Cellular phone ringtone south

Byline: Lynnette Luna

It took about four years for most wireless carriers to figure out how the data game works. It used to be that carriers planned on controlling everything: They would own the content, decide what the customer received, and pocket the bulk of the revenue made from delivering that content to end users.

Not surprisingly, the wireless industry garnered little interest from the big names in entertainment. What incentive did media conglomerates have to develop wireless content and partner with carriers if carriers made most of the money? Besides, consumers were turned off with Wireless Applications Protocol services delivered on monochrome screens that ran over slow wireless networks.

Today, wireless data has finally caught the eye of some big entertainment and gaming conglomerates. Well-know companies such as Sony Pictures Digital Entertainment and EMI Recorded Music are poised to enter the U.S. wireless industry in a big way. And during last month's Cellular Telecommunications & Internet Association IT conference in Las Vegas, attendees heard some encouraging news.

"We can drive consumers to adopt services," Patrick Kennedy, executive vice president with Sony Pictures Digital Entertainment, told attendees. "We're investing several million here to develop services."

The same message was echoed by Jay Samit, senior vice president of EMI Recorded Music: "We'll try anything. About 98% of our artists say they want to go along for the ride."

So why the change in attitude? Partly because faster data networks are more widely available and consumer-friendly handsets with color screens have entered the market. But most important, carriers once concerned about taking at least half the revenues from data content deals are giving media content providers more monetary incentives to work with them.

"Over the last couple of years, there has been this dance between the owners of media and the owners of the network," said Tim O'Neil, founder of the EON Group. "No one knew who had the power in the negotiating relationship. As it turns out, those that are able to really step up and invest in development of applications that have content and drive usage are those with traditional media backgrounds."

Media conglomerates also are finding carriers more amicable to their revenue-sharing demands. In fact, Sony praised Qualcomm's BREW applications download service for giving data developers 80% of the revenue made on a particular BREW application.

Meanwhile Japan's NTT DoCoMo, considered the model for wireless data success with its i-mode service that supports more than 30 million customers, has long taken just 10% of content revenues. And in the U.S., Sprint PCS and AT&T Wireless, which is minority-owned by NTT DoCoMo, have adopted similar strategies.

"We want carriers to make money," Sony's Kennedy said. He advocates a compensation model whereby revenues are split according to which parties make the heaviest investment in developing applications. "Our discussions with carriers have been fruitful," he added.

Indeed, gaming content providers are already finding a lucrative business. Rather than demanding the bulk of content revenue, carriers are offering more compelling content-generating traffic. David Kerr, head of the wireless practice with Strategy Analytics, said operators have discovered that those customers who download games come back for more - and usually buy a ringtone or update their portal while they're at it.

"Gaming has actually generated more traffic than operators expected," Kerr said.

The benefits for big media companies entering the wireless industry are also becoming clear. All see wireless as an important extension of their brands and content. Unlike mass media such as television and movies, wireless applications are personalized. Sony, for instance, says it can make significant headway through personalized information management services such as giving wireless users the ability to create their own ringtones or join short message service (SMS) communities that send updates about their favorite television shows to their phones. Sony plans to make a major push into the wireless arena before the end of the year.

"This is the most exciting thing for us in years," Kennedy said. "We're at the dawn of a new medium, a payment structure where consumers don't expect things for free like they do on the Internet."

EMI's Samit said music on mobile phones would lead to fierce customer loyalty for wireless carriers. More than 260,000 new CDs hit the market in 2001, he said, yet less than 1000 of each sold. Mobile phones can provide EMI with niche marketing opportunities that are too expensive to conduct in the retail world.

"We've proved on DirecTV that the Music Choice channel is the No. 1 channel," he said. "Consumers listen to the Music Choice channel about 17 hours per week because it's commercial-free, and they can choose the genre they prefer."

EMI sees a large opportunity for the music industry with the introduction of polyphonic ringtones. Ringtone revenues hit $1.3 billion in Europe and Asia last year, while the entire music industry brought in $33 billion. "People pay their phone bills," Samit said. "The majority of music is stolen on the Internet."

Although the pieces are in place for happy marriages between content providers and carriers, at least one major hurdle remains. Media companies want assurance that music and movie properties and copyrights will be protected. Digital rights management (DRM) could control downloadable media, but a robust, scalable and flexible DRM solution doesn't exist yet.

CTIA's new Wireless Internet Caucus (WIC) initiative, which calls on the wireless industry's leaders to discuss wireless Internet issues, recently released a white paper on the topic. Preliminary talks between the wireless and entertainment industries have begun.

"There is an opportunity for a cross-industry collaboration on the development and adoption of an expression language that would provide content and application providers with the ability to better interpret and execute the rules of digital rights management," WIC wrote in its white paper.

Sony's Kennedy said that although he was concerned about finding a solution, he is optimistic. "We want to find a solution that doesn't create a stalemate."

TWO WAYS TO PLAY

SONY PICTURES DIGITAL ENTERTAINMENT

Wireless strategy: To offer personalized wireless content leveraging its strong movie and television brands, and promote other aspects of the business such as selling CDs, movies and other Sony merchandise.

Types of services:

*Multiplayer games such as "Wheel of Fortune"

*Movie and television-branded screen savers and ringtones

*Movie trailers and television clips

*Messaging services such as an SMS group for soap opera information

EMI RECORDED MUSIC

Wireless strategy: To find a less expensive distribution channel to promote various niches of music and extend the reach of its artists.

Types of services:

*Downloadable polyphonic ringtones

*EMI recently launched a video-clip service in South Korea

*In February, EMI worked with a Portuguese operator to allow customers to send music dedications to loved ones via SMS

Source: The EON Group, company information