Should I do a deal with a carrier?

With the rise of the Mobile Internet gaining ground, there is a current state of flux for content producers and publishers around the best mobile strategy. To go on deck or not to go on deck that is the question? (A carriers branded mobile portal such as "Optus Zoo" is typically referred to as a deck "walled garden")

Many of the larger content producers already have established relationships with carriers, and have had some degree of success, in fact Sony BMG states that Hutchison globally is their largest seller of online music outside of iTunes.

There is an assumption by many content producers that once I get my properties on the carriers portal I've got it made, then I just need to sit back and watch the cash roll in. There is obvious appeal in this strategy a relationship with a carrier provides, exposure to an audience of (x) million people, a guaranteed user experience and a billing system.

Due to the current lack of decent content there is also currently a fantastic opportunity to strike some great deals if the content is compelling enough, especially if it has an existing audience. I know of two examples here in Australia where the carrier actually funded the production of the made for mobile series in much the same way a movie studio would, that gives you an example of the current climate and strong desire for good content.

So it all sounds pretty appealing and as a result for many producers their entire marketing strategy comes down to getting onto that holiest of decks but more often than not this will end up being the worst possible strategy.

Why don't I think that getting on deck is the best strategy possible?

1. Exclusivity:
   
   
With mobile penetration exceeding 100% in many countries carriers can no longer look for new customers instead the market is now all about reducing churn (preventing customers from moving to a rival network).

This battle is being fought on two fronts, price and content. Obviously reducing price can only go so far before it becomes ineffective and starts to impact on margins so the next best option is great content and this battle is being fought hard.

Carriers believe that content is king and will do what they can to lock in exclusive content rights. In Australia Telstra paid AUS$60million for exclusive Mobile and Internet rights to the AFL, Optus paid a significant amount for a limited window of exclusivity for MySpace mobile (3 months), Vodafone globally for the Rugby and 3 Mobile for the cricket.

This model typically reflects the TV model where a TV network will pay for the exclusive rights to content in the hope of winning viewers, increasing it's reputation for good content, pushing up ratings and funding it all by advertising, this is a proven model and works well in TV land.

Unfortunately this model just doesn't work in the mobile sector, why?, because, uh, carriers are not TV networks and have something called proprietary networks and walled gardens! (AOL anyone!?)

In TV land if Channel 7 has a better show than Channel 9 I just need to change the channel, thats it, no long term contracts, no new handsets, no change of number, no new rate plans, just pick up the remote and push a button. This model works because the networks are open and the consumer can chose their content.

This is not the case in the mobile space, if I want to watch exclusive coverage of the AFL on my mobile I can't just walk into a store and pick up new handset, I have to go through a very painful and lengthy process, sign up to a 24 month contract and promise my first born if I want to cancel!

I put it to the carriers that anyone who was compelled to change networks due to exclusive content did so a long time ago. A typical consumers mobile buying habits are not driven by the content they can access, it's by the type of handset (iPhone anyone?) and price, anyone who thinks otherwise is kidding themselves.

As a result this desire for exclusivity has a significant impact on the ability for the market to access your content leading me to...


2. Exposure:
   
   One point of doing a deal with a carrier is the instant exposure to at least their subscribers right? Wrong! In the majority of cases unless you are an established brand and the carrier has paid good money for your content you will be buried at least 3-4 levels down on the deck, e.g main menu - comedy - stand-up. Any potential customer browsing around on the deck will more often than not be wooed by the offerings at higher levels before getting to your stuff.
   
   
3. Market Share:
   
   The largest carrier in Australia (Telstra) holds about 40% market share in a market of 19million mobiles, which is pretty significant and for many this would be enough.
   
   Except when you realise that the vast majority of these customers are:
   A) Mum's and Dad's (so not early adopters)
   B) Governments and Corporate (who will not consume most content)
   
   As a result a deal with one carrier, even the largest, will rarely generate enough revenue to justify doing an exclusive deal with a carrier, there are other problems as well.
   



4. Revenue:
   
   The simple fact is that for most content producers an exclusive deal with a carrier, especially if your a small studio is not the pot of gold at the end of the rainbow many expect.
   
   Now admittedly this is an interesting one and it all depends on how much of an established brand you are, in the instance of the AFL the ability to negotiate is on their side and screwing Telstra out of $60million would have them laughing all the way to the bank. But in most cases the typical deal is nothing upfront and long term revenue share on content sales.
   
   This in turn causes a cash flow issue as content producers wait for customers to sign up to their great offering - 1 month, then wait for the customer to pay their bill - 2 months, then wait for the carrier to share the revenue with them - 3 months and this is just the start, this time frame can be even longer if there is a content aggregator involved.
   
   Additionally in some instances the revenue share with a carrier can be in excess of 50% of the sale or subscription price, the argument being that they are providing a billing system, a ready audience and so on. Now this isn't necessarily a bad thing even if it is a tad bit on the the high side (PayPal mobile typically charges 2% of the sale price to process a transaction) but it all comes down to volume of sales and as I pointed out before if you can only reach a small percentage of an interested market you wont be selling enough to justify the effort of getting on the deck in the first place.

So whats the answer?

The best option is to spend the money (it doesn't cost much) and establish your own branded mobile site as an additional distribution point for your content.

It is important to remember this though, mobile should never be your stand alone distribution point (unless your a mobile only play) it should act to reinforce your main distribution channels. The greatest thing about mobile is it's online when people are off-line, as a result you can leverage your existing promotional campaigns via SMS or Mobile Barcodes to drive consumers to the mobile site.

Monetization of this new point of distribution mimics the current online options with companies like PayPal launching PayPal mobile checkout and a range of mobile specific ad-serving networks springing up to fill the gap.

My advice is go off-deck, don't cut out 3/4 of your audience, and even more of your revenue for the sake of a carrier exclusive relationship, it's just not worth the heartache.