MEOW - Issue 8, 2005

The steam is gathering on the US mobile content market, I guess we will all know a lot more after the CTIA show in San Francisco in two weeks' time. The market right now is a bit like the Gulf Coast ten days after the hurricane - thousands of new troops are moving in to help every day. It's all encouraging as there is a lot to do, I have the feeling that the U.S. market has only seen the surface of the opportunity scratched.

CTIA will be held in San Francisco on September 26-29 and on Sept 26 there will be two competing mobile entertainment events: MES by iHollywoodForum and MECCA by Billboard. This split is rather unfortunate and confusing for the industry, I have no idea which event will win this time around, I guess I will have to hop between both and sign up for neither one. Well, I decided to arrange my own 'party' at the concert of the Finnish band Apocalyptica who will be playing Metallica on acoustic cellos on 9/26 at 7pm at the Great American Music Hall in SF. I recommend you get the tickets and come and check it out! http://www.ihollywoodforum.com/ http://www.billboardevents.com/billboardevents/mecca/index.jsp http://www.gamh.com/artist_pages/apocalyptica_092605.htm

Michael Terpin's CTIA partylist will be published at: http://newswire.blogs.com/partylist/ and it will be pretty much the authority on where the best networking will take place at the show.

Talking about the hurricane Katrina and the unfortunate tragedy in the Gulf Coast Region, hopefully the U.S. wireless carriers will take the opportunity to point out to the government entities how one could use mobile technology in the future to better handle a crisis like this. Remember how FEMA scrambled to give out the evacuees debit cards and quickly pulled the plug on the plan as it was impossible to execute on? I believe with mobile phones and services one would be able to create an infrastructure to quickly enable everyone with:

This was obviously not possible by the time the hurricane hit and it does present a lot of issues in the areas of deployment and usability. However, I think in the future mobile phones would offer a compelling foundation for emergency recovery.

Sky Dayton, the CEO of SK-EarthLink is known as a brave snowboarder and a successful entrepreneur through his founding of several companies, including one of America's largest ISPs, EarthLink. His new venture SK-EarthLink brings to him an entirely new type of a challenge: managing a joint venture with SK Telecom, Korea's flagship telecom empire. Headquartered in Los Angeles, the company has currently 80 employees and is hiring at a rapid pace. As an MVNO on both Verizon and Sprint-Nextel networks they are planning to launch by the end of the year both an enterprise (SME) offering for EarthLink customers as well as a new youth brand.

From a Korean perspective the venture is extremely important: as perhaps the most advanced wireless operator in the world SK Telecom has now the opportunity to capitalize on the experience gathered on their home market and to bring over to the U.S. other players from the Korean mobile ecosystem to make some money when the CDMA2000 EVDO technology still has an edge over the GSM community in broadband services. The Koreans have tried to do it before: the rumors tell that SKT were close to acquire Sprint PCS in 2001 (when the latter had a market cap of $1.7bn...). Finally Adventis, the strategic MVNO consulting entity to both companies put them in the same room and the rest is history.

However, as I have said before, the proof of the pudding is in the eating. According to people familiar with the situation the venture is experiencing some execution issues. The Koreans have moved in a staff of approximately 30 people and turned the innovative EarthLink company culture into a reportedly stale carrier organization. In the ensuing political turmoil quite a few people seem to have left the company. According to sources the Koreans are swearing "we will never let this venture fail" - which is certainly true. The question that remains is whether thy will be able to build a successful media-focused MVNO from scratch without acquiring some parts to it later on from more experienced entities. My guess is that they will end up acquiring AMP'D Mobile after the latter has executed a couple of rounds on the market and spent the raised $100m. AMP'D has acquired a great understanding of what the youth market in the United States might want to buy.

No, I don't have anything against Seattle, I just could not help putting up the title after my earlier writings on Infospace...

During times when entrepreneurs come from Europe and build a company with success in under a year (Q-Mobile) there are home-grown US companies who venture into mobile content and manage to fail miserably. Please meet Dwango (OTCBB:DWGN) from Seattle. The company just recently missed their quarterly numbers and the stock took a dive from $1.25 to $0.36 in less than a month. 10% owned by Dwango Japan, Dwango North America acquired rights to some fairly significant content brands, among them Playboy and Napster. Without any intellectual property on the platform side and overpaying for the licenses, the company ended up producing a $10 million trailing 12-month loss on revenues of $3.35 million. Of the recently raised private placement of $15m the company has already managed to spoil $6m.

I think this is a beautiful case of the importance of right 'industry NDA' as discussed in earlier newsletters. Dwango is a product of financial stock market engineering rather than a company having a sound vision of the future of the mobile content market. According to friends who have more time on their hands than the undersigned, the ousted CEO Rick Hennessey had a reputation of a 'man who knew how to throw great parties'. A successful mobile entertainment company CEO needs the capability to establish his company as a market maker, an educator and an innovator. Dwango has focused on buying expensive rights and replaced innovation and leadership with plagiarism.

What will happen to Dwango in the future? The company has cash for about one year and sources speculate they are getting a new round of private placement. All I can say is that at $0.36 per share they are either gone in less than a year or they will be one of the best investments in 2006. I believe the company can make a turnaround but then again... they are from Seattle so what do I know...

All those small mobile companies who lived on the mercy of getting deck placement from carriers are now facing both opportunities and challenges as the pace of the game accelerates. Venture funding and IPOs are becoming increasingly viable and large media companies and portals are readying their plans to move into the mobile space with acquisitions. The situations is a bit similar to when I got my first real motorcycle, a Kawasaki 650 after having been riding for two years a Honda 125. You have suddenly a lot more horsepower available and you can either learn to master it or 'die trying'. There are plenty of examples of this on the market - what a great analogy;-).

Let's take for example m-Qube. With close to $50 million of raised funding and rather slow execution towards profitability the company is more like a Harley Davidson. The poor weight-performance ratio does not really allow for fast and sporty riding but they compensate it with good marketing and PR (or 'noise, tattoos and vibrations'). The company recently raised another $10 million and are planning to take the burn rate even higher by adding close to 100 people to the current staff of 160. The possible exits for the company include a merger with a European connectivity services company (such as, hmmm... Netsize who still does not have a U.S. presence) or an acquisition by a larger player like NewsCorp. The 'mobile bubble' will probably help bail them out... wait a minute... was it NewsCorp who in circa 1996 offered $400m for PointCast who declined the offer... indeed... So the name of the game for m-Qube is to know how to ride the wave with its Harley.

What are those larger players then going to do? Large portals such as Yahoo and AOL are still a question mark. They are recovering from the over-investment in wireless during the dotcom boom and clearly ramping up their mobile product portfolio - however no big moves yet. The real action from their perspective is in the online broadband market and wireless is still a second priority. Interactive Corp. is another much-anticipated actor in this space and the consensus is that they are looking to acquire a large player with a strong brand when the market has matured significantly, maybe a year or so more. Finally, of all the media companies and consumer brands it seems like NewsCorp is really ramping up their combined investment in online and wireless with the $3bn earmarked for related acquisitions.

So the lucrative exit for wireless startups is clearly starting to take shape and form. Now we just have to make sure that we are able to build sustainable growth on the market with real revenues and profitability.

Lagardere North-America. Regarding my last month's story on off-deck mobile content plays I clearly failed to include Lagardere in the top ten. The company has clearly been one of the smartest players on the market by launching lifestyle brands Blingtones (urban hip-hop), Barrio Mobile (Hispanic) and Wicked Betty (tween girls). The company is contracting and producing lots of original content and getting good results for the brands in sales both on carrier decks and off-deck. We are most probably talking about sales north of $10m for 2005. The promotion for the brands is comprehensive, including print media, TV, radio, web and street marketing. http://www.blingtones.com/

Telemedia Development. Telemedia is the leading operator billing aggregator in Latin America and the company is increasingly focusing on the Hispanic market on both American continents, targeting to serve media and consumer brands such as MTV whose Latin American operations they manage. The company just acquired Media Movel, thus strengthening their presence in Brazil significantly. www.telemedia.la www.mediamovel.com.br

Pod2Mob is a new company based in Los Angeles who have launched a streaming mobile solution for podcasts. The company founder is Brad Zutaut who became previously known as the founder of the groundbreaking make-your-own-ringtone company Xingtone. The software is targeted for mass-market phones and promises for interactive functionalities. Could this be a little revolution in the making? Particularly in the U.S. the masses are brought up to be media-savvy and ready to broadcast once you push a microphone under their nose. Very interesting! http://www.pod2mob.com/main

Bill Sanders started at Sony Pictures Digital Networks as VP of Mobile Programming and Jason Wells from Handango was hired as VP of Mobile. It looks like Sony Pictures is getting their mobile leadership team in place and ready to act. BSanders@sonypictures.com

Rich Miner started at Google as VP of Wireless after selling his short-lived start-up to the company. Rich was earlier responsible for advanced product development at Orange and before that a Co-Founder and CTO of Wildfire. This was clearly a smart move for Google. miner@google.com

RECRUITING

Last month's job announcement by a major studio was very productive for the company and it really seems the MEOW readership is a great source for job candidates. I encourage you to contact me and submit a request for an announcement, it helps add value to this little community.

Digital Hollywood will take place in Santa Monica on September 19-21, it will be a great event for Hollywood networking - see you hopefully there! http://www.digitalhollywood.com/

The next MoMeMo LA-chapter event will be staged on Sept 19 at 7pm at the LUXE Sunset Hotel. Please contact the organizer Jon Bukosky for details. jbukosky@m-qube.com. See: http://www.momemo.org/

Jan Michael Hess is producing a solid set of study tours which could give you an opportunity to understand better the leading Asian mobile markets: Japan, Korea and China. The next events are scheduled for October - check them out at http://www.mobileeconomy.de/met.