Verizon Communication CEO Lowell McAdam last week cited consumer demand for mobile video as a primary reason for ponying up $3.6 billion for spectrum from three major cable operators. McAdam claimed that video is “going to be the cornerstone of the changes and the future of the business,” according to a report from Wireless Week, with LTE making mobile phones part of an integrated video service that includes TVs, PCs and anything else with a screen. “Customers will flock to a service like that,” McAdam said. “That probably dwarfs anything else we would do for top-line revenue growth.”
I don’t know whether McAdam actually believes this is or is simply lobbying for approval of the spectrum deal by federal regulators. But there is precious little evidence that users really want to watch video content on their smartphones, and there are even fewer reasons to believe carriers can actually monetize the stuff. And nobody knows that as well as Verizon Wireless.
99 problems but a network ain’t one
Verizon Wireless, you may recall, eagerly partnered with Qualcomm’s MediaFLO for the 2004 launch of FLO TV, which foundered hopelessly before finally giving up the ghost two years ago. And while McAdam implies lightning-fast LTE technology is the ingredient that’s been missing for mobile video, FLO TV used Qualcomm’s network that was built from the ground up to deliver video to handsets. And that network was pretty effective at doing just that.
So why hasn’t mobile video caught on? Price has clearly been a factor, as carriers generally offered FLO TV for about $15 per month – roughly 20 percent of the average monthly phone bill. But there are plenty of other roadblocks: Most mobile video content is repurposed from TV and other platforms, so viewing on a tiny screen is a painful – even impossible – experience. Also, traditional TV-type scheduled video content like the stuff pushed by the Open Mobile Video Coalition is ill-suited for mobile, where on-the-go users might want to see a short clip of their choice as they wait for the bus but can’t catch the Seinfeld rerun that starts at 5 p.m. And then there’s the matter of data consumption: Watching an average of 50 minutes of streaming video a day pretty much maxes out AT&T’s $30-a-month data plan, according to the carrier’s handy data calculator.
Tablets: great for video, but not for carrier revenues
Perhaps the only beacon of hope for mobile video is the emergence of tablets, which have the large, vivid screens to deliver a quality viewing experience. Indeed, a J.D. Power and Associates report released this week found that 18 percent of customers of Hulu and other premium services used tablets to consume video, up from 11 percent in the previous year. But that’s cold comfort for carriers because roughly 90 percent of tablets sold in the U.S. are Wi-Fi-only, as analyst Chetan Sharma pointed out earlier this year. So carriers are pocketing very little revenue from consumers watching video on their tablets. Meanwhile, video consumption on mobile phones inched up from 14 percent to 16 percent, according to J.D. Power, which is almost nonexistent in a world where overall mobile data usage nearly doubles from year to year.
There are some promising niches for mobile video, of course. Video calling apps like Apple’s FaceTime will find larger audiences as tablets and bigger smartphones gain increased traction, and I expect video to play a big role as adult content becomes a huge market (and, surely, a huge problem) in the world of wireless. But the hope that cellular-delivered video will be a huge money-maker for carriers has been thoroughly debunked over the last decade. If video is truly the reason behind Verizon’s deal with cable operators – and if that pact is approved – the nation’s largest carrier is going to have a lot of unused spectrum in the coming years.