European Mobile Forecast 2008-2013, part 3

After part 1 and part 2, JupiterResearch just published the latest piece of research on long-term mobile trends in the European markets: "European Mobile Media Forecast, 2008 to 2013: Identifying Revenue Growth in a New and Challenging Ecosystem".

Key Takeaways:

Increasingly, consumers will not pay a premium for mobile content they can access for free online through a more convenient PC/laptop experience. As a consequence, mobile paying audiences will represent a limited share of the overall mobile content audience.

Mobile content will thus increasingly transition to use of ad-funded revenue models.

However, due to numerous niche audiences of core users of mobile video, TV, music, and games, mobile content revenues will grow to €5.4 billion by 2013. Despite having significantly tempered forecast on specific content categories, these forecasts are based on assumptions made about consumers' potential spending before the financial crisis during the third quarter of 2008. When moving into the consumer economy, discretionary spending could be hit, thus having some downward impact on non-core telecom spending. As the global economic crisis continues, Nokia's head of gaming Jaakko Kaidesoja just said he expected that the overall gaming market is likely not to grow in 2009. In an interview to Reuters, he however stated that some segments would grow--including pre-loaded games, emerging markets,and iPhone, not to mention N-Gage (naturally).

With mobile content revenues only partly compensating for the decline in short message service (SMS) revenues (decreasing by €5.3 billion from 2007 to 2013), mobile operators have no choice but to increasingly focus on mobile data access, mobile broadband and new communication revenues.

Operators should also enable creation of an open ecosystem in which they become trusted enablers rather than pure digital retailers.

If you are a Jupiter client you can read the report here, you can also schedule an inquiry call with your client services manager should you wish to discuss it further.

If you are press and would like more information you can email PRESSEUROPE AT JUPITERRESEARCH DOT COM

If you are neither a client nor press but would like more information on the report then please email Kevin Savage: KSAVAGE AT JUPITERRESEARCH DOT COM

Updated on Nov 8th: I will be on paternity leave until end November, so I will reconnect early December

Japan & Mobile

Conventional wisdom in the mobile industry is that Japan and South Korea are the most advanced mobile markets worldwide. Just need to look at Japanese facts to be convinced: 3G penetration over 80% (with the announced launch of Super-3G in 2010 by NTT DoCoMo; that is to say 9 years after the initial 3G launch), ubiquity of mobile Internet usage, use of mobile phones as wallets, QR-codes environment and many many other innovative services such as "mobile books". Last one I am aware of is the launch of mobile phones that will enable you to open your car ("digital mobile key" to be launched next year in partnership between Nissan, Ntt DoCoMo and Nec).

Needless to say there has been endless speculation in the last few years about how to extrapolate trends in those markets into Europe and the US. Is Japan (or South Korea) only a few years ahead of the mobile innovation curve or is there something specific in the Japanese culture as often explained? It is an extremely complex question and I think there are many different factors to take into account. Indeed, it might well be that Japanese are spending much more time in public transport (vs the US "car" culture) and that they may have a specific relationship with their "keitai". However, there are also plenty of other factors to take into account, among which:

- geographical constraints such as distribution of the population. Japanese and South Korean populations are extremely concentrated among dense urban conurbations. Around 45% of the population of South Korea is in the immediate area around Seoul while respectively 6% of the population of the US is around NYC and another 7% around LA. So what? Well, the return on investment when rolling out a new network is quicker and it is easier to deploy, which is why Japan launched 3G more than 7 years ago, at a time when Europe had not even started struggling with WAP.

- role of operators and their relationships with handset manufacturers. Operators have worked hand in hand with their suppliers to specify services and to make sure the user-experience would be compelling. This is one of the reasons of the i-mode success (with 91% revenue share for content publishers). NEC, Sharp, Panasonic are the main brands while the leading worldwide handset manufacturer has a market share below 5 percent versus a global average around 40 percent. Also, operators particularly DoCoMo have supported the costs of deploying new infrastructures (e.g, QR codes, NFC) to create a new ecosystem that would benefit all the stakeholders in the value chain.

- Japan is a very homogeneous and diversified mobile market. On the contrary and despite the adoption of the GSM standard, Europe is still very fragmented with as many different regulations and languages than there are countries. Consequently, return on investment is easier for players who do not have to deal with many different players and environments. Having failed to export their model abroad (i-mode alliance or difficulties of Japanese handset manufacturers to gain market share elsewhere), Japanese mobile stakeholders have started to diversify the portfolio of their offerings and to make the most of the mobile channel to the benefits of media companies.

Between internationalization and diversification, Japan has chosen the second strategy contrary to European players.

It clearly means there is a lot to learn from this market but that you have to be very cautious when extrapolating trends and trying to replicate innovation. I see many PRs about the tremendous potential of mobile advertising and QR Codes, based on Japanese success stories. It is true that mobile advertising in Japan has grown from more than 110% between 2006 and 2007. According to Dentsu and other local players, it represented slightly more than 500M euros in 2007! Half a billion! Right. But isn't that only around 5� / mobile subscriber / year? I know the real ratio is about regular users of mobile media services but still you get my point.

Jupiter recently published a report on music intitled Digital Music in Japan: Assessing the Dominance of Mobile. You can access it here.

One of the things I am most excited about now that Jupiter is part of Forrester is to have access to proprietary Forrester data on the Japanese market (and many other Asian countries) via Technographics. And also to have colleagues based in Japan.

The Beatles Go Digital - Just Not Quite How You Might Have Expected

Apple Corps have announced a partnership with MTV Games and Harmonix (the team behind Rock Band) bringing the Beatles content into a new console game. This isn't how many expected the Beatles to first come to the digital world (myself included) but it may well pave the way for digital distribution. (Though given Apple Inc's relationship with Apple Corp it wouldn't be an utter surprise if iTunes don't get first bite at the small round fruit).

I'm not quite sure how much we should read into Ring Starr's quote that the Beatles ending up on a console game is the "natural progression into the 21st century". Is he really saying that licensing to download stores is not a natural step? Or even that selling music formats is yesterday's game?

I have one other key question mark over this announcement: who will buy the game? It's one thing having 30 somethings reliving their denim-clad youth riffing along to AC/DC. But how many of the Beatles core fans have xBoxes or PS3s? The counter argument is Paul McCartney's hope that the game will "broaden the appeal" of the Beatles. Perhaps. But strumming along to "I want to hold your hand" doesn't have quite the same excitement as hammering out the riff to "Highway to Hell". Given both those considerations, the Wii might be a more natural fit for the fruit of this partnership.

Orange Q3 results

France Telecom just announced its Q3 results. Looking at European mobile data results, it looks like the market is still growing quite significantly:

France:
- 9,9M so-called mobile broadband customers out of an installed base of 24,5M subscribers
- data arpu growing by 18% yoy (vs Q3 2007) to 79 euros on a rolling annual basis. Non-voice represents 21,4% of total revenues. 53 percent of data revenues are now generated by non-SMS revenues. That is a significant metric to bear in mind, even though the majority might be driven by data access revenues and business customers
- 216,000 3G iPhones were sold during the quarter vs 150,000 Edge iPhone in 8 months. Just curious to know the overlap between the two segments.

UK: data ARPU growing by +11% to 82 euros / year / sub with 2,88M so-called mobile broadband subs.

Spain: data ARPU growing only from 38 to 39 euros / sub / year...Non voice representing only 13,1% of total revenues

As stated below, Spain is the main European market impacted by the crisis: "except for Spain and a few emerging markets, as of today no sign of a significant impact of the economic slowdown on other Group activities".

On a global perspective, Orange counts now 117,000,000 mobile subscribers.

Datz Music Lounge: Why It's Actually A Really Big Deal

Today sees the announcement of Datz Music Lounge. This one's been bubbling in the background for a little while now and a few record execs have been very elusive when pressed. What�s the big deal? It's an unlimited DRM-free music service with major record label content. Yes, you heard correctly. So what's the catch? Well so far only two of the majors are on board (EMI and WMG) and, crucially, it won't include all new releases, rather "a wide selection of new music released in 2009". But I wouldn't get too hung up on that. I'd expect more content to roll out over time if this thing proves successful.

The pricing is a 100 GBP upfront fee. Regular readers will recall this is exactly how I suggested the future of music subscriptions should be back in the summer. In the new digital world of Comes With Music and Play Now plus, 10 Euros/GBP/dollars a month for temporary downloads is a dead-end business model. New entrants like Spotify will either have to get new licenses or recognize that their ad-supported tiers are their future. As for Napster and Rhapsody, well they need more than a makeover to survive in the new digital world order.

One thing to be clear about though, this is not a tool to fight piracy. A hundred pounds up front might work for younger demographics if there�s a device involved (i.e. the 5310 or, say, an iPod Nano bundle) but is not going to hit the mark for a music service. For this price point it's going to be hitting older, higher spending music aficionados. Indeed the focus on catalogue aims it even more squarely at older consumers.

So don�t get distracted by all the current caveats, this is as big a deal in its own way as Comes With Music or MySpace Music. Datz itself may never be a market leading service but it�s laid the licensing groundwork for the rest of the market.

Telenor

Telenor is often viewed here as a Nordic telco. However, exactly like Telia Sonera, it is one of the largest mobile operator worldwide, competing with the likes of Vodafone, Telefonica and China Mobile. The company just announced that at the end of Q3 2008, it had reached 159,000,000 subscribers worldwide.

Interestingly, their Asian "business environment is currently more turbulent, and we foresee a period with lower global growth. In Asia in particular, the revenue development continues to be affected by the macro economic development as well as strong competition".

I already posted some comments here on the impact of the economic crisis here but this reinforces the issue of inflation costs in developing economies.

My colleague Pete Nuthall also just published a report "The Economic Downturn Sets Back The European Mobile Consumer Market: Mobile Data Growth Is On Hold As Consumers Turn To SIM-Only Deals". Available on Forrester website here.

If you want a more thorough view, here is Jupiter's Research and Advice for Uncertain Economic Times.

Sonos Controller App for iPhone and iPod Touch - First Take

Today Sonos, the multi-room streaming music system, announced an iPhone and iPod Touch application which turns the Apple devices into wireless Sonos controllers. The free app includes music management, Internet radio, album art etc. This is significant not so much because it suggest Sonos won�t be upgrading their physical controller unit anytime soon, but because it takes a step towards Apple touch devices become universal media controllers for the home. A concept which Sonos' CEO is a firm believer of.

The concept of the connected digital home has been with us for many years and has thus far largely failed to materialize. Instead we've seen the surge of adoption of multiple home media technologies that largely don't speak to each other. (My colleague Nate Elliott used to say that the future of the digital home wasn't so much the Jetsons as the Flintsones). But perhaps the linking piece that will turn technology into people's homes into the digital home will be the controller rather than a network. If so, Apple look the best placed to fill that role at this stage. To do so, Apple needs a more liberal approach to their rules for 3rd party app developers. To date anything that has overlapped too strongly with iTunes functionality hasn't passed muster. It appears that Apple is indeed softening its stance: the Sonos app has numerous overlaps and indeed it creates a new, self-contained iTunes-like environment within the device when active. So that's a big step forward, enabling Apple to stride into the digital home on the back of other companies technology and investment.

Iphone sales & mobile merchandizing

See below an extract from Apple's financial results for this quarter:

"
- 6.9 million iPhone units were sold in the quarter, more than in all previous quarters combined
- After just 15 months in the mobile phone business, Apple outsold RIM in the September quarter. 6.1 million BlackBerry handsets were sold. Measured by revenue, Apple is now the third largest mobile phone supplier, after Nokia and Samsung
- iPhone 3G is now available in 51 countries, and will be available in 70 countries by the end of the calendar year
- The App Store now features over 5,500 applications offered in 62 countries, and tomorrow customers will download the 200 millionth app. from the App Store -- all this in just 102 days since it first opened"

Numbers speak for themselves.

No doubt that the change in business model (allowing operators' subsidies and non-exclusive agreements) coupled with the internationalization explain those impressive results.

I just want to add a short comment on the App Store. Embracing Apple's early and innovative success, several players have announced the launch of mobile stores such as Microsoft (Skymarket), Google (Android Market) or RIM. Despite having been availabe for years on numerous Symbian phones, Nokia Donwload! did not manage to achieve comparable success. We know this is all about the user-experience and about the innovative marketing catalyst the iPhone represents for brands, retailers and content publishers.

However, I think many things could be improved. What about the ability to sort apps by prices and other criteria (languages, size, launch date, number of reviews), preview of the apps, obtain more detailed descriptions...

Mobile merchandizing is still in its early days.

Updated: if you are not yet familiar with Google Earth on your iPhone or if names such as Palringo, Fring, LightSaber, Mylighter, Newton's cradle, Devise or Mylite Flashlight and Colored Strobe do not ring a bell, have a look at this thorough review (in French) of the TOP 50 FREE iPhone Apps according to Mobinaute.
List is available here: http://www.mobinaute.com/170290-50-meilleures-applications-gratuites-iphone-ipod.html

Facebook Want Digital Music Without the Cost

Reuters report that Facebook are keen to follow MySpace's lead and get in the digital music business. Why the "me too" strategy? I wouldn't underestimate the effect of MySpace�s phenomenal streaming stats for the first week of launch (see my Popkomm round up post for details). But companies don't just make strategic decisions on the spur of the moment right? Right, but this doesn't feel like a big strategic centre piece, rather a way of getting some of the action without pursuing an expensive record label licensed strategy (the reports suggest partnerships with existing social music services rather than a proprietary service). And that isn't necessarily a bad thing. Music is not as central a part to Facebook as MySpace nor will it ever be. So it doesn't make sense for Facebook to launch copycat MySpace offering.

A smart strategy from Facebook will focus on tapping into one of the leading social music services and creating a heavily tailored Facebook implementation to layer on top of it, so that it provides a relevant solution that's appropriate to Facebook's look and feel, and to its users. So don't hold your breath for a MySpace Music II.

Nokia Q3 Results

In the current economic context, Nokia's financial results were expected by many to be a good indicator of how the crisis could impact the telecom sector.

- Nokia mobile device volumes=117,800,000 units / +5% yoy
- Nokia sales: -5% yoy
- Reason is quite simple: Average selling price is going down with an increase in volumes in emerging economies (only Europe and North America showed a decrease in volumes yoy, respectively -5.5% and -16.7%). Nokia expects worldwide industry volumes to reach approximately 1,260,000,000 in 2008 vs an estimation of 1,140,000,000 in 2007 (always more explicit to present such high figures that way)
- Nokia sold 16M converged devices (-500,000 vs Q3 2007) among which 9M NSeries devices and 3M Eseries. It represented 14% of total sales in volumes!

So all in all Nokia seems to have resisted pretty well and delivered a reassuring message via its CEO: "With our scale, brand, improving product portfolio and low cost structure, we believe Nokia is well positioned for the current times." (my insistance).

At this stage, it is difficult to extrapolate those results to the whole telecom market. Here are some random initial thoughts to be taken with a pinch of salt:

The telecom sector could potentially show a relative (does not mean at all it will not be impacted) better resistance to the crisis due to the cyclical nature of the industry (importance of pay-monthly bundles, to the exception of countries with high-prepay penetration such as Southern Europe), long lock-up periods (generally between 12 and 24 months depending on countries), limited exposure to financial debt in case of credit crunch (in this regard, Orange�s situation is very different from the 2001 crisis), limited dependence on energy costs (primarily electricity power for the base stations), limited household spent on telecom expenses (around 3% in Western Europe), ... Regarding inflation and budget households it might however be a different story in developing economies.

- The telecom sector is potentially more dependent on regulation issues particularly in the mobile space (new spectrum auctions, pressure on roaming / SMS / voice termination rates). In the fixed space, it is possible that significant investments may be postponed (e.g Fiber infrastructure) and that the real estate crisis may have an impact on the acquisition of fixed lines. Governments and regulators may be more flexible in this regard. Decisions to be taken on new market entrants and on digital dividend auctions will be all the more interesting to follow.

- Some companies will try to leverage the crisis to reduce costs a step further, outsource some elements of the value chain and increase pressure on suppliers or even acquire companies in the context of assets devaluation: this is particularly true for sub-segments where consolidation is going on (mobile content).

- Consumers will probably try to optimize their mobile telecom budget when renewing their contract / handsets. Replacement cycle may be increased if operators need to save costs on subsidies. However, it does not change the fact that increasingly carriers are offering unlimited bundles and packaging services into voice bundles. Face value perception of multi-play offering (triple, quad play) might be slightly more difficult to market. Hence the need to focus on pricing and value for money. There are thus potential opportunities for basic/simple offerings centered around voice/SMS such as SIM-only cards and low-cost brands.

- The main challenge is probably the growth rate of non-basic telecom products. Data and content revenues may be at stake or uptake may take longer for mobile data, video/TV. Mobile marketing and advertising spent may remain limited for an even longer period of time due to the lack of proven ROI and the infancy nature of the channel. In this regard, there is still a very long way for Nokia to generate significant revenues from its new divison "Services and Softwares". They represented EUR 115 M (net sales in Q3 2008). Not bad per se but a mere 0.9% of total revenues for the quarter. This ratio will be interesting to follow over time.

My colleague Ian Fogg already posted interesting comments here, insisting that we're not financial analysts.