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Mobile TV Service Provider Margin Scenarios

Mobile operators have long been able to exist in a self-contained ecosystem with little need for revenue share, according to Pyramid Research. However, as the market shifted to an emphasis on value-added services, operators have increasingly worked with third parties to provide content such as ring-tones, games, music, and now video.

Initially, the mobile operator had the upper hand in the relationship, since many of the companies providing content were reliant on the operator for access to subscribers. Now, as consumers increasingly demand music, games, and TV on a mobile handset, operators have had to share more revenue with entities such as music record labels, console game developers, and video broadcasters for access to sought-after content.

Broadcast mobile television deployment is a prime example of the new pressures facing service providers. With operators forced to work with traditional content providers, and with the ceiling for incremental subscriber spend at $10 per month (or less), the operator will likely be in a situation where profit margins are somewhere between slim and nonexistent.

Pyramid believes that mobile advertising may be the potential solution to the operator predicament -- it could emerge as a new and lucrative secondary revenue stream which will enable richer media at a lower price to subscribers -- and/or offset the cost of purchasing content from third parties.

However, I believe that the urge to merely replicate existing approaches to advertising would be a very big mistake. The small mobile device screen, the typical consumer's short attention span, and the potential to personalize ads requires that this application environment demands a creative and different approach.

The challenge for service providers is complicated by the fact that very few advertising agencies have experience with mobile ad creative. And, those that do often have a track record of less than stellar results.

Therefore, mobile operators will have to do two things. First, they need to experiment with creative new advertising models specifically intended for this format. Second, they should partner with marketing talent that's capable of producing meaningful innovation.

Given the performance of many mobile service provider's prior attempts at value added service marketing, the execution phase is apparently where the launch process tends to break down. Good ideas aren't enough to ensure success. Carriers would be wise if they applied their best executive talent to this task, and monitor the progress closely.

Customer feedback will be critical to the launch assessment process. Consumer profiling and segmentation -- based upon behavioral observations -- will help determine where there are opportunities to make that third-screen experience truly unique and engaging.

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