Research Notes

The European mobile operators will not manage content deals themselves

lessons learnt in Korea
Imagine how much content and services will be needed if the mobile operators want to raise mobile data traffic revenue from the 12% it is at today to 30% in the year 2005! Already today, some European mobile operators would like to increase data revenue to 50% of their total mobile revenue in the coming years.

To achieve this kind of revenue, the mobile consumers will need to be able to access mobile services, content and applications that suits each segments needs. The price needs to be right and the content has to have a certain minimum quality and have been tested across different makes and models of mobile phones. Time to market will also be important for certain types of content that have a short lifespan – e.g. a new hit movie related content etc.

In other words we are looking at a lot of mobile content. In Korea, which is around 3 to 5 years ahead of the European markets, the smallest of the three mobile operators has over 300 content and service providers who account for over 5000 actual mobile services – and this is despite the fact that all three mobile operators are using a “walled garden” strategy!

However much they would like to, there is no way that a handful of mobile operators in any country can administrate content and service deals with literally thousands of content owners and service creators who are offering tens of thousands of services – and most content owners and service providers would prefer not to have to negotiate directly with three or more operators to make their content available to all the mobile consumers in that territory.

What they have done in Korea to solve this issue is to appoint a number of Master Content Providers (Master CP’s). A Master CP is a middleman between the content provider/creator and the mobile operator. The Master CP negotiates content and services deals for the operator, having advised on what new types of content and services are available. Some of the CP’s are owned or controlled by the operator and are spin-offs from the operators departments that handled content deals in the early days.

Today, each of the three Korean mobile operators has between 5 and 10 Master CP’s, where each Master CP specialises within a certain field e.g. games, location based services, news etc. The mobile operators have however tried to keep direct contact with the largest media companies and service creators, rather than letting them go through the Master CP’s.

It is still early days for the business models for Master CP’s in Korea and a number of issues have already arisen that are now being looked at.

As it is today, the Master CP is making money on finding the content providers and advising the mobile operator, but has no revenue sharing deals and therefore no extra income once the content provider is selling mobile services. Basically, the revenue from consulting is too low and is threatening the Master CP’s businesses.

To compensate for this, some of the Master CP’s have subsequently bought up smaller content and services companies, made good content deals with the operator and then received the 90% of the content fee split. In Korea, premium content is split 90% to the content provider and 10% to the operator, but this has just meant that the operators are pricing content much lower than in Europe and of course, in most cases, still keeping the data traffic revenue for themselves.

Another issue that is being looked at today, is that all three operators are running ‘walled garden’ mobile portals, so most of the Master CP’s work solely for one operator and cannot sell content to the other operators – again, making it more difficult to make a sound business proposition for the Master CP and more difficult for the content owners to create and sell content across all three operators.

In Europe, many content providers are using Mobile Application Service Providers (WASP’s) to sell their content through. The main difference between WASP’s and Master CP’s is that the WASP’s can integrate the content up to all the mobile operators and that the WASP is getting typically 10 – 15% revenue share on the actual content fee. Working with a WASP is easier for a content provider, as they only have one negotiation to get their content out to all the mobile operators.

On the other hand, the close relationship between the Master CP’s and the Korean mobile operators, mean that the mobile operators have a better understanding of what is moving and on the way in the mobile services area and can ask the Master CP’s to look out for certain types of content that fit into the mobile operators strategy and/or marketing etc.

The Korean mobile market is described in detail in Strand Consults latest report “The Korean Mobile market, a window to 3G”. We spent almost 9 months analysing the worlds most advanced mobile market. We met with all the players in the mobile value chain and been honoured to have access to information not previously disclosed. We describe what the operators, the content owners and the technology companies business case actually looks like for real. With key figures and information we give a detailed description of a mobile market with over 30 million mobile customers – of which 9 million are 2.5G users, with new innovative mobile services- and
content and download speeds very similar to what we will see in Europe on 3G!

Today, the Korean mobile market is somewhere between 3 and 5 years ahead of the Europe and the lessons that can be learned from what the Korean mobile operators have achieved are many and invaluable. The strategies that the European mobile operators chose on how to handle mobile content and services acquisition, together with whether to adopt a ‘walled garden’ approach or not, will have an enormous impact on the success – and speed of that success – when real 2.5G and 3G content starts rolling out.
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