Mobile Entertainment

The company recently confirmed it would spend $100 million on ads this year.

A staggering amount, if you believe the ringtone market is dead. Clearly it’s not. Indeed, when former Jamba COO Lee Fenton revealed the total, he also stressed that core products such as ringtones, although declining as a proportion of Jamba’s sales, are still on the up in absolute terms. Realtones alone comprise 40 per cent of downloads in an average month on Jamster.

Clearly, the direct-to-consumer (D2C) market did not die, it merely changed. And the signs are that it’s on the rise again. However, there’s no doubt that personalisation products have, at best, flatlined in mature markets and that emerging markets are driving this growth.

This is certainly the experience of Ron Czerny, CEO of US firm PlayPhone. He says: “The D2C market has gone global. We’re seeing 100 per cent growth in subs every month in Brazil, for example. And there is even potential in less obvious targets like Canada, which only has one serious player in it at the moment.”

The desire to plant flags in the fertile soil of the developing world inspired much M&A activity since the heady days of the mid-noughties. And the fact that so many participants came badly unstuck back then meant there were plenty of targets to be had. The UK’s Monstermob is one obvious example. It expanded fast into Asia Pac only to fall foul of changing regulations in China. Result? Purchased by Zed, which is now reaping the dividends of Monstermob’s earlier adventures. Zed, of course, also bought 9Squared (US) while Buongiorno snapped up another major UK player, iTouch.

Interestingly these acquisitions re-shaped D2C into a space dominated by Mediterranean companies – specifically Spain’s Zed and Italy’s Buongiorno, Dada.net and Flycell. These four, along with Germany’s Jamba (now owned by News Corp) now dominate the global picture. Zed, for example, now counts operations in 53 countries across five continents and employs 1,400 people.

If this quartet faces competition from anywhere it’s arguably the US. From being itself a ‘developing market’ just two years ago, the US D2C scene has exploded into life and thrown up a number of players that appear ready to expand into Europe. PlayPhone served notice of its intent with the purchase of UK-based Pitch in May, with the emergence of a new converged digital landscape the clear driver.

Czerny says: “Digital entertainment is going to blend the web and the mobile. So, if you take music, for example, the ringtone will just be a component of a broader music destination. We’re still two years from that, but we’re building towards it. I think the top five players in the space will need to be global.”

The desire of D2C companies to move away from purely selling personalisation products is well-advanced. Take Dada.net, already pushing ahead with the aforementioned drive towards new music services. The company, which began as an email alerts specialist, recently added DRM-free MP3s from Sony BMG to a music-oriented community called The Music Movement that also offers ringtones and wallpapers.

The Music Movement has helped Dada to become a genuine force in digital music in the US. It’s available from nine operators including AT&T, Sprint, T-Mobile and Alltel. Dada is not alone in exploiting its D2C expertise to power services for third parties. For operators looking to outsource their content operations, these firms make the ideal partners.

Javier Perez Dolset, CEO of Zed, says: “In five years between 40 and 50 per cent of people will access the net from a mobile device. So companies like Zed will have an advantage. Remember, we have agreements with more than 130 operators and we know how to make portals or apps work across hundreds of devices.”

Zed’s close rival Buongiorno has embarked on the same strategy, and says revenue from B2B and its D2C brand Blinko are now roughly even. Luca Pagano, the firm’s UK MD, believes there are many under-developed possibilities in the B2B space.

He says: “We’re looking at ideas like using content downloads as a reward for topping up. This sees content as a means to reduce churn rather than make money, and it works. We’ve seen ARPU rise and churn fall by up to 40 per cent with one operator.”

Of course, it’s not just operators that the D2C players have in their sights. Zed made eye-catching deals to power content services for AOL, Metacafe and other new media brands earlier this year, while Infomedia is working with third parties like Tesco and NME. In the US, PlayPhone pulled off a coup by bagging the contract to run Wal-Mart’s mobile content store.

Such moves reflect the sector’s giants desire to diversify and position themselves for the next industry phase. Recent recidivism in the pure D2C space suggests they’re right to seek some distance. In June a class action settlement against AT&T over unauthorised charges from ringtone vendors showed that the malpractice of 2005/6 is not over.

This just a few weeks before UK watchdog PhonePayPlus was forced to take emergency action against rogue D2C content providers, with the European Commission voicing its concerns about pan-continental bad practice on the same day.

You have to wonder whether there’s a scorched earth policy at work here. It’s as if the industry is thinking ‘with so many new territories to exploit, why worry about long-term damage?’.

It’s a worry, and many of the bigger players are privately concerned about it. Let’s hope the good guys win.