Coming as it did just two days before Christmas Eve, the announcement went almost unnoticed. But it was a biggie: Media giant News Corp. divested itself of its ailing mobile entertainment arm, Fox Mobile Group (FMG), selling it to industrial conglomerate Jesta Group, a newcomer to the mobile content scene with interests in a disparate assortment of industries, including real estate, hospitality, manufacturing, technology and aviation.
Although the terms of the deal were not disclosed, Jesta is bound to have paid significantly less for the unit than News Corp. did in 2006-2008, when it acquired, in two separate chunks, what was then leading ring-tone company Jamba for an unprecedented US$388 million.
Back in 2006, the mobile entertainment market was on a high, with mobile users eagerly paying a premium to companies such as Jamba to download ring tones, wallpapers and other content with which to personalize their handsets. Jamba, founded in Germany, had acquired international fame with the extremely irritating but nevertheless phenomenally popular Crazy Frog ring tone. But the market for mobile personalization content peaked in 2007 and went into sharp decline after that.
Many mobile content aggregators like Jamba have since gone bust or been snapped up by hardier competitors, such as Italy’s Buorgiorno and Spain’s Zed. And the process of consolidation continues. A few days before Fox Mobile’s divestiture announcement, news broke of the acquisition of UK-based B2B mobile content aggregator FoneStarz Media Group by US-based mobile music provider Livewire Mobile.
A number of factors started to undermine their business: The bad press attracted by premium-rate subscription scams; increased piracy fueled by Bluetooth sideloading and file-sharing sites; the rise of user-generated ring tones, wallpapers and screen savers on full-track- and camera-enabled phones; and price erosion fueled by commoditization and the growth of free downloads.
The biggest blow, however, has been the new world order ushered in by the rise of smartphone apps and the “over the top” players from the online and computer worlds, most notably Apple and Google. It is these mobile outsiders that now dominate the mobile content scene – at least in developed markets.
Meanwhile, the content world of feature phones and other legacy handsets is becoming sapped of choice and creative talent. Developers have defected en masse from Java apps – and the traditional aggregator- and operator-dominated mobile content value chain serving them – to native apps targeted at the iPhone, the iPad, Android devices and other smartphones and tablets. And in their rush to emulate and compete with the services of OTT players, some operators are abandoning old mobile content formats in favor of online-derived formats not suited to feature phones.
In the face of declining ring-tone and wallpaper sales, many aggregators started diversifying into new content areas, such as music full tracks and video. But that is not proving easy for them either. Some key European markets have recorded sharp declines in mobile full-track sales over the past year or two.
Nonsmartphone users neglected
But the music-sales stats published in each country often fail to take into account the proportion of full tracks downloaded or streamed via mobile devices from online services such as iTunes and Spotify – even though it is these services that represent the fastest-growing segment of the mobile-full-track market in developed countries. So rather than necessarily reflecting a shrinking mobile-full-track market, the stats point to the shrinking market share of traditional mobile music providers – i.e. operators and content aggregators. Again, it’s a case of the new world order overshadowing the old.
When researching the causes of falling full-track sales, it was interesting to find out that another contributing factor has been the recent switch by some major operators from feature-phone-friendly 3GP music files to MP3 files. Although MP3 files work fine on 3G networks and smartphones, they cause timeouts when feature-phone users with 2.5G contracts try to download them. After a few timeouts, feature-phone users are giving up on full tracks altogether. At the same time, the smartphone users that operators are concentrating on are the most likely to defect to the numerous over-the-top music services offered on native apps on their handsets.
FMG has been renamed Jesta Mobile Holdings and is co-headquartered in Berlin, Germany, and Beverly Hills, CA, US. The company will continue operating in North America, Europe, South America and Australia. But it will be interesting to see what happens to the business now that it is in new hands. News Corp. did not make a success of its investments in the digital sphere, both mobile and online. There are many who argue that its founder and CEO, Rupert Murdoch, is too old school to understand online and the Web 2.0 way of thinking. Hence Murdoch’s retrograde step, they argue, of placing a pay wall on websites such as that of The Wall Street Journal, though that could still turn out to be a shrewd move.
It could also be argued that News Corp. did not fully understand the mobile world it bought into with the acquisition of Jamba – a world that has been swept by rapid and far-reaching changes over the past few years.
Some of the aggregators that have remained in the personalization-content market have found renewed prosperity in developing countries, where the mobile content scene remains relatively untouched by the smartphone-app phenomenon. Jesta Mobile Holdings would do well to expand further into such markets. In developed markets it should pursue more B2B opportunities, as the demand for managed content services among operators and other mobile players grows, as well as look to compete in the mobile app sector.
But these are not easy times for the traditional mobile content players.
Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.