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Dialing for News

When President Bush was sworn in for his second term in Washington, ABC’s coverage went beyond traditional camera crews and reporters. With the help of 20 Sprint phones capable of sending video mail, 24 inaugural-goers (specially chosen by ABC) shot 15-second clips and sent them to 24-hour news service ABC News Now. This is the latest example of the synergy between content providers—like ESPN, ABC, NBC Universal and MTV Networks—and cellphone companies such as Sprint, Verizon, MobiTV and SmartVideo.

“We have a good relationship with Sprint, which volunteered to give us phones,” says Bernie Gershon, ABC News digital media group senior VP and general manager. “We thought it would be cool to have people along the parade route provide us with short video updates.”

This week at the National Association of Television Programming Executives (NATPE) show in Las Vegas, local stations will get in on the action. SmartVideo is meeting with 11 TV-station groups about making local TV content—from as many as 1,200 stations—available via cellphones. (The service will run consumers $12.95 a month.) “We already have 30 million phones in the market capable of getting video,” says Richard Bennett Jr., president and CEO of SmartVideo.

Bennett’s SmartVideo is giving stations a chance to make money. The company either pays its content providers a fixed price per subscriber each month or, if the product is particularly compelling, a revenue share, although there is no specific breakdown between provider and company.

A tier-one station in a Class-A market like New York, Chicago or Los Angeles could easily realize $1 million from the service, says Bennett. A tier-two station could make a few hundred thousand dollars. Revenue opportunities scale down for smaller markets.

Local coverage rules

“The national networks are an important part of the content puzzle, but what gets people to stick with a cellphone video subscription service is local content: the local weatherman, the local news anchor,” says Bennett. “People don’t stop being viewers simply because they leave their house.”

Networks feel the same way. Brandon Burgess, NBC Universal executive VP for digital media, international channels and business development, believes the main appeal of cellphones for his company is their ease of use and storage capability. NBC is one of the station groups talking with SmartVideo; the service already carries a 24/7 version of MSNBC that is available on cellphones.

Until recently, much of the news about cellphone video services was hype. But with companies like Sprint, Verizon and T-Mobile rolling out such technologies as 3G (third-generation phones that can receive data at 144 kbps, three times the speed of a dial-up modem) and EV-DO (evolution-data only, a next-generation wireless technology to be deployed later this year with speeds of up to 300 kbps, delivering 28 video frames per second), the cellphone video market is ready for prime time. “Right now, even without those technologies, we’re able to deliver very fluid motion of about 15 frames per second, and the audio and video is synched,” says Bennett of the potential billion-dollar industry.

For content providers like ABC News Now and MSNBC, such quality improvements are critical. Both offer a live phone simulcast of their TV services. Says Gershon, “We want to give consumers ABC news content anywhere, anytime.”

Possible pitfalls

News providers with established brand equity, such as ABC News and MSNBC, make it easier to market video-cellphone services. By contrast, subscription gaming and video sites from unknown companies have a higher failure rate. Another plus for video phones: Cellphone companies already have an existing relationship with the customer.

Mike Goodman, an analyst with the Yankee Group, says even though a large number of phones are capable of receiving video services, that doesn’t translate into a large number of subscribers. “When we do surveys of consumer interest, these services don’t even crack double digits,” says Goodman. (Downloadable ring tones, on the other hand, typically score around 34%.)

One problem, Goodman says, is that companies think the success of mobile services in Europe and Asia can be realized here. “Things like video quality are an issue, but the bigger one is behavioral. We just aren’t a phone society; we’re a PC-based society.”

NBC’s Burgess disagrees: “Good functionality spreads on a global basis.”

Llicensing concerns

ABC’s Gershon argues that, in five years, more mobile devices in the U.S. than TV sets will be able to receive high-quality video. “All of the next-generation services will be far better than what is available today,” he says.

Of course, cutting deals with carriers like Verizon and Sprint (with their own services) or SmartVideo and MobiTV (the equivalent of cable overbuilders) to get content on phones is just the first step. Burgess says content is usually delivered to the service provider’s content-processing center (or, in the case of a 24/7 live service, brought down via satellite) and then readied for distribution to the phones.

Any company looking to deliver video and audio content over cellphones runs into licensing issues that have left many broadband services with a portal to second-rate content. ESPN will throw its weight around when it launches its branded cellphone service later this year. But even it may have to jump through some rights hoops to make the NFL or MLB comfortable with the idea of live football and baseball games being relayed on cellphones.

Entertainment networks will need to secure rights with actors, screenwriters and others. “ASCAP and BMI still don’t know how to deal with us,” says Bennett. (Since pirating content isn’t an issue with cellphones, rights should be easier to negotiate than broadband.)

Important to own content

That is one reason Bennett sees a great opportunity for local TV stations: They own their news content. Stations that sign on with SmartVideo will deliver three to four hours of content each day, typically 20 on-demand clips built from the day’s newscasts.

“Our goal is to give broadcast engineers an environment they’re comfortable with. One that doesn’t create new processes,” Bennett says. A digital-rights-management system protects the content and allows the network or station to make it available only in geographic areas where they have the rights to distribute. “Geographic-rights management on a global basis is paramount because mobile users are, by their very definition, on the move. And that’s something rights-holders have never had to face before.”

Russ Kagen, founder and managing director of Proteus, a provider of wireless applications and carrier connectivity, has helped HBO and ABC offer wireless content. He also sees an opportunity for local broadcasters.

In fact, Kagan says local opportunity is greater than the national possibilities. A local station can more easily promote the service and build a strong link with users.

“And it doesn’t have to start with video,” he says. A text service can send out information and remind viewers of air times for a specific show. “If you can drive half a point in ratings, that means everything in terms of ad revenue.”

Make it affordable

“We’re like a cable company for mobile services,” says Bennett. And like a cable company, SmartVideo pays ABC, NBC Universal and other content providers for the right to add their video content to its $12.95-per-month cellphone video service. (There are also $4.95-per-month premium services, including children’s programming.)

Goodman says the mobile phone service’s price tag is tricky, since many consumers have little left over after deducting household entertainment expenses. In recent years, entertainment spending has risen about 10%. “Your cable service is competing for the same dollar you might spend on a new phone service,” he says. “At that point, the consumer has a decision to make: Is there more benefit to spending it on cable television or mobile video?”

But Kagan says that cellular providers will pitch video and data services that will be hard for consumers to resist.

Advertising model

That may be one reason Bennett’s long-range plan of an ad-based model could be important. “Long-term, I see this as a free utility for the user. We want to get away from the stigma associated with targeted advertising,” he says. “TV viewers and our subscribers will learn that targeted spots are information, not garbage.” Bennett believes targeted ads could bring in $200 per every 100 users, because advertisers will see value in not wasting their ad dollar.

Building a solid business out of cellular services is a sensible investment of time, research and development for ABC News, says Gershon. “We’re finding out what the consumers are looking at and how to create content for this new medium.”