Hollywood content producers looking to cash in on mobile should take a cue from The Red Hot Chili Peppers and give it away – now.
That’s the message of a white paper released last week from Parks Associates and the think tank Entertainment Technology Center at USC. The document notes the various challenges plaguing the video industry as it moves beyond the Internet to mobile devices – including limited bandwidth, poor penetration of high-tech handsets, a lack of interoperability and inadequate discovery tools – and urges content providers to use video as a loss-leader to seed the market and sell premium offerings.
“While growing, the market for selling movies through portable devices and cellphones is not yet ripe,” authors John Barrett and David Wertheimer wrote. But “using mobile content as a marketing tool for traditional consumption channels offers Hollywood an opportunity for immediate success in the mobile content space. Moreover, freely distributed, marketing-minded content will prime the pump for premium offerings further down the road, once technological and business challenges have been addressed.”
Apple model
That strategy would mirror Apple Inc.’s effort with iTunes, the analysts noted. While 50% of all broadband users have a portable MP3 player, according to the study, only 10% regularly use it to watch video. And 90% of all broadband users have a mobile phone, but only 10% regularly tune in to the third screen.
So Apple opts to suffer razor-thin margins and lackluster profits from content sales, using music and video to push its lucrative hardware offerings. Content producers should embrace that strategy, Barrett and Wertheimer said, but use content to sell other types of content. Publishers could distribute highlight clips of car-chase sequences or comedy clips, for instance, to promote both new and existing titles.
While the message might have been coolly received by some Hollywood executives – who are sometimes unwilling to forego immediate revenues for long-term gains – it may be the best hope for an industry struggling to cope with new media. “The tumult is likely to continue,” said NBC Universal CEO Jeff Zucker at NATPE++ in Las Vegas several weeks ago. “It has been a great run, but today we need a different message.”
Advertisements to the rescue
Selling video at bargain-basement prices – or even giving the stuff away – is a tough proposition in the mobile world, though. Even if production companies don’t mind swallowing some of the costs, others in the value chain aren’t likely to forego immediate revenues from mobile video. That’s where advertising can play a role, according to Ujjal Kohli, CEO of Rhythm NewMedia, a startup that powers ad-subsidized mobile video for several European operators.
“For fifty years, TV, magazines, newspapers, everything has been subsidized through ads,” Kohli said. “It’s a model that everyone understands, and that the consumer has bought in to. The easiest way to get that thing rolling is that model.”
Rhythm NewMedia launched service through 3 Hutchison U.K. a year ago, and the company has added T-Mobile U.K. and Vodafone Spain to its list of carrier customers. The service is also available to Verizon Wireless users through the LG Electronics Co. Ltd. Voyager handset, and the Mountain View, Calif.-based startup also works with content providers such as CBS Mobile and Aardman Animations, which own the “Wallace & Gromit” and “Chicken Run” franchises.
While advertisers question the return on investment with online video marketing, the ability to deliver ads based on a user’s age and gender allow campaigns to target messages more effectively in mobile, Kohli claimed. And that results in far higher consumer acceptance of the pre-roll pitches, he said.
“When the ads are not completely irrelevant, people don’t have such a big problem with them,” according to Kohli. “Online they’re not targeting (video spots). They don’t have the data.”
MobiTV last week supported that argument, claiming that mobile video ads “provide increased ad receptivity for marketers.” The company wrapped up a test program that saw several branded, ad-subsidized channels draw traffic that rivaled some of its premium channels.
What could go wrong?
That’s not to say that every content provider is champing at the bit to offer ad-subsidized mobile video, however. Many players are concerned that giving content away could cannibalize premium offerings, destroying a potentially lucrative business in its infancy. Others point to the lack of advertising metrics, claiming that ad-subsidized content won’t really fly until better ways of tracking marketing campaigns exists.
But consumers conditioned by the Internet seem unwilling to pay for content on their computers, phones or iPods. Parks Associates found that less than 10% of Internet users would be willing to purchase a digital movie download – a figure that surely dwarfs the percentage of users willing to pay to watch something on a tiny screen. So allowing consumers to test the mobile video waters without being soaked on their monthly statements may be the best way for wireless TV to finally take flight.
“Hollywood should strive to use portable platforms to generate revenues directly (through the sale of their content) and also indirectly by promoting consumption via more traditional channels,” the Parks Report stated. “Rather than asking, ‘How much money can we make on portable content?’, the question should be, ‘How can portable content help me make money?'”
