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As we saw last month in the first of this three-part series (see Mobile Phone TV: Part I – Almost Ready for Primetime), analysts are predicting surprisingly large customer bases —10 percent to 20 percent of total cellular subscribers in the long term —and revenues in the billions of dollars worldwide by the end of the decade.

But not all is certainty. Nothing is written in stone yet.

A number of key factors - video and service quality, content mix, pricing - will determine the long-term success of operators in this new market, analysts say. In the meantime, new players attracted by its promise are further fragmenting the cellular ecosystem —and the revenue stream. They include major television networks and production houses and, as we'll see in the final part of this series, a whole new class of wireless operator that will specialize in broadcasting music and video to handheld devices.

Positive Ratings
The early success of mobile TV seems even more certain now than when we posted the first part of this series. Verizon then would not reveal any information about customer take-up of the new VCAST service it launched earlier this year over its 3G EV-DO network. However, ABI Research principal analyst Ken Hyers says Verizon signed up 25,000 VCAST subscribers per week in the first four weeks after the service's launch.

What is not clear is whether the early adopters are actually representative of the overall population. There may be a curiosity factor, Hyers concedes. They may be the thick edge of the wedge.

On the other hand, he adds, "If you sign up 100,000 customers in the first month, to two-year contracts, and they have to buy $200 phones [to get the service], as happened with Verizon, it does show that something is going on."

Hyers, who authored the recently published ABI report Mobile Broadcast Video Services, admits he would have forecast lower growth rates than he did if he had been writing the report a year ago. But the surprising early results from Verizon and Sprint, the North American mobile TV pioneer, convinced him there was more to mobile TV than at first appeared.

The report, published in May, estimates there will be 250 million customers subscribing to mobile video services by 2010, generating $27 billion in revenues.

Wild Cards
Hyers admits there are still some question marks around his forecasts. One wild card is pricing. Current Sprint and Verizon subscribers are paying $10 or more a month for video services.

"The biggest question that still remains is, how many people are willing to pay $10 to $15 a month essentially for an entertainment service that is not anywhere near the quality of the service they get into their home," Hyers says. "Are they willing to boost [their entertainment spending] from the $45 they already pay at home?"

Handset prices are another factor. Phone models that work with the Verizon EV-DO-based service cost $200 or more. Prices will have to come down. "Most people don't like to pay $200 for a handset when they can get a very nice one without video for $100 or less," Hyers says.

Research director Julie Ask of Jupiter Research agrees. "We have to see lower-cost handsets, better quality screens, improved battery life and lower-priced content in order for this to grow," Ask says. "[The operators] will want to grab as much as they can from early adopters, of course, but it will evolve."

"The price of handsets will come down. But [operators] have to find the right price point [for content]. They have to figure out what the price-to-[subscriber] volume trade-off is. If they gave it away for free or charged a dollar a month, everybody would be using it. But that would not necessarily be the most profitable."

Programming
And profitability and revenue splitting will be a major factor, because as Hyers notes, video is transforming the mobile content ecosystem. "Now you're bringing in the big boys of content," he says. "The NBCs, ABCs, Fox's and ESPNs. These are businesses already built around large well-known brands. They're trying to extend their brands into this new medium and they're only interested in number one."

There is no question about their commitment to the medium. Some are developing programming especially for mobile, so-called mobisodes - mobile + episode, a term coined and trademarked by UK-based mobile operator Vodafone.

Fox Entertainment Group (FEG) in partnership with Vodafone, the world's largest operator, developed a series of 24 one-minute mobisodes based on Fox's wildly popular continuing TV series, 24. The mobile video on demand (VOD) series, 24: Conspiracy, uses the same sets as the TV show and features fringe characters from the original series. It was initially a Vodafone exclusive, shown in 23 countries where the cellular giant operates, but now Verizon has it too.

Verizon also premiered two completely original mobile soap operas earlier this year, co-produced by Twentieth Television, a division of Fox. The Sunset Hotel is about the denizens of an upscale Los Angeles hotel. Love and Hate, a partially improvised soap, follows the daily lives of a fictitious family over six months - "during which cameras document the emotional strains placed upon them by the many trials and tribulations the family members are experiencing."

The networks and production houses aren't just toying with mobile TV either, Hyers says. "It's absolutely that they're coming to this because they see a market opportunity. At this initial point, in the next year or two, they're not expecting to make a fortune, but down the road, they definitely see that it can be a profitable new market."

Hyers and others believe operators and producers have already correctly identified at least some of the characteristics of viable mobile TV content. It has to be short, targeted to mobile users and, ideally, produced especially for tiny handset screens. Even football games broadcast on Verizon's Get It Now network use different tighter camera angles and shots than the traditional sweeping panoramas of the field shown on TV, Hyers notes.

Will people ever watch 30-minute situation comedies on a cell phone? Verizon director of consumer multimedia product Jesse Money thinks not. "We have not seen anything to date to suggest there is significant market demand for longer material," Money says. "That's based on usage patterns of American customers. Mobility is a key to services like this. People have a few minutes between events and they're interested in opening their phone and looking at some content to fill that time."

Quality Questions
Video and service quality are other key factors that will determine whether mobile TV continues to meet analysts' expectations. Hyers believes true 3G networks such as Verizon's do provide adequate video quality, at least for now. The video frame rate - 15-frames-per second (fps) - delivers smooth enough motion, even though it's half the standard broadcast frame rate. "It's surprisingly fluid," Hyers says. "You don't notice the difference." Slower 2.5G networks like Sprint's likely cannot provide adequate quality for to sustain long-term growth.

Quality is and will be important, and because Verizon was first to offer a 3G-based mobile video service in North America and is throwing more money and resources at mobile TV right now than its competitors, it must be considered the market leader, Hyers says. This is despite Sprint being the first mover and having a broader and deeper selection of content.

"Sprint is building out its [EV-DO] network quickly as well," he says, "but they're going to be in catch-up mode for another year." Cingular, the number three player, has even further to come.

It may not be possible for any of the operators to maintain video and service quality indefinitely, though. The irony is that if mobile TV is successful—as Hyers believes it will be, with penetration rates of about 10 percent by the end of the decade—operators will eventually run into capacity problems.

"They'll be victims of their own success," he says. "They simply will not be able to support that amount of service."

At that point, a whole new breed of mobile operator may come to the fore.

New digital broadcasters are building their own wireless networks to deliver video to mobile customers using. They will use one-to-many (multicast) transmission technology rather than the one-to-one (unicast) techniques used by current mobile TV providers. In the final part of this series, we'll turn our attention to the still controversial and uncertain role of these Digital Video Broadcasting-Handheld (DVB-H) service providers.