September 14, 2006 6:28 AM PDT
Advertising seeps into the cell phone
After years of balking at the idea of opening up their networks to advertising, the four biggest mobile operators in the United States are edging closer to incorporating banner ads, text message marketing and short video commercials into their business models in an effort to reduce the cost of offering new multimedia services to subscribers.
Experts at the industry's CTIA Wireless IT & Entertainment 2006 conference here this week said the question is not if and when mobile advertising will happen but rather how it will be implemented.
"Advertising is the only way that carriers can afford to add more content to their services," said Tom Burgess, chief executive of Third Screen Media, a company that manages mobile advertising for content providers and carriers. "They can't grow their content catalogs if they don't support advertising, because they won't be able to keep increasing subscription fees."
Sprint Nextel will be the first of the four major U.S. carriers to move in this direction. Paul Reddick, vice president of business development and product innovation for Sprint Nextel, revealed at a preconference event that Sprint's new ad program will begin this fall.
Several Verizon Wireless executives have acknowledged that the company has been testing a program to open up cell phone services to advertising. Cingular Wireless is also considering inserting advertising into content it offers through its menu of services. But wireless-services executives at CTIA were reluctant to give details.
"We are looking at mobile advertising closely," said Rob Hyatt, executive director for entertainment and premium content at Cingular. "I'm not prepared to say anything publicly here. But if you look at the cable TV market, a subscription and advertising business model worked very well to deliver lots of high-quality content."
Mobile virtual network operators, or MVNOs, are also introducing ad-supported content into their business models. Amp'd Mobile on Wednesday said it has struck a deal with Procter & Gamble to offer targeted ads with its video service.
A cautious approach
Today, most wireless Internet services in the United States don't include advertising. What little mobile advertising there is can be found on content producers' own Web sites, which are accessed through a mobile browser rather than through the carrier's cell phone menu, or deck, that subscribers use to locate service options. Opening the carrier decks to advertising will likely increase the available ad inventory content owners can sell by about 30 percent, Burgess said.
The major carriers have been reluctant to introduce advertising into their networks because they fear a backlash from consumers.
"We are being careful about jumping into advertising," Lowell McAdam, chief operating officer of Verizon Wireless, said during a panel at the CTIA show. "People view their cell phones as their personal space, more so than their PC. If they get an ad they don't want to view, that as a violation."
But as operators look toward offering more data services on their networks, they are quickly realizing that there is a lot of money to be made in advertising--a new revenue stream that could offset the heavy losses they are experiencing in their voice businesses. Operators also see advertising as a way to support new creative content.
According to market researcher Informa Telecoms & Media, advertisers will spend more than $11 billion by 2011 on mobile marketing. Operators could stand to take up to 50 percent of this advertising revenue as they negotiate deals with content owners.
While just about every media service, from newspapers to Web-based services to cable TV, generates a portion of its revenue from advertising, it's unusual for the operators delivering the media to be given a cut of the advertising revenue. But carriers have full control over their networks, picking and choosing which brands and content they carry on their decks.
They've also spent billions of dollars upgrading their networks to get them ready for rich graphic, audio and video content. And they've subsidized the cost of third-generation, or 3G, handsets so that users can get access to the services. So as a result, operators feel entitled to a piece of the action.
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