[Sam Barona]

By 2015, mobile television in Europe could be a €24 billion market and reach more than 190 million users, McKinsey research finds. To make good on this potential, however, broadcasters must offer more free-to-air content for mobile phones—and broadcasters, mobile operators, and handset manufacturers must lower their prices to maximize the technology's rate of adoption.

A McKinsey survey of more than 1,000 European mobile-phone subscribers1 shows the degree to which the availability and delivery of content, as well as the fees that operators charge for subscriptions and the price of handsets, could influence demand for mobile TV. Further, the survey data made it possible to model the potential adoption rates of mobile TV in Europe under various scenarios (Exhibit 1).2 It also found that mobile operators can dramatically affect the outcome by offering the right mix of incentives to consumers but that broadcasters, operators, and handset manufacturers must cooperate more than they do now.

The effect of the availability of content on users' behavior, for example, may be larger than commonly supposed. The survey found that, in general, mobile-TV viewers want to watch the same programs on their phones that they enjoy on TV at home. Indeed, news and children's programs, whether broadcast live to handsets or downloaded from archives, are the highest-rated shows in many current mobile-TV pilots. But most of these pilots don't offer enough free-to-air programming: the rate of mobile TV's adoption would slow by half unless all major European free-to-air broadcasters were included in subscription packages. Further, the absence of popular thematic channels (such as Extreme Sports in Europe), community-based programs, or searchable video archives slowed adoption rates significantly. If any of these options were excluded, the subscriber base for mobile TV would be one-third smaller in 2015 than it could be.

Although mobile users in places such as Japan and South Korea are willing to pay around €1 to €2 per download for video content, 62 percent of the potential mobile-TV users in our survey said they would prefer a flat-rate subscription. Successful trials in Europe and the United States now offer such plans for roughly €15 a month. However, offering subscriptions at a price closer to €6 a month doubled the expected pace of market penetration and increased the long-term profit potential for everyone (Exhibit 2). Powerful imitation effects (as consumers see others using the technology and desire it for themselves) more than compensated for smaller margins, adding 25 percent to the profit pool—thus bringing the total to an estimated €26 billion—for players to split over a decade.

But mobile operators must put their differences aside and agree on a broadcast technology standard to get their share. Although the choice of technology is still hotly debated—more than ten satellite, terrestrial, and cellular technologies are contenders—one thing is certain: a prolonged battle over standards creates the risk of poor service to customers and, ultimately, a smaller market. After huge investments in third-generation networks, mobile operators are understandably hesitant to open their wallets again. The study suggests, however, that the profit potential of a large mass market may justify investments in standards that conserve handset battery life and involve minimal transport costs for content—particularly if operators include more free-to-air shows in flat-fee service arrangements.3 Unlike current peer-to-peer voice networks, some new mobile technologies have enough capacity to send live broadcasts to large numbers of handsets.

Few of today's handsets, however, can recognize these signals. Manufacturers must be prepared to develop more modestly priced, mobile-TV-ready handset models to ensure that demand can be met. A dearth of affordable handsets early on could stunt the development of mobile TV, given the substantial imitation effects. The survey respondents were 40 percent less likely to buy mobile-TV service if a new handset cost more than €100 (though the most enthusiastic early adopters were willing to pay that much to participate in mobile-TV trials). This finding suggests that mobile operators should subsidize models that can receive TV programs, just as they subsidize other handsets. Moreover, the development of inexpensive handsets would help manufacturers ward off the growing threat posed by popular "cache-and-carry" devices such as Apple Computer's iPod. Consumers turned off by high handset prices might forgo mobile-TV broadcasts altogether and continue downloading video programs from the Internet.

Encouraging the quick formation of a large customer base serves the interests of broadcasters, mobile operators, and handset manufacturers alike—and even creates a potentially lucrative platform for advertisers. What's more, building such a base doesn't preclude operators from offering premium content add-ons alongside affordable service packages with free-to-air channels—much as cable television operators do.

Ultimately, of course, whichever business model prevails, broadcasters and mobile operators in Europe and elsewhere face a similar choice: cooperate or suffer. If both sides shelved their differences and worked together to create the largest possible market, the gains from mobile TV could easily exceed expectations.

[BeemerBMW]

This mobile entertainment stuff is going to be a big flop, in my humble opinion.

The technology for streaming and data transfer is just not up to par yet.

I would say around '09 or '10 that this 'huge market' they expect to see will finally appear.

They're getting ahead of themselves, making entertainment for the phones and not making better technology for data transfer and streaming.

I think the fastest you can go and transfer data (at like 28k too) is something like 38 MPH. Pathetic if you're in your automobile. (maybe not stop and go traffic though) Until speeds can get up to 56k when reception is at low, and like 128k for medium-high reception, people won't be getting into it.

I tried the MobiTV on my Alltel phone a few months ago, and the video was horrible, the video jumped about every 5-7 seconds, and rebuffered every 10-15 seconds. The audio streamed about as well as the video. Then, you also have to consider that the lip syncing of audio and video is also horrible and gets on most people's nerves.

[Sam Barona]

The same was said about 3G phones as companies clambered to be firts on the market with their offerings, which, inevitably, ended up being below par.

Despite these failings, 3G is now ubiquitous.

Yes, there currently are drawbacks, as there always are when new technologies are introduced, but this is just a part of every major introduction.

People want the latest and most functional gear, and no amount of initial failings are going to diminish this demand

Sam