Westwind on Mobile Content space
Westwind Partners’ equity research team put out a timely report this morning on a space that is near and dear to our hearts: mobile content delivery (we have exposure to 4 names in fact – Airborne, Bluestreak, Intrinsyc and Wmode). Here are some of the highlights:
Mobile Content Delivery (MCD) is a fast-growing area of mobile communications, which became popularized in the consumer market through personalized wallpaper, ringtones and games downloaded to mobile handsets. The market is growing to include bandwidth-heavy applications such as streaming audio and video. We expect these services to be commonplace over time as cellular carriers implement broadband wireless infrastructures, handset manufacturers introduce multiple-form factors (and the resident handset client software) that accommodate these services, and prices for the services decline.
The MCD platform can be integrated into a carrier’s IT infrastructure in a number of ways. Three business models are: 1) the carrier hosting and managing the platform; 2) the technology vendor hosting and managing the platform; and 3) the carrier hosting the platform which is managed by the technology vendor. Mobile content is made available to subscribers through a carrier’s regular line-up of content (provided on the handset browser homepage) or where available through non-carrier websites (known as direct-to-consumer, or D2C). Carriers provide high-demand content (also known as “on-deck” content) on their handset browser, much like a grocery store places high-volume items at the end of an aisle. Off-deck websites are growing in popularity as more personalized content can be made available and content from a wide variety of publishers can be aggregated. Off-deck websites still require service arrangements with mobile carriers for the content to be delivered to a subscriber’s handset.
Products and services are created and branded, converted into deliverable applications and then delivered over the air by mobile carriers to subscribers. There are a number of Canadian MCD vendors, including Airborne Entertainment, QuickPlay Media, MyThum Interactive, BlueStreak Network, Wmode and Sona Mobile. We believe vendors that provide both content creation (creative media teams) and a robust content delivery platform (technology) are best positioned to succeed in the MCD market.
With over 2.5 billion wireless connections globally, mobile operators generated over US$650 billion in service revenue in 2006, according to Pyramid Research. Data is a growing component of service revenue as subscribers use their handsets for texting, Internet access, e-mail, and downloading content such as ringtones, music, graphics and games. There is a wide range of industry estimates in circulation for global MCD revenue, some as high as US$10 billion today, growing to US$37 billion in 2010 (these figures exclude services such as SMS, MMS and IM). Ringtones, graphics and games have been the leading content downloads, with streaming audio and video starting to gain traction. We expect the MCD market to post strong growth through the remainder of this decade as new services are launched by mobile operators and new handsets with embedded software replace existing handsets as subscribers refresh their devices over time. Ringtones and games have proven to be popular with subscribers but the jury is still out on the success of streaming audiocasts and video.
We expect video that can be consumed in short segments to gain the most traction given the unsatisfactory user experience of viewing an entire movie on a small LCD screen. One interesting development to monitor will be the offering of a common IPTV electronic programming guide (EPG) for mobile handsets and home television set-top boxes. Montreal-based Bluestreak Network has some interesting technology in this area, along with some marquee customers, including Orange and Time-Warner.