Sector Insight: Mobile phone content - Calling the tune

the frequency of its TV ads, which aired 83 times an hour at the
campaign's height, it also marked the coming of age of downloadable
mobile content in the UK. Be it ringtones, music and video clips, logos
or games, consumers are using mobiles to access entertainment content at
a phenomenal rate.

The proliferation of mobile ownership (80% of all UK adults now have
one) and technological developments have spawned a mobile content
industry that Mintel estimates will be worth £740m by the end of
2005 - 18 times its value of £40m in 2002.

The International Federation of the Phonographic Industry (IFPI)
recently reported that the number of digital music downloads tripled in
the first half of the year. While sales of music in hard-copy formats at
$12.4bn (£7.1bn) still outweighed download sales of $790m (£451m) in the period, more tracks are now downloaded than
are sold as hard-copy singles - and as many are downloaded by mobile
phones as via the internet, according to IFPI.

The increased penetration of mobile phones is certainly aiding the
download market, and the frequency of phone purchasing also helps. This
year almost 20m mobile phones will be bought, according to Mintel. The
majority will be upgrades to 3G handsets with multimedia facilities,
giving more consumers the ability to download.

The download industry is very much the domain of the young. Research
suggests that people in their late teens and early-20s are most reliant
on mobiles, and it is this age group that much of the download industry
targets. However, the UK's aging population means there are twice as
many over-65s as 15- to 24-year-olds, so an untapped market exists for
innovative download providers.

Market make-up

The market is dominated by ringtones, which account for about a third of
traffic. Games are becoming more popular, though, and are expected to
take a 20% market share by the end of this year. Music downloads and
gambling, meanwhile, are both emerging areas, likely to grow in the
coming years.

Most downloads are bought by the consumer requesting them via a text
message or email, although some operators also offer services via top-up
cards and ATM-style purchasing centres. With the latter systems,
consumers can buy credits that they use to get more downloads.

The low outlay for downloads - the average price is £1 - means
that they have become something of an impulse purchase, and advertising
is stimulating much of the buying.

Problems have occurred when children who have seen the ads have signed
up to expensive subscriptions that parents then struggle to
terminate.

However, the industry is becoming more closely regulated, with a code of
practice introduced to protect consumers, and top-up cards are another
way in which the industry is trying to address concerns about hidden
charges.

Not all mobile downloads have to be bought; some ringtones and icons are
free, with companies using the media to raise awareness. In terms of
volume they would double the size of the market.

There are two groups of operators: portal (mobile phone networks) and
third-party providers (companies established primarily to provide
downloads).

Third parties tend to build business through subscriptions and repeat
purchases. Four leading companies have emerged in this group: Jamster
and its sister brand Ringtoneking, MonsterMob, iTouch and Zed.

Subscription focus

Jamster, which is owned by US company VeriSign, made revenues of $181m (£103m) in 2004. It has a presence throughout Europe, but is
particularly strong in Germany, Switzerland and the Netherlands. Its
positioning is to provide consumers with all the services they need to
customise their handsets, covering games, music and communications.

MonsterMob's core business is in mobile entertainment services. Recently
rebranded as The Mob, it has about 6m customers worldwide and 450,000
subscribers. It offers competitively priced subscriptions such as £1.50 a week for unlimited polyphonic ringtones, Java games and
wallpapers.

iTouch is the company behind the technology used by TV shows such as Big
Brother for viewer voting. As well as its entertainment offering of
ringtones, logos and games, it provides customer information and
messaging services.

Multi-function capability

Jamster marketing director Robert Swift believes the market will develop
rapidly as 3G phones gain greater penetration. 'Mobile phones will have
(much) more functionality - people will be able to check their bank
statements, trade shares and gamble,' he says.

'The market is still in its infancy. In the past ringtones and games
were only for 16- to 24-year-olds, but now it is expanding,' he adds.
'However, older users get more attached to their handsets, so there will
be a lag. In the next two to three years mobile downloading will become
an evolved market.'

Mintel predicts that ringback services - where the person calling hears
the tune rather than it playing as the purchaser's ringtone - and real
music downloads will start to replace ringtones. Gaming will remain
popular and gambling and adult entertainment will also boost the uptake
and value of the sector.

Mintel forecasts that the rapid growth of the mobile content sector will
continue. It predicts that the market will more than double in both
value and volume, reaching 1.98bn downloads by 2010 - a 161% increase on
2005 - and a value of £1.93bn.

MOBILE DOWNLOADS VOLUME AND VALUE SALES BY TYPE

2005(est) 2004 04-05
m pounds m m pounds m % chng
1 Ringtones 250 250 100 120 108
2 Games 200 150 55 60 150
3 Music 60 100 20 35 186
4 Wallpaper/screensaver 100 70 90 60 17
5 Gambling 70 50 15 20 150
6 Other 80 120 20 25 380
Total 760 740 300 320 131

Source: Mintel



TOP 10 RINGTONES BY SALES, 2004

Track Artist
1 Babycakes 3 of a Kind
2 Yeah Usher (feat Lil John & Ludacris)
3 I Don't Want You Back Eamon
4 Call On Me Eric Prydz
5 Lola's Theme Shapeshifters
6 Hey Ya OutKast
7 My Band D12
8 Cha Cha Slide DJ Casper
9 Burn Usher
10 Come With Me Special D

Source: The Times



UK RETAIL SALES OF MOBILE PHONE HANDSETS BY VOLUME AND VALUE

000 units pounds m
2000 17,500 945
2001 14,875 788
2002 14,280 700
2003 15,998 864
2004 18,077 995
2005 (est) 19,886 1105

Source: Mintel

ANALYST COMMENT - THOMAS HUSSON, MOBILE ANALYST, JUPITER RESEARCH

The mobile content sector, which is dominated by ringtones, accounted
for £300m in revenues in the UK last year. Although still far
behind SMS revenues, Crazy Frog proves that heavily advertised mobile
content can succeed.

But Crazy Frog has generated a lot of bad press for Jamster, the firm
behind it. Critics argue that it misled consumers by failing to make it
clear that they had to sign up to a monthly subscription, and in doing
so damaged the whole industry.

The code of conduct has to be implemented more strictly.

On average, two-thirds of ringtones are sold by independent content
providers promoting their products in press ads or on TV.
Personalisation services remain an impulse purchase, however.

Other content categories are emerging, such as mobile games and, to a
lesser extent, music video clips (pioneered by 3 in the UK), short video
downloads and streaming of full-track music downloads. Mobile live TV is
a nascent market.

Mobile content is only just beginning to be a source of differentiation
for mobile operators, as demonstrated by the recent exclusive-content
deals between Orange and Jamiroquai and T-Mobile and Robbie Williams.
Such a trend will continue, with many internet players and media
companies trying to leverage their brands in the mobile arena.

Once music- or video-enabled phones reach critical mass, mobile
entertainment will grow if mobile operators concentrate on educating the
public on how to access content. Ease of use and simplicity are key
drivers that need to be standardised through handset manufacturers and
software vendors.