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Mobile content providers: having a ball

The Indian mobile market is growing rapidly, and along with it the demand for content and applications for handsets. Shivani Shinde reports

According to the Cellular Operators Association of India (COAI), the mobile subscriber base in GSM and CDMA has grown from 88.48 million in January 2006 to 93 million (GSM 65.2 million, CDMA 27.82 million) in February. As per COAI, the GSM mobile industry holds 77 percent of the total mobile market in India and accounts for 74 percent of additions.

Rising demand for handsets has led operators to offer services other than voice calls. Thus, the content or value-added services (VAS) market comprising music, wallpapers, ringtones and gaming is growing rapidly.

TRAI has put mobile sector revenues at around Rs 25,000 crore for FY05 comprising both voice and data services. These revenues have been growing at a compounded annual rate of 40 percent over the last five years. Revenues from VAS such as SMS, ringtones and ringback tones were about 10 percent of that recorded last year. (Source: TRAI)

With the number of mobile users growing, there is a growing opportunity for content providers. In India, wireless operators, music and film companies, comics content developers, game developers and musicians are all entering the mobile content market for ringtones, gaming, mobile imagery and streaming audio and video. Some players in the content segment are Mauj, Indiagames, Hungama, Soundbuzz (music) and Coruscant Tec.

Growing VAS market

According to Internet and Mobile Association of India (IAMAI), the mobile content market in the country for 2004-05 was worth Rs 558 crore and is expected to reach Rs 1,802 crore by 2007.

Preeti Desai, President, IAMAI says, “The increased interest in and demand for personal expression applications across mobile users is driving the applications and content market. Entertainment and content applications offered by content publishers, aggregators and operators are increasingly central to the revenue and competitive positioning.”

According to Arpita Pal, Principal Consultant, PricewaterhouseCoopers, the content market comprising mobile gaming, ringtones, ringback tones and wallpapers is expected to increase tenfold in the next five years. Pal points out that mobile operators are working towards offering 3G to their subscribers to support content-rich applications.

Though none of the VAS providers is ready to divulge its revenues, there are other indications of their reach and demand: take any reality-based programme on television and you see the use of four-digit numbers for polling.

"We will use this venture capital to create a market for 3G, scale up our infrastructure, and expand into other countries" -Arun Gupta CEO, Mauj

The potential of the Indian content market can be gauged from the recent investment that Mauj Telecom received. The company got $10 million venture capital funding from a consortium led by WestBridge Capital Partners; Intel Capital and Sequoia Capital are the other members of the consortium.

Arun Gupta, the CEO of Mauj, explains how the funds will be utilised. “We plan to use this venture capital to create a market for 3G applications, scale up our infrastructure, and expand into geographies like the US, Britain, Canada and Africa in the areas of mobile music and gaming.”

"Ringtones downloaded from the Internet or with a short code service both need SMS. Thus, it is by far the largest revenue generator" -Rajiv Hiranandani Country Head, Mobile2win

Presently, the Indian mobile market is riding high on rich media content that consists of SMS, music downloads, wallpapers and gaming, with SMS being the biggest revenue generator. Reasons Rajiv Hiranandani, Country Head, Mobile2win, “Anything that you download needs to be initiated by an MO (mobile originator). Ringtones downloaded from the Internet or with a short code service, both need SMS. Thus it is by far the largest revenue generator.”

Music comes next. According to a November 2005 survey by Soundbuzz (a one-stop online and mobile music company) that was based on reports from analysts and other sources, mobile music downloads (including ringback tones) in the Indian market are valued at Rs 400 crore. Approximately Rs 50 crore to Rs 60 crore was paid in royalties to the music industry in the past 18 months.

Gaming is still restricted to a certain age group (between 14 and 24), but it could take off with 3G. According to a Nasscom report, the mobile game-development industry is a $100 million business in India, and is growing at 100 percent year-on-year. By 2010, this industry is expected to be worth $500 million. Indian companies could book an additional $130 million meeting local demand for mobile games by then, up from the current $20 million. Presently, these games are priced between Rs 50 to 150. “In India, there are three price points Rs 50, Rs 99 and Rs 149; these depend on the brand and how exciting or relevant the game is. A generic game would cost Rs 50,” says Hiranandani. Mobile2win created a sort of record with its games on Bollywood themes. Till date its Sholay has been downloaded almost 1,50,000 times on to mobiles (excluding Reliance customers).

Says Rajesh Rao, CEO of Dhruva Interactive, whose games are popular among the gaming fraternity, “People are looking forward to sampling a variety of content on their wireless devices, and the number of VAS consumers is increasing.”

Another reason the mobile gaming market will grow in India is that it satisfies the aspirations of the common man. A niche segment has access to high-end PCs and consoles, but they are expensive for the common man. The mobile revolution has enabled millions of people to access games inexpensively.

Hiranandani opines that the content market has become competitive due to push from operators such as Reliance. “A few months ago Reliance was not charging for the content it was providing. It’s only now that it is charging. This means that now content providers are willing to develop quality content and deploy it across operators to make money.”

Along with the push from operators willing to charge their customers, experts feel that there is growing demand for content from tier II and III cities. Many feel that though the metros are growing in population, the demand for connectivity there has reached saturation point, hence players like BSNL, Airtel and Reliance are looking at tier II cities to push connectivity and content.

Three business models

There are three types of business models functioning in the Indian market.

There are companies that are experts only in providing short codes which are the four-digit numbers that you SMS. These providers basically need to integrate with the media house’s system and keep track of the number of SMS messages received, and also the billing and collection. How big is this segment? Well, Indian Idol on Sony TV recorded about 55 million responses in 2005.

The next is a direct relationship with the service operators; content providers have exclusive tie-ups with operators like Airtel, Hutch or BSNL.

The third working model is with application service providers who are into voice-based services.

Of these models, when it comes to sharing revenue, the content providers find it profitable to work directly with a media house (known as Brands) rather than with service operators for the simple reason that service operators take a huge chunk of the revenues.

Says Mandar Thakur, General Manager of Soundbuzz, “For a content provider, the profitability margins are highest in direct relations since there are no third-party players to share the revenue.” Soundbuzz is providing the short code 8888 to The Times of India. It gets about 2.6 million ringtone downloads per month out of which about 1.8 million are just for 8888.

Mobile 365 is another player in the short code segment. It integrates the short code, billing and collection into the back end of the enterprise. Explains Kaustav Ghosh, Country Manager, Mobile 365, “We integrate with the backend or application server and make sure that it gets together with the operations. We also have embedded solutions that give value-added features like applications manager and content manager which allow people to blog, chat or poll.” He believes that the operator gets at least 70-80 percent of the revenue share.

The revenue-sharing pattern among the service operators and the content providers is a major pain point. The operators feel that since they have the customer base and provide the infrastructure they should get the maximum share. Of course, none of the service providers was ready to comment.

Value must be seen

Along with content providers, service operators and handset manufacturers are bullish about the market. Take for instance Nokia, the handset manufacturing major which is working with service providers like Hutch for providing services to their customers. Opines Chakrapani G K, Country General Manager, Enterprise Solution, Nokia, “Users don’t buy instruments because of their looks...they do it because of their applications.”

Service providers want to work with manufacturers and content developers due to their declining average revenue per unit (ARPU). Though the number of people going mobile is increasing, they use the bare minimum of services. Service providers are therefore looking at increasing their VAS revenues.

Notes Naveen Chopra, Chief Marketing Officer, Hutchison Essar, “The mobile phone has become a part of daily usage. You may forget your wallet but if you forget your mobile phone you are lost. Content on phone is getting personalised.”

He however feels that the subscriber needs to see the value of the content, otherwise there is no point in continuing to provide the same. Though Hutch did not reveal the number of customers using its Hutchmail service, they agree that they are targeting it at the corporate segment.

Hurdles to growth

Though the content market is big in India, there are several hurdles in its path. These range from socio-cultural settings to technology to business sense.

Desai of IAMAI feels that the challenge lies in developing a mobile service that enables seamless and relevant consumer interaction across SMS, WAP or Instant Messaging to service the 38.5 million Indians online since 86 percent of them have a mobile subscription.

Neeraj Roy, MD & CEO of Hungama, while discussing the Indian gaming market, points out to a failure on the part of the network and handset providers. The GSM network and its compatibility in terms of active GPRS is low. Out of the total GSM users, only two million are GPRS users. Roy feels that the price point of games is still an issue in India. “We as a nation do not have a gaming culture as they do in Korea, Japan or European countries.”

Other hurdles are related to handsets and standardisation of technology platforms. According to Hiranandani, any game that is developed has to be customised to all the available handsets in the country. “This means that every game needs to be compatible with the Nokia 30, 40 and 60 series [apart from other handsets from other manufacturers], and also cater to handsets that are B&W.” Along with this, the game needs to fit the screen size of every handset, else customers won’t buy it.

Developers also need to work on various technology platforms for compatibility. Nokia is on the Symbian platform, then there are manufacturers which use Java and Brew (CDMA). “Lack of standardisation is a key challenge faced by content providers. A significant amount of time has to be spent on making a product compatible with various handsets,” Rao points out. For instance, a game like Sholay took five weeks to deliver (conceptualisation to final delivery), but almost a week went into making it compatible with different handsets.

Then of course there are issues of localisation. States Ajay Adiseshan, MD of Coruscant, “Localisation of content will be crucial for success in the Indian market.” The company has tied up with comics guru Anant Pai for multilingual comics content on mobiles. Other than English, Hindi and Marathi, they plan to introduce it in Tamil, Gujarati and Bengali.

Ironically, in spite of the massive growth of mobile messaging, handsets are still not easy to use for messaging or multimedia. Agrees Desai, “We have a long way to go in improving SMS input with features such as touch screens and mini-keyboards in a wide range of devices as these have a dramatic impact on messaging volumes. The present handsets were designed for voice but now have to deliver text, audio, video and animation, and all these need to be available with easy self-service configurations. Mobile e-mail needs to become device-independent.”

The mobile VAS market in India has just opened up. With the entry of 3G and the government taking keen interest, operators and content providers are bullish on the market.

shivani@expresscomputeronline.com