Mobile Video Pricing Challenges: Part I

Today, thanks to numerous business and technology issues, mobile video adoption in the U.S. is still a long way off. The more content owners I speak to, the more I find they don’t have much insight into what can be done today, what platforms exist and how anyone is ever going to make money from video to mobile. Vendor solutions in the market are quite fragmented and most vendors sell to carriers and ISPs and not directly to content owners. Traditional CDN vendors don’t offer mobile video delivery services today and some question whether they ever can. That could be debated on both sides, but the bottom line is that right now, content owners don’t have many places to go to for delivering content for mobile.

While there are a host of vendors in the market, some of them are only working to solve the transcoding needs, others are working on the entire mobile platform. Companies like ByteMobile, Mobixell, Ortiva Wireless, ROK Mobile, RubberDuck Media Lab, Thin Multimedia, Transpera, uVuMobile, Vantrix, Vidiator, Volantis and others are all in the market, yet it is extremely hard to figure out what they offer, who they sell it to and how much business they really have. And those that do have customers, the vast majority of them seem to be outside the U.S.

Over the past few months, I’ve been talking to a lot of major content owners, CDNs and mobile video vendors to get a sense of the biggest technology and business problems they face. In terms of usage, not cost of delivery, many think mobile video is still really just a press release put out for marketing purposes. The hype is that mobile gives operators some what of a walled garden and a way to monetize content, but is not being done in a way user will benefit. The portability is great, but after the adoption of the web, it will be hard to shackle down consumers on mobile.

The market breaks down into two many categories for delivery of video to a mobile device. Those being videos delivered in a walled garden and those downloaded and browsed on the public Internet. Last year, less than 2 million users had the combination of carrier/plan/handset to view video. That compares to PC based access of 180 million general Internet users that companies like Akamai see on a daily basis. Factor in that the frame rate and bit rates are a throw back to web 1.0 video and the bit delivery business for mobile is not big enough to track as a line of business. AOL for instance relies on partners like mobitv, Motricity and Helio to aggregate a large base of users and combine download and stream content offerings.

As far as the mobile video delivery pricing model, I found that there is no real benchmark. Most are usually pricing based on quantity like pay per clip or subscription for a service. The difference is that the wireless networks are like a "Private" network i.e. the carrier controls the network end to end so that affects the price structure. That being said, almost everyone I spoke to, including the delivery networks said that they have not heard of anyone breaking mobile streaming down in that much detail and comparing it with the broader Internet streaming. If you look at the major streaming sites, most of them rely on Flash streaming and Flash navigation. There are no devices, to date, that I know of, that access this content from a browser besides a Palm Treo 700p with Kinoma’s retail Player 4 EX application which supports Flash streaming and access to YouTube through a built in content navigator. Bandwidth is still the costly item. Clearly the wireless data model is still in its infancy, which we all already know.

The mobile wireless model is very reminiscent of the early modem Internet days. I see a corollary between the telephone modem to cable broadband, and the transition between wireless mobile usage and faster wireless networks like EVDO and UMTS/HSDPA. I believe there will be carriers that will take a chance on being the "pipe" and others that will attempt to build an AOL type walled garden. As bandwidth increases, so do the end user applications, since access to content becomes more realistic. I think, as we see now with cable operators, a combining of billing and general access and bandwidth speed increases offered as a way to maintain the customer base will be the long term approach. There is the integration factor though. Uploading content, hosting it and managing it might require additional cost for the carrier but also for the content creator that needs to distribute to multiple carriers with different middleware.

It’s also interesting to note that most of the delivery being done by the CDNs for mobile is downloads of ring tones, wallpaper and games, it’s still not video. Also, all of the CDNs I asked either don’t support mobile video today or simply do it from Helix or QuickTime servers. They have not invested any money really at all into the infrastructure and don’t plan to do so until there is a real customer demand. Part of the problem is that no one seems to know what value the delivery of content adds in the overall mobile value chain. Most content owners I spoke to said that that 3-5% of dollars paid for content should go to delivery; ironically, mobile delivers fewer bits that are harder to get to the end terminal. Right now the deliver is extremely important because of the complexity of delivering a good end-to-end QoS over a wireless network compared to fixed networks like the Internet.

Also, ring tones pull the paid content revenue numbers way up. The amount of revenue from mobile vs Internet site varies by application. Sites like Surfline with real time surf updates do well on mobile. Casual games are growing fast. Atomic wedgie, a mobile video channel is trying original content and right now the revenue for paid video is so small that it is usually viewed as a trial or promotional by studios. It’s no where near even a single digit percentage once ring tones are removed. That being said, it all depends on the middle man. If you can just put it on the open Internet so that broadband phones can find it, then the percentage is minimal. However, in order for mobile to get the best experience with video, content owners have to do deals with the carriers and that makes the percentage higher. You can see how delivery costs can get high when the operator controls the last mile and the end user experience.

Because of this, the carrier network is always a touchy subject with content owners I speak to since the carriers control access to their wireless network. They have the power to block certain applications or ports. They can bill for certain data and not for others if they want to. The combination Wi-Fi and carrier wireless network based products can avoid this, but if the content is on the carrier server, there is no getting around the wireless billing model or limited access rights. Mobile content can be smaller, but not all the time. For example, Palm says that the Treo based products have a full browser and can download huge files. For example, a user could download large video files from their PC via onto their Treo700w device, but some carriers cap their bandwidth access per month. That’s the kind of complexity users are dealing with in a fragmented market. Technology is still the hurdle, unlike streaming on the Internet.

Tomorrow in part two I’ll discuss how content owners might respond to a much more simplified pricing model.