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_____________________[PRO] Welcome to 3G: Girls, Games and Gambling

Welcome to 3G: Girls, Games and Gambling
By Fiona Harvey
Financial Times, February 24 2003

If there’s one surefire way of swelling your revenues, she’s busty and scantily clad. Sex sells, as any marketer knows. Although they may be loathe to proclaim so in public, mobile phone operators, desperate for new revenue streams, must regard sex as a sure way to boost their cash flow.

"Any new medium, from the printing press to the internet, is fuelled by adult content. Cinema in the 1920s, video recorders in the 1970s, DVDs in the 1990s. It’s the same pattern," says Lars Becker, chief executive of Flytxt, the mobile marketing company.

"Whenever there’s a new platform for distribution, you tend to see 75 per cent of the content being adult-related," adds Charles Prast, chief executive of Private Media Group (PMG), one of the world’s biggest pornography groups.

The argument for mobile porn is simple. On the internet, pornography has been one of the few success stories. Datamonitor calculates that back in 1998, adult content was worth a whopping $1bn, making it a bigger moneyspinner than all the other forms of online content put together. Revenues carried on growing at an estimated 25 per cent a year.

Why shouldn’t the same be true of mobile phones? Though handsets have not been up to much so far, offering only a few lines of text and no pictures, advances like multimedia messaging and better handsets open up a greater spread of possible content. “They’re also personal and discreet – the perfect platform,” says Prast. Those who don’t want full-on porn might at least find themselves tempted by the opportunity to install a Playboy Playmate, say, as the screensaver to their phone.

Even with today’s technical limitations, sex will find a way: naughty text messages, sent by alleged bored housewives but billed to the recipient, already have several hundred thousand users per month in the UK. “They’re all dirty texting like mad,” grins Rob Johnson, chief executive of Netconnex, part of the group that also owns the Daily Sport.

So with bigger, colour screens, plus sound, and in the near future even video clips, all privately downloadable to the palm of your hand, surely the mobile belongs to porn? At a recent round table of mobile pundits, all thought so. Mike Worley of Victoria Real, which specialises in streaming and wireless technology, voiced a typical prophecy: “[The winners] will probably be the old stalwarts of gambling, sport and adult – the things people are passionate about.”

Paul Myers, managing director of Wippit, a music distribution specialist, agrees: “The one thing that we know people will pay over the odds for, because it is not something they think about with their heads, is pornography or flirting services.”

John Delaney, principal analyst at Ovum, the consultancy, added drily: “It is clear that sex content is going to be important on this medium as it is on every other medium: TV, magazines and so forth.”

Gartner Group, the industry research company, estimates that adult content over mobile phones was worth $87m in 2002 and will generate $1.3bn in revenues in western Europe in 2005, or about 5 per cent of the total mobile data market.

But mobile operators themselves come over strangely coy when the subject is broached. Most deny that adult content will be a major revenue source. “We certainly haven’t appointed a head of porn, whatever the rumours are,” insists a spokeswoman for Orange.

The other networks have similar responses. For instance, Geraldine Wilson, managing director of Vodafone UK content services, says: “In other European markets where they are more receptive to adult content than the UK, it is already an area of interest to customers, after news and sport. But we always like to operate within the culture of each market.” She says music in the form of ringtones and games are the biggest moneyspinners and she expects this to remain the case.

Even Virgin Mobile’s head of adult services, John Conlon, admits that it’s a “sexy” brand and that a deal with Playboy is close, but will only say adult content should provide “a fair proportion of revenues” in future. No one, it seems, wants to come right out and say that erotica could be a strong driver for growth, whatever the feeling among the rest of the industry.

While observers happily assert that “girls, games and gambling” are the triple drivers for Hutchison’s 3G network, 3 itself pours on cold water. “No, this is not part of our plan,” says Matt Peacock, 3’s director of external relations, firmly. “Our research says this is not what people want. What they want is football.”

Although 3’s initial target customers are young men in their 20s and 30s, porn comes a long way down their list of desirables, according to Peacock. In fact, 3’s customer research shows gambling to be the form of adult service that turns most people on. When 3 launches later this year, the only adult stuff in its “walled garden” will be betting.

3 is also understood to be close to a deal with Playboy, but it’s uncertain whether this content will make it to the UK: like the other operators, 3 prefers to let other countries have adult services first.

Moreover, it’s not even just the operators who disagree that pornography has a future on the phone. Spooky Suicide runs the Suicide Girls soft-porn website. He says: “I don’t see that people will want to look at pictures while they are on the move. They can look at them at home, on their PCs, or on their hotel room TV if they’re travelling.”

But if porn is truly not what people want, why have current adult mobile offerings proved so popular, severe limitations notwithstanding? PMG launched its reverse billing text chat barely two months ago, and already it generates an estimated £40,000 a month. Much-despised Wap technology gained 400 users in two weeks in a newly launched service with Daily Sport content, without marketing. Its adult reverse-billed SMS chat service boasts 202,000 UK users, in less than a year of operation. PMG expects to make $1m in revenues from the mobile channel in Europe this year alone.

What’s more, mobile porn offers an important advantage over internet pornography, adds Prast: billing. “On the internet, people are fed up of getting ripped off by fraudster sites. They don’t like giving out their credit card number. But by mobile phone, you just pay for the service with your phone bill, so it’s easy, safe and discreet.”

Part of the reason for the operators’ coyness comes from the complex regulatory issues surrounding adult content. George Kidd, director of Icstis, which regulates premium-rate mobile services, warns: “There will be content that is illegal, so mobile operators have to figure out what to do about that.”

Simon Shooter, partner at Barlow Lyde and Gilbert, the law firm, says there are no specific regulations around pornographic content on mobile phones. However the same regulations that govern pornography on the internet and in print still apply.

Virgin’s Conlon admits that operators are most worried about being linked by the press for allowing children access to pornography and also providing a channel for paedophiles. Mobile operators are anxious to insist on their patrolling of the content at all opportunities, and every statement they make about adult content is laced with references to filtering and customer protection. An O2 spokesman makes a typical rider to the company’s “exploration” of adult deals: “We will not launch these services unless filtering software is in place to protect customers.”

Vodadone’s Wilson echoes: “We are working on access controls, and we’ll have that by the end of this year. We certainly wouldn’t do it without access controls.” What, too, of the legal problems on the other side: that of copyright protection for the content owners? When a user receives a picture or text message, it is at present very difficult to prevent him simply passing it on to any other mobile number.

It would cost a user only the price of a message to start distributing copyright adult content to friends, potentially creating vast informal networks of porn aficionados who were not paying for their pictures. Users could also begin to generate their own “amateur” pornography themselves, perhaps with the digital cameras now built into many handsets, and distribute it in a similarly peer-to-peer fashion.

Wippit’s Myers believes that peer-to-peer content distribution by mobile phone will catch on in both the music and the adult content markets.

On the Net, KaZaA is one of the biggest peer-to-peer content distribution sites. Myers thinks a similar service that would work on mobile phones could be about a year away: “[Already] Wippit has gone half of the way (though just for music) in that we let people search from their mobiles and pick up the content on their PCs.” If he’s right, mobile users could soon be swapping music files and both professional and amateur pornography among themselves.

But while the prospect of such services may give record companies headaches, Prast remains nonchalant: “I don’t believe people will want to swap adult content with one another. It’s too private. After the age of about 18, you don’t really necessarily want your friends to know you’re looking at this kind of content.” That could also be a reason why customer research suggests porn is low on people’s priorities.

Also, adult content has a surprisingly short shelf life. Prast notes: “If you look at the internet [adult content] sites that are most successful, they are the ones that refresh their content weekly or biweekly. People want the new stuff.” PMG makes about 100 new films a year, he says, which equates to many thousands of short clips and still images that can be downloaded to phones. The company is hedging its bets, however, with discussions with operators on technology that would prevent material being passed on to other phones once they had been received.

Prast warns, though, that pricing will be key: “This market is also about not over-charging customers. People are willing to pay, but they don’t like to be ripped off.” While operators dither, companies like Playboy Enterprises, PMG and smaller owners of adult content are champing at the bit. Netconnex’s Johnson says: “We have a shedload of internet content already, which it is straightforward to adapt.”

The success of premium rate adult texting offers a foretaste of what they hope is to come, and they believe operators will find the economics irresistible. “It’s a decision for the networks, and they are blowing hot and cold. But all I can say is that if you don’t allow people access to the product areas they want, you’re not going to get very far,” says Johnson.

Public transport users are already well aware which of their fellow travellers are most likely to be found fiddling with their phones: young men. These days, they’re probably just playing the primitive and inane games that are the best conventional handsets can offer. As new handsets with better screens and graphics become mainstream, they may start playing more absorbing games or watching football scores. Or, if the porn industry is right, they may be fiddling for a different reason.

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