Mobile Video to Generate US$5.4bn by 2008

3rd June , 2004

Europe : In a new report entitled Mobile Video: Worldwide Market Analysis and Strategic Outlook 2003-2008, industry analysts ARC forecast that the mobile video market will generate worldwide revenues of US$5.4bn in 2008. ARC Senior Analyst Rupert Reid, takes a quick look at recent developments in the mobile video space to ee how they measure up against ARC Group's forecasts and whether there is any substance behind the hype.

As the latest in a line of applications touted to turn around flagging ARPUs and kick-start the dawn of a new mobile multimedia era, mobile video has been much in the spotlight recently. Whereas the adoption and usage levels of 3's much publicised video telephony services have not exactly set the industry alight in the early days of its launch, the underlying trends nevertheless point to a steady ramping up of interest in mobile video.

In the last 6 months, a flurry of activity across all elements of the value chain has witnessed the increasing momentum behind bringing mobile video applications and enabling technologies to market as players from platform vendors to content aggregators all attempt to carve an early lead in this nascent market.

Recent deals between Vodafone and Warner Bros. Entertainment, Mobilkom Austria and CNN and 3 Sweden and Endemol/Kanal highlight the growing focus placed on strategic partnerships between operators and content owners to target mobile video streaming, downloading and messaging services. By building up a rich ecosystem of branded content, 3G operators are clearly positioning their networks primarily as video-capable, and heavily promoting video streaming and video telephony services as a differentiator from 2.5G networks.

It is not just the 3G operators however who are pioneering video services as a number of 2.5G operators have launched video services of their own. For example, a number of European operators including Telefonica, TIM and O2 have launched a range of early video streaming applications through partnership with RealNetworks and its Helix Universal Platform. Likewise, the indications from Sprint PCS are very encouraging with PCS Vision customers having sent more than 100m picture messaging images and 15-second video messaging clips since November 2002.

Despite these promising early trends, there are challenges at every point in the mobile video value chain which must be resolved before video takes off on a mass market basis:

" Reducing the price of video-supporting handsets to gain mass
market acceptance
" Developing viable business models for video distribution which
include content protection,
" Resolving the interoperability, interconnect and roaming
issues for such services.

Top of these challenges remains the perennial problem of video-capable handset availability and a lack of well-defined and established standards across the value chain which are essential for operators to build a full service that includes content, servers, applications and handsets.

Nonetheless, ARC is confident that ongoing developments in high-performance, low-power multimedia application processors coupled with continuing improvements in high-resolution CMOS image sensors and high-resolution colour LCD screens, will see the mass market penetration of video-enabled handsets by 2006.

As with any forecast, the purchasing behaviour of end-users remains the key variable in assessing demand and also the hardest to predict. Nevertheless, on the balance of evidence, ARC believes that the widespread availability of video-capable terminals together with high-bandwidth networks supported by a rich distribution network of branded and mobile specific content will result in a steadily growing market for mobile video services over the next 5 years.

Mobile Video, from the ARC Group, forecasts that between 2003 and 2005 there will be a relatively slow rate of adoption, as the market is in its launch phase although from 2005 onwards strong growth is anticipated, and by 2008 it is forecast that close to 250m consumers will use mobile video services.

Mobile Video also predicts that video messaging will remain the biggest application category throughout the forecast period. In 2003, the figure of 5.1m users is mainly made up of the video clip messaging services that have been launched by operators in Japan. In Europe, initial video services have also been focused mostly on video messages, since user-generated content frees the operator from dealing with content copyright issues and content owners' DRM requirements. As MMS starts to enter the mainstream in Europe, it is expected that as camera phones in the European market evolve to support video, there will be a high adoption rate for video messaging services as an enhancement to regular MMS.

Video download is expected to be second to video messaging in terms of users until 2005, when video streaming will take over second spot, based on the higher penetration of 3G networks. After 2003, streaming will be a preferred method of consuming video content, since it has a much more immediate viewing experience than video download, and enables longer video clips and also live TV-like live broadcast services.

As a strictly a 3G service, ARC expect the total number of video telephony users to increase from 1.3 m in 2003 to almost 90m in 2008. Video telephony will continue to differentiate 3G networks from 2.5G networks, and the popularity of this application will rise as more possibilities become available to connect via video calling to enterprise video conferencing systems and consumer video devices in the broadband-connected home. This network effect of home, office and mobile video telephony devices will cause mobile video telephony to overtake video download services by 2007.

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