Mobile Content –Emerging Business

Models and OpportunitiesScreen Digest8th May 2007

2

Today’s agenda

• Introduction– Ben Keen, Chief Analyst

• Playing the mobile content game– David MacQueen, Senior Analyst

• Mobile music – no money?– Dan Cryan, Analyst

• The mobile content revolution will be televised– Ronan de Renesse, Analyst

3

Screen Digest Mobile Intelligence

• Data on 25 countries– Europe, North America, Japan, South Korea

• Basic Metrics– Subscribers, 3G subscribers, ARPU split by voice, messaging

and content• Market Share

– Provided by mobile operator for subscribers, 3G subscribers and content market

• Revenues– Blended, prepay and contract ARPU; voice, messaging and

content ARPU• Mobile Games, Music and TV

– Service overviews– Historical data and forecasts for downloads, subscribers and

revenues

Playing the mobile content game

Screen DigestDavid MacQueen

May 8, 2007

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Why is content important to operators?

• Growth in messaging and voice revenues slowing• Content revenues mean linear growth rate continues• Content worth over €6bn in 2006 across top 10 European markets

Operator revenues, top 10 European markets

70000

90000

110000

130000

2001 2002 2003 2004 2005 2006

Rev

enue

s (€

m)

ContentMessagingVoice

6

Considerable variation in Europe

Ger

man

y Italy

UK Fran

ce

Spai

n

Net

herla

nds

Port

ugal

Gre

ece

Bel

gium

Swed

en

0

0.4

0.8

1.2

1.6

2

Dat

a A

RPU

(€)

• Myth that prepay users don’t pay for content

7

US around double European average

Ger

man

y

Italy

UK Fr

ance

Spai

n

Net

herla

nds

Port

ugal

Gre

ece B

elgi

um

Swed

en

USA

0

0.5

1

1.5

2

2.5

Dat

a A

RPU

(€)

• Operator promotion of content; little off portal• Flat rate data common

8

Far East dwarfs Western markets

Ger

man

y

Italy

UK

Fran

ce

Spai

n

Net

herla

nds

Port

ugal

Gre

ece

Bel

gium

Swed

en

USA

Sout

h K

orea

Japa

n

0

4

8

12

16

Dat

a A

RPU

(€)

• Most mature markets• The future for Western markets?

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Not all operators are created equal

Top 10 European markets

0

50000

100000

150000

Vodafone Orange Telefonica/O2

T-Mobile 3

Sub

scrib

ers

(000

s)

0

500

1000

1500

Con

tent

reve

nues

(m)

10

What do Vodafone and 3 have in common?

• Both operators routinely offer free content– Users become accustomed to buying content in a risk-

free transaction• Both early to offer more advanced content such as TV• Both advertise content to users

– Other operators typically only advertise on price of voice/text

• Vodafone typically strike deals with premium content suppliers such as Sky for TV and EA for games

• 3 typically looks for content which is current or fits in with current trends – not always big name brands

• Most other operators do not have such an obvious content strategy

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Mobile games – the ‘daddy’ of mobile content

• Snake appears in 1997, predating ringtones by 2 years• Games is the most mature content category• What can we learn from the development of this market?• How will this impact other content types?

12

Japan and South Korea mature

0

200

400

600

800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mob

ile g

ames

reve

nues

(€m

)

Download Subscription Pay per play

13

Europe reaching ‘tipping point’

0

200

400

600

800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mob

ile g

ames

reve

nues

(€m

)

Download Subscription Pay per play

14

Further growth expected in North America

0

200

400

600

800

1000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mob

ile g

ames

reve

nues

(€m

)

Download Subscription Pay per play

15

North America to be biggest market from 2009

0

500

1000

1500

2000

2500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mob

ile g

ames

reve

nues

(€m

)

North AmericaEuropeSouth KoreaJapan

• New markets will add to growth– China, India and South America key territories– BUT significantly lower price points

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Different business models in different regions

• Subscription largely in Japan– Mis-sold subscription services often cited as a reason for

lack of popularity elsewhere– i-mode has not been popular outside Japan

• Pay per download popular in Europe, North America and South Korea

• Pay per play (rental) popular in US, services launching in Europe– Pay per week/month options very like subscription, but on

a per title basis rather than subscription to service

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Who are the main players in the game?

PublisherConsumer NetworkOperator IP Owner Developer

Typical revenue shares (Operator/publisher)

Europe: 50/50

North America: 30/70

Japan: 9/91

Often up front payment and/or revenue shares from publisher revenues

Typically 10% from publisher revenues

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A gap is opening up

• Top tier publishers taking a larger market share• Top 3: EA, Gameloft, Glu

0

500

1000

1500

2002 2003 2004 2005 2006

Rev

enue

s (€

m)

Total top 3 remainder

19

Why is this happening?

• Operators focus on smaller number of higher quality relationships

• Slowing growth leads to increased consolidation and more M&A activity

• All of this means market leaders continue to capture a larger market share

• Life will become more difficult for smaller publishers

20

Investment activity peaked in 04, on rise again

• Around 50 deals and over $700m invested in Western markets• Peak in 2004 (start of ‘hockey stick’ growth)• 2007 a ‘busy’ year so far (growth slowed to 14%)

0

5

10

15

20

1999

2000

2001

2002

2003

2004

2005

2006

Q1 200

7

Dea

ls

0

50

100

150

200

250

300

Inve

stm

ent (

$m)

DealsInvestment ($m)

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Acquiring IP is a typical publisher strategy

• Licensing IP clearly affects profitability• Competition through brands has not been a successful

strategy, particularly for smaller publishers• Quality and scale becoming more important

95%

5%

58%42%

LicensedUnlicensed

Profitable publishers

Unprofitable publishers

Portfolio mix

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Publishers under pressure despite content revenue growth• Can publishers increase profitability?

– IP affects profitability– Fragmentation decreases profitability– Will 3D adversely affect profitability?

• So if content ARPU has strong growth, why not games?– Promotion of other content types– Limited deck space– You can’t treat games in isolation

• Limited audience– It’s been 5% for years– After 10 years of mobile games the audience has reached a cap

• Is the challenge to increase ARPU from existing players?

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The challenge is to prove us wrong

• Our forecasts are based on the existing market and what we feel is likely to change

• So if the current business models are not enough, what can make the market grow?– Not 3G– Search– Simplicity– Service not product – subscription and PPP

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What can we learn from games?

• Can we expect this to happen to all content types?• Can music and TV attract a bigger audience?• Will that audience pay?• How much will they pay?

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david.macqueen@screndigest.com

Thank you