The year ahead: Mobile content predictions sure to go wrong

It's 2009: The end of a decade, and the end of an era for mobile entertainment. It may be a new year, but the industry remains mired in the same old slump--the energy and excitement that once galvanized the sector are now gone, replaced by consumer indifference and corporate uncertainty. It's not just the economy that's to blame, but also a dearth of compelling new ideas and breakthrough services.

Make no mistake: Mobile innovation has never been more widespread. Developers are creating applications of astounding originality and diversity. But little or any of that innovation is taking place in the mobile entertainment space. A hierarchy has been established, and now that the major players (network operators, service providers and content publishers alike) are in place, each new deal or product announcement seems more like a variation on an existing theme or a subtle tweak to an existing service than a revolutionary new approach. Longtime moneymakers such as  ringtones and wallpapers are bottoming out, and expected saviors like mobile TV have failed to live up to the hype. Messaging and social networking notwithstanding, mass-market subscribers in the U.S. still seem largely uninterested in a richer, more immersive mobile multimedia experience--iPhone owners, who've now downloaded more than 300 million applications from Apple's App Store, remain the exception, not the rule.

You don't need a crystal ball to forecast that 2009 is going to be a difficult year across all walks of industry both at home and abroad, but mobile entertainment--a business built on the concept of luxury, not necessity--faces particularly rough sledding, even as more practical, prosumer-oriented applications help pick up some of the revenue slack. Here's some of what you can expect in the months ahead. --Jason 

Prediction No. 1: The economics of mobile messaging will face a radical overhaul.
Messaging looks to remain the engine powering mobile data revenues regardless of the economic downturn--according to a forecast published in early November by market analysis firm ABI Research, worldwide messaging services revenues will increase from $151 billion in 2008 to more than $212 billion by 2013, thanks to a growing percentage of subscribers who view mobile data as a more efficient means of communication than voice services. The report adds that mobile data services will remain a necessity throughout bleak economic times since displaced workers will need to be mobile to seek out work.

As ABI points out, mobile messaging ARPU now represents more than 85 percent of all handset data services revenues regardless of region, with no signs of slowing down. But surely U.S. operators are looking to generate even more income from the messaging cash cow, and in fact Verizon Wireless tipped its hand in October, when the carrier informed some content and messaging partners of plans to introduce a 3-cent fee increase for all mobile-terminated messages delivered across its network. According to an email sent by Verizon billing partner OpenMarket, the carrier intended to append the 3-cent charge to both standard-rate and premium programs, a move that portends seismic changes throughout the mobile content industry, in particular impacting those firms whose businesses depend on SMS-based text-search results, news alerts, sports updates, interactive TV voting and related services.

Verizon Wireless quickly issued a denial refuting reports the text fee hike would go into effect anytime soon--in an email to the media, Verizon spokesperson Jeffrey Nelson said the increase outlined in the OpenMarket email was "mistakenly characterized as a final decision to implement." Nelson wrote "We are currently assessing how to best address the changing messaging marketplace, and are communicating with messaging aggregators, our valued content partners, our technology business partners and, importantly, our friends in the non-profit and public policy arenas. To that end, we recently notified text messaging aggregators--those for-profit companies that provide services to content providers to aggregate and bill for their text messaging programs--that we are exploring ways to offset significantly increased costs for delivering billions upon billions of text messages each month." In other words, major changes lie ahead--not now, perhaps, but sooner or later, and almost certainly sometime in 2009. While carriers stand to reap huge financial benefits, messaging aggregators face two viable options: Scale back their businesses or increase their costs to consumers. Either way, some won't survive the year.

Prediction No. 2: Apple will continue remodeling the App Store.
From Apple's standpoint, the App Store is an unqualified success: In early December, the computing giant announced iPhone owners have now downloaded more than 300 million mobile applications in the five months since the virtual storefront opened on July 11. But there is some concern within the development community that the growing proliferation of bargain-priced iPhone apps is inhibiting product development--with so many developers slapping bargain-basement prices on their apps in order to gain prominent placement on iTunes, some developers argue that they must respond by focusing their efforts on simpler, more inexpensive apps with broad consumer appeal, shelving their plans for more complex and costlier apps in the process.

If that trend continues, and Apple finds itself with an App Store stuffed with dumbed-down applications that fail to exploit the full technological promise of the iPhone platform, you can bet CEO Steve Jobs will do something about it. Changes are already underway: As of December 2008, the App Store now spotlights the most popular applications on each category page, at the same time separating the most popular free applications (which previously dominated download rankings) from the most popular premium apps. In addition, the layout of the App Store in iTunes is now more closely aligned with the design of the App Store application on the iPhone.

But the smart money suggests Apple won't stop there. Expect an overhaul of the App Store's present categorization and sorting structure to incorporate more user feedback and other metrics that emphasize application quality, innovation and usefulness over pricing. Some other potential additions: User recommendations based on previous browsing and purchase history, a feedback-based star rating system, improved filtering to spotlight top-rated apps and, perhaps most important, free app demos to help assuage any consumer doubt that a more expensive app may not be worth the premium price tag.

Prediction No. 3: Mobile commerce services will finally take off.
No other segment of the mobile data sector stands to benefit from the current economic meltdown more than mobile commerce: With cash-strapped consumers looking for coupons and bargains, and advertisers seeking alternative new-media channels to market their goods and services in light of conventional media's continuing decline, the mobile platform--with its promise of demographic- and location-targeted discounts, interactive promotions and anytime/anywhere purchases--faces a now-or-never crossroads. After a series of false starts, retailers are finally investing in m-commerce--in the second half of 2008 alone, lifestyle and fashion firm Polo Ralph Lauren, department store chain Sears, and Internet retail giant Amazon.com all introduced major new mobile efforts. At the same time, startups are introducing a host of new m-commerce apps spanning mobile coupons, mobile shopping, mobile ticketing, near field communications and related consumer services, and even newspapers and magazines are exploring the opportunity as they continue to migrate their editorial and advertising efforts from print to digital.

Look for those traditional media and retail giants to make significant m-commerce acquisitions in 2009. Case in point: Amazon.com, which in early December launched a new iPhone application enabling users to browse product inventory, including merchandise available from retail partners like Target and Macy's. The most significant component of the iPhone app is an experimental feature called Amazon Remembers, which enables consumers to snap a photo of any product they encounter during the course of their day-to-day activities--after the photo is uploaded to Amazon, freelancers in the company's Mechanical Turk program will do their best to match the product to items the company sells, guaranteeing results within five minutes and 24 hours. Sounds cool, but image recognition-based mobile marketing solutions provider SnapTell's iPhone app Explorer not only does the same thing as Amazon Remembers, it does it better, with an accurate and robust algorithm for image matching that delivers product comparison results within seconds. No less ripe for acquisition by a forward-thinking retailer: Scanbuy, whose ScanLife app (available via Sprint) enables subscribers to scan barcodes in print media to obtain additional information on a given product or company via mobile device.

Prediction No. 4: Mobile TV will officially bottom out.
As 2008 dawned, many pundits were anticipating a breakthrough year for the mobile TV platform, thanks in large part to the one-two punch of the Beijing Olympics and soccer's European Football Cup Championship--quadrennial events with international appeal extending far beyond the confines of hardcore sports enthusiasts. But neither convinced subscribers of mobile TV's inherent value: EU Information Society Commissioner Viviane Reding later bemoaned operators' failure to capitalize on such golden opportunities, admitting "The industry was not ready. It is as simple as that." But if not 2008, then when? Looking ahead at 2009, there is no Olympics, no Euro Cup, no U.S. presidential election--none of those rare, must-see moments that draw viewers like moths to a flame. Sure, last year's U.S. Open golf championship was a spectacle that galvanized mobile viewership, but even that hinged on a veritable perfect storm of elements--a nail-biting Sunday finish, a Monday playoff and the marquee presence of superstar Tiger Woods--unlikely to be repeated ever again, let alone just 12 months later.

Short of a major reduction in subscription costs or an unexpected, game-changing global event so significant and so fluid that consumers can't look away from their handset screens, mobile TV will continue to underperform in 2009, to the point where some content providers abandon the platform altogether. The viewing numbers are abysmal: In a recent interview, Matt Milne, senior vice president of strategy for Qualcomm's mobile broadcast unit MediaFLO USA, said its FLO TV service (launched by Verizon Wireless as V Cast TV in March 2007 and by AT&T under the AT&T Mobile TV brand 14 months later) has so far attracted subscriber totals "well north" of 100,000. As of the third quarter of 2008, Verizon Wireless reported 70.8 million customers in all, bested by AT&T with 74.9 million--that's close to 146 million combined, and while it's impossible to guess just how far north of 100,000 FLO TV's numbers really are, it seems safe to assume that not even 1 percent of Verizon and AT&T customers actually pay for mobile TV services.

Perhaps a groundswell of compelling, mobile-exclusive content could turn the tide, but the broadcast and cable networks are in no position to allocate their energy or resources to the smallest screen. The television industry is in dire straits: Ratings are in the tank, with the four major networks (ABC, CBS, NBC and Fox) losing about 2.2 million viewers ages 18 to 49 and shedding about 2.6 million households overall last year. NBC--reeling from a disastrous fall season--is in such bad shape that beginning next fall the network will air a five-nights-a-week primetime talk show headlined by lame-duck Tonight Show host Jay Leno, even though a test pattern would be funnier and more cutting-edge. Given the scarcity of new hit shows, the ratings erosion of once-popular franchises like Heroes and the negligible subscriber interest in mobile broadcast services, there is little if any motivation for the networks to develop original content for the wireless platform--they face too many more immediate challenges to worry seriously about their flagging mobile efforts. But at the same time, if viewers can't be bothered to watch network programming in primetime from the comfort of their living-room couches, how can anyone possibly expect they'll catch up on declining series like CSI: Miami via mobile device? There's no quick fix, but until viewers stop tuning out conventional TV, there's no hope they'll start tuning in to mobile TV.

Prediction No. 5: Premium services will abandon subscription models in favor of advertising subsidies.
Let's get one thing straight: Mobile advertising is not the miracle cure-all so many firms believe (or desperately hope) it will be. Already we're seeing a drop in mobile advertising pricing, with cost-per-impression ad rates reaching single digits in some instances. While the recession is one factor in the rate drop, growing ad inventory is another as more and more brands elevate their profile on the mobile platform--some categories including targeted on-deck placement still fetch a premium price, with some applications boasting the capability to offer advertisers specific demographic and location data commanding cost-per-impression prices as high as the mid-$30s. Still, one major media site is reportedly offering $2 cost-per-impression buys, and some social media sites with large inventories are said to be pricing theirs below $5.

But mobile advertising is clearly gaining momentum: Mobile impressions remain costlier than online cost-per-impression prices thanks to the wireless platform's superior click-through rates--about 1.5 percent on mobile, compared to 0.15 percent on the web. Moreover, smartphone owners--by definition the kind of forward-thinking, well-heeled demographic that advertisers covet--appear particularly agreeable to mobile ads: Worldwide iPhone mobile advertising requests grew 52 percent month-over-month to 359 million in November and now account for 6.3 percent of all requests according to mobile advertising marketplace AdMob's monthly Mobile Metrics Report. AdMob states the iPhone now represents 9.9 percent of all mobile ad requests, more than any other handset, while T-Mobile USA's G1, the first commercial device based on Google's Android mobile OS, yielded 15 million requests in November, which AdMob said translates to 7 percent of all of the operator's ad traffic.

So for premium, subscription-based mobile services that are failing to attract the subscriber totals necessary for their businesses to flourish (especially in a downturn), free, ad-subsidized models may represent the last best hope of survival. Look for any number of premium service providers to abandon their current approach in favor of ad support. In fact, it's already happening: In mid-December, personalized digital radio service Pandora announced it is now available for free on more than 20 Sprint mobile devices, following in the footsteps of its ad-subsidized desktop version. Sprint subscribers previously paid $2.99 per month for the Pandora service, first introduced on mobile in May 2007.