The field of mobile content aggregators has seen more casualties than a “Terminator” movie. For the few remaining players, though, there’s still plenty of money to be made in going directly to consumers with goodies like games, wallpapers and – believe it or not – ringtones.
Dwango Wireless was one of the first high-profile firms to take a bullet, shuttering operations and selling off assets nearly two years ago, and Blue Frog Mobile was the latest victim, filing bankruptcy a few weeks ago. Other competitors (Moderati, MonsterMob, Ztango) have been swallowed up by bigger players; another (3Gupload) has morphed into mobile community providers; and another (InfoSpace) simply retreated from mobile altogether, selling the business to Motricity Inc. – which barely seems to be weathering the storm itself.
Declining ringtone revenues account for much of the restructuring, of course. And companies like InfoSpace that leverage on-deck distribution channels have fallen by the wayside as carriers whittled away at profit margins and, in many cases, cut out middlemen to strike deals directly with record labels, television networks and other content providers.
Impressive off-deck revenues
But the rise of off-deck activity in Europe and North America has generated some impressive revenues. Buongiorno, an aggregator out of Italy, recently reported revenues of $70 million – roughly equaling revenues during the same period the previous year – and a net profit of $21 million. The Spanish behemoth Zed last week reported a net profit of nearly $100 million on a whopping $545 million in sales, and said it expects to generate $870 million this year “mainly through organic growth.”
Those figures come as third-party vendors try to launder the stains that resulted from charges of fraud and deception, darkening the direct-to-consumer, subscription-based content space in Europe and North America in recent years. And the revenues come despite inadequate billing systems that cost the industry as much as 30% to 40% in lost revenues, according to industry observers. Operators’ billing systems often fail to consummate transactions, some content providers complain, resulting in costly customer care calls and refunds.
That hole in the revenue pipeline is crippling many off-deck players, and companies such as OpenMarket and mBlox are working to address such concerns, targeting carriers and content providers with transaction platforms designed to minimize leakage. But the lack of comprehensive solutions provides an opportunity for content providers that have built solutions in-house, according to Ron Czerny, CEO of PlayPhone Inc., a privately held startup out of San Jose, Calif., that operates a subscription-based content storefront as well as powering mobile sites for Wal-Mart, ABC, Cartoon Network and others.
“Our leakage is no more than 10%,” said Czerny. “We do that with filters on the front end of the system – we check a customer’s account against a database to see if it’s in good standing, and if that passes then we send a password to confirm a subscription. … If you don’t have systems to filter the incoming stream of users, if you have a lot of bad users coming into your database, you’re going to have a lot of charge-backs.”
And as the technological issues are being solved – slowly, in many cases – the business model is improving. Ringtones, which once accounted for more than 70% of PlayPhone’s revenues (and as much as 90% of the worldwide market in general), now barely generate half of PlayPhone’s sales. Game sales have steadily increased during the last few years, Czerny said, and video is beginning to take root.
Just as importantly, the consolidated field has left a few major players who can bring their weight to bear at the negotiating table, Czerny said. Publishers – especially music labels – are beginning to see long-term value in mobile instead of short-term revenues. And that may give content retailers the chance to build on recent successes by pouring revenues into marketing efforts.
“Major labels used to dictate how much money they wanted” to take their wares mobile, Czerny said. “That’s gone now. The labels are coming back to say ‘How much do you need to make a profitable business, and to promote and grow the business?’ I think now that the margins are bigger, we’re going to promote more.”