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The future of mobile

The telecoms sector suffered something of a setback with the implosion of the ‘tech revolution' in 2000, and for some time has been out of favour with investors. But, in an overview of the future of the mobile industry, Robb Klein of SJ Berwin outlines some of the opportunities still up for grabs.

Fairly soon, actually making a call from your mobile phone could seem terribly old fashioned.  Voice services may have started the wireless revolution, but with highly competitive markets becoming saturated, improving technology and increasing bandwidth, network operators and hardware manufacturers are vying for consumer attention with a whole range of new services.
After voice services came data services, with SMS messaging proving extremely popular, along with the downloading of ringtones and logos for users to “personalise” their phones.  The next generation of phones, supported on upgraded networks, will take things much further, with phones capable of storing and playing MP3 music files, taking and transmitting digital photographs (as demonstrated by Andre Agassi and Steffi Graf), web browsing, online computer gaming and even playing high-quality colour video.

Of these services, video streaming and online gaming are widely touted as the next “killer apps” for mobile operators, who are eager to find consumers willing to pay for online content.  Likewise should it provide a valuable source of revenue to the providers of that content.

On the video side, BMG recently became the world's first record label to launch a music video over streaming mobile media.  The latest release of Finnish rock bank Kemopetrol can be viewed on the new Nokia 7650, already on sale in the UK.

As for gaming, the operator O2 hopes that, following the release of mobile Java games on its O2 Games Arcade, which give users a far richer graphical experience than the games currently played on mobile phones, it will be generating £800,000 a month by mid-2003 from online gaming.  The service will cost users about £1.50 a month, and will enable them to browse and download games.  Content will be supplied by a range of game developers, such as Digital Bridges and THQ.

Licensing mobile content

According to industry research by Analysys, mobile content and entertainment services currently account for EUR2.7 billion of Western European consumers' total mobile service expenditure.  This is expected to increase to EUR23 billion (17% of the total) by 2007.  This will mean a huge increase in the amount of third party content supplied by operators to users.

The contractual arrangements between content providers and operators will be key to this development.  Content providers will need to ensure that all relevant rights in their content have been properly cleared.  All individual contributors to the content should have assigned all their rights to the content provider, (or entered into transferable written licences) which allow the provider to license the content on to the operator for distribution to its customer base, wherever they are located.  The operator will expect to take a warranty to this effect, often backed up by a suitable indemnity.  This will apply whatever the type of content, from a ringtone (containing copyright music), to games or video (containing a host of copyright sounds, text and images).

Operators will often also want to ensure that the content providers, often small companies with limited assets, have sufficient insurance cover in place in the event of any third party claim arising from the use of the content.

Content providers (and operators) will also have to consider any other relevant regulations that may apply in the territories their content will be distributed.  For example, if there is any gambling element to the games, then they will have to comply with any relevant betting and gaming regulations.  Other things to consider include the ownership and transfer of any data collected by the operator and/or the provider about the users (and compliance with data protection legislation) and, of course, how any revenues generated by the service are to be shared.

Revenue sharing arrangements
Revenue sharing arrangements between content provider and operator vary depending on the content and the negotiating position of the provider.  However, unlike content distribution in other media (such as film or television), operators try to avoid paying advances or upfront licence fees.  They much prefer to share the net revenues generated from users of the content. 
Currently, users often pay for content they access by calling a premium rate phone line, rather then having the cost added to their mobile phone bill (so-called “reverse billing”).  However, the gradual introduction of reverse billing across the networks is likely to produce higher returns for the operators, and should also lead to a better deal for the providers (as the operating costs are reduced). 

That said, relative bargaining positions are often very much in the favour of the operators, and low margins for providers could well lead to consolidation.  For the major, established content owners (such as Disney or MTV) the playing field is more level, with the operators keen to promote content which already has strong, recognisable brand.  Even so, there will be significant negotiation about guaranteed returns, exclusivity and what costs can be taken off the top by the operators before “net revenues” are reached. 

Some operators have tried to attract the smaller providers by offering more open “standard” revenue-sharing arrangements, where the content provider sometimes undertakes its own marketing for the content.  However, whether big or small, the providers and operators will need to work together and profitably share revenues if the analysts are to be proved right and consumption of entertainment services is to really take off.

Robb Klein is a partner at SJ Berwin, a pan-European law firm with offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on issues raised in this article or any other aspect of m-commerce, please contact Robb Klein in its London office +44 20 7533 2222 or visit our website at www.sjberwin.com