On the Hot Seat with Rob Glaser

It takes quite a bit of self-assurance to suggest mobile operators rethink the pricing of their mobile data plans. But that's exactly what Rob Glaser--founder, chairman and CEO of RealNetworks--did at a recent Rutberg & Co. conference when he proposed that carriers bundle their data services instead of the current a la carte pricing scheme. Sue Marek, editor-in-chief of FierceMobileContent, talked to Glaser about his proposal and whether he thinks it will gain traction with operators.  

FierceMobileContent: At a recent Rutberg & Co. conference you said that you thought wireless carriers should bundle their data plans with other services. Can you tell me more about this theory?  

Glaser: We work closely with mobile operators around the world. We have a set of services--ringback tones, music on demand and video on demand--and these services are per-subscriber one-time offerings. We noticed that carriers are starting proliferate a number of content offers-four or five or six different choices. Offers such as MediaFLO, video, music or just text messaging.

If you look at the cable TV industry in the U.S., going back 25 years ago, consumers were used to TV being free. Cable TV was about offering a massive amount of choice to people for those with distinct interests. Some are interested in sports, some in news, some in music and different demographics like kids with Nickelodeon. What cable did, particularly because of technology but more because of the marketing message, is it came up with the notion that you paid a fee and you got a full bundle of channels. You paid the same amount whether you watched one channel or many channels.

Cable took a set of niche offering and created a whole that was in some ways was greater than the sum of the parts. Consumers could get more value because if you try to sell each channel a la carte, the aggregate price would be more expensive than the package as a whole. And it allowed cable to build a big audience. 

Cable realized that its competitors weren't just other cable channels but all those channels competing with free television. The more that share of time went to cable instead of over-the-air broadcasters, the better the cable industry did. The more valuable the proposition was for cable and the more choices people were exposed too the more shift occurred.

Our sense is it is a different way of marketing content than the path the mobile industry is on. Right now the mobile industry is micro-niche targeting. There is something to be said for offering services that are specific to given niches. Even with the basic cable model there was HBO, which was a premium product. So basic cable wasn't the totality of what the cable industry did, but was the foundation or the anchor.

We've shared this theory with some of our carrier partners and we have decided that taking this discussion public was a way to move the discussion forward.   

FierceMobileContent: Don't most of the cable channels included in the basic package make money from advertising?  Do you envision that same dynamic for wireless?  

Glaser: In the early days of cable there was little audience, so cable didn't make much money from advertising. There is all this talk about mobile advertising and I think it's putting the cart before the horse. Advertising models work when you have a large audience. In my view, right now, other than SMS you don't have a large audience for these data services. If you look at the amount of money carriers spend marketing their wares, they spend millions getting their message out.  A lot of that message is about network quality, some is about handsets. But if you look at the amount of money spent marketing content services it's small and fractured. If you pooled that and had one primary offering you would have a much better chance to build a large audience that you could monetize through premium fees and advertising.  

FierceMobileContent:  I know that most of the content companies make their money through a revenue share with the operator. It's based on how much of their content gets purchased by the consumer. That model would certainly change.  

Glaser: You definitely would create a model where you would have lower prices per unit times many more units. You make it up in volume because you end up with a larger installed base. That allows you to get scale. There are some products that will do better with advertising monetization because they have a big audience. Much larger than if they were a premium only.  

FierceMobileContent: What price point do you think would work?

Glaser: I think you could try a couple different options. I think the price should be somewhere between $10 per month and $20 per month depending upon the value proposition. Also, there is the opportunity to take some of these packages and tie them to premium minute plans so you can deliver more value that way.

To me this is about taking unlimited data plans from a single digit percentage where they are with most carriers and ramp them up substantially to increase the value proposition. You don't want the price point to be that much higher than the individual data plans but you are packing in more value.

As basic cable became more valuable and provided consumers with more choice, the price point went up significantly and consumers were happy to pay because they were getting more choices.  

FierceMobileContent: What has been the response from the operators that you have talked to about this?  

Glaser: One of the reasons I thought it was appropriate to go public with this idea was that we find that the wireless industry tends to be very much focused on what has been done successfully before. When there is something like this that hasn't been done before, people always want to know who else is thinking about this.  One benefit of having a public discussion about this is that it changes the nature of the discourse.  If you look at the percentage growth rate of data, is it what the industry projected?  If not, what are some ideas that could change this?

In early 2007 we recommended that the music industry move away from DRM toward MP3. We knew that the music industry was thinking about it but wasn't ready. Now two of the four major record labels are doing it and the rest are thinking about it.  We said, if you don't use DRM, you can get to a much larger base.

Like that example, we think this is an idea that is being discussed in the industry and we think if we talk about it in a public forum, it will encourage this model and possibly accelerate this discussion.  

FierceMobileContent: Does open access play a role in this? Would an operator such as Verizon Wireless, which announced that in 2008 it would open its network to all devices and applications, be more likely to go this route?

Glaser: I think there are two fundamental trends that ought to motivate carriers to be more active. The first is that handset makers are pushing more aggressively to bundle services with a particular model of a handset. Apple controls the deck and the iPhone is a mandatory data plan product. They have embedded that into the architecture of the iPhone. And also Nokia, which just announced that it would take a content offering and bundle it in the phone and leverage their high volumes with handsets. They will leverage that to get volume rates on mobile music.

If carriers don't want to be a passive pipe they need to get more active in this area. Otherwise they are relinquishing control to the handset guys.

Open access reinforces this. In an open access world, carriers will offer their own services but they want their services to leverage their scale. One advantage is that they can bring their large installed base into discussions with content providers and drive scale pricing.   

I think the risk of being a pipe is significant to carriers if they don't take the initiative now to drive much greater volumes of non-voice offerings.

FierceMobileContent: Of course, Real has an interest in promoting this type of plan because this scenario would enhance Real's position in the mobile industry, right?  

Glaser: Our motivation for raising this topic is not purely dispassionate interest in the industry. We think this scenario would make our services more available to consumers and they would get used more. We know that certain services have great viral interest such as ringback tones. But some of these other services such as music on demand, video on demand don't have that built in viral nature.  This notion of the bundle creates a scale effect.

FierceMobileContent: In August, you announced that MTV Networks and RealNetworks Inc. would merge their online digital music stores to create Rhapsody America, a new service that will be distributed by Verizon Wireless. Any update on Rhapsody America?  

Glaser: We said when we launched that we would be in the market in the first of 2008. We are tracking to do that. We wanted to offer something on a broad range of handsets, that is clearly something that can't be done overnight. We want to integrate it and are busy doing that.

Verizon is very methodical in how they offer these services. They don't want something that is a bad experience. There are a lot of things that we have to do to make the service so that it can scale and will be available for 60+ million subscribers.