the mobile phone and its “always on” capability. We’re living in a mobile culture, and the phone has become a key social tool. It’s as much an “Origination Device” as it is a “Destination Device.” It’s a way for consumers to raise their hands—if they want to—and speak up, literally.

Earlier this year, Big Brother producer Endemol launched its first made-for-mobile broadcast concept in the U.K., “Get Close To,” in partnership with O2 and Universal Music. For six weeks, music fans were given daily video episodes and empowered to generate their own material. “This model seems to work,” says Jon Vlassopulos, vp, business development, new media for Endemol USA. “The producers were happy because they got paid. The sponsors were happy because they were part of the content. And the operators were happy not only to get compelling content consumers actually wanted to see but also to participate in backend revenue splits on any up-sell opportunities generated from the show.”

Another big hurdle is that mobile content storefronts are difficult to browse, and only diehard enthusiasts have the determination to find new content. It’s time operators started talking about discovery, ease of use, delivery and reporting as service platforms in themselves.

As advertisers move away from buying ads to buying audiences, it seems that operators fear becoming “dumb pipes.” Instead, they should dedicate resources to becoming “smart pipes.”

“A lot has to be organized to optimize the content and reporting to greatly increase its value to advertisers,” says Sanders. “Making it all work is not insignificant. Content providers aren’t able to do this, but operators must.”

MEDIAWEEK

Michael Goldstein oversees Stun Media’s branded content development and audience creation tasks in Los Angeles. He can be reached at mg@stunmedia.com.

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