Global Economics

South Koreans Want Their M-TV!


Mobile TV programming on cell phones and other digital devices is hot in South Korea, though turning the mania into profits is devilishly tough

While Europe and the U.S. are trying to sort out technology standards and spectrum availability for mobile TV, a digitally advanced South Korea is watching soap operas, sitcoms, and news programs on the go. Some 7 million consumers (or one in every seven residents) regularly watch mobile TV programming just two years after Korea became the world's first country to broadcast such content to cell phones. "Pretty soon, phones doubling as TVs will be as ubiquitous as camera phones now," says Song Sang Hoon, director in charge of mobile TV at Seoul's Ministry of Information & Communication.

Indeed, the small cell-phone screen hasn't hampered mobile TV's spread in Korea. Fast technological progress has improved the quality of the video. And although more than half of mobile TV viewers use handsets, a growing number of people are watching programs through personal multimedia players, music players, handheld PCs, and increasingly, navigation systems mounted on cars.

Korean Government Took the Lead

The problem is no Korean operator is making money. Worse, they still need to pour more money into building networks to provide seamless television delivery. The case of Korea, which often serves as a test bed for new gizmos and services, could offer a few lessons to countries that are just rolling out mobile TV.

First, government initiatives played an important role. In Europe, for example, a fierce battle is still being waged over which mobile TV technology will be used to beam programming to cell phones. The European Union has already recognized three standards—DVB-H (Digital Video Broadcasting for Handheld) promoted by Finland's Nokia (NOK), MediaFLO by U.S. outfit Qualcomm (QCOM), and DMB (Digital Multimedia Broadcasting) by South Korea. Availability of spectrum could be an even bigger headache in Europe (see BusinessWeek.com, 7/31/07, "The Race for a Mobile TV Standard").

In contrast, the Korean government was quick to allocate spectrum and award licenses to six broadcasters in 2005 for terrestrial DMB, and to another for satellite-based DMB. That was shortly after the state-funded Electronics & Telecommunications Research Institute (ETRI) developed the mobile TV technology. Then Korean handset makers Samsung Electronics (SSNGY) and LG Electronics (LGEPF) lost no time in rolling out TV/cell-phone combos.

Free Service Helped Kick-Start the Craze

Then there was the controversial decision on pricing. The authorities allowed TU Media, a unit of SK Telecom (SKM), Korea's largest mobile carrier, to charge $14 a month (it was later lowered to $12) for its satellite-based service offering 16 video channels and 20 audio channels. But they required six terrestrial DMB operators to beam everything from soccer games and sitcoms to the evening news free of charge. "There's no question this free service was vital for mobile TV to take off," says Lee Jung Gu, a director at the ministry.

Operators, however, blame policymakers for their financial difficulties. "We are bleeding red ink because we have difficulty in increasing the subscriber base as we are racing against free services," says senior manager Heo Jae Young at TU Media. The company has 1.2 million paid subscribers, while TU says it needs at least 2.5 million users to break even in operation, even before recouping its $435 million investment in satellites and networks.

No one questions that free service helped accelerate the spread. "But I don't think low-priced monthly fees or a one-off initial charge would have made that much difference," says Eom Min Hyung, DMB project leader at KBS, or Korea Broadcasting System, one of the six terrestrial operators, each of which has piled up an accumulated loss of between $22 million and $33 million. "An initial charge of a few dollars would have speeded up network development, which will serve users better," he says.

Massive Investments Are Still Required

Sure. commuters in Seoul can watch TV news in the subway on their way to work, thanks to so-called gap fillers that relay signals underground. But that's because of a deal struck among broadcasters, mobile-phone operators, and cell-phone manufacturers. Agents for the mobile carriers agreed to collect an additional $3.30 from each buyer of a phone-TV combo to finance the building of a subway network for TV signals. Broadcastsers, in return, agreed to carry ads for phone manufacturers—and they want a similar arrangement for further infrastructure projects.

Government officials point out mobile TV is a nascent industry requiring massive initial investment, and new entrants would have to endure losses for the first few years. Industry executives argue that the investment requirement is exactly why service fees are necessary, at least until they develop sufficient economies of scale to attract advertising. They add that the fees should be affordable to avoid turning off consumers. The six terrestrial DMB operators together pulled in only $1.8 billion through advertising last year.

Perhaps most important is the need for cooperation between mobile-phone companies and broadcasters. As the bulk of mobile TV viewers are expected to be handset users, broadcasters need marketing help from carriers who fear TV programming could cannibalize on their video business that they hoped would increase traffic over telecom networks. "What's essential is to find a formula to share profits," says Eom at KBS.

To kick-start the alliance, Korean broadcasters relied on smaller carriers who used mobile TV as an incentive to get SK subscribers to defect. SK, with over half the market share, later cooperated with broadcasters as well. Eom cites services requiring two-way traffic, such as video-on-demand and mobile-TV shopping, as a win-win solution.

Despite early hardship, broadcasters remain confident they could eventually build profitable businesses from TV on the go. KBS says its recent traffic and travel information service offering such data as congestion spots, travel time, and parking availability to drivers is turning out to be a profitable project. ETRI expects the number of Korean mobile TV users to rise to 24 million, or half the population, by 2010, when the service will generate $3.2 billion worth of production in handsets and other equipment. "I think mobile TV will serve as a new growth engine," says ETRI senior researcher Byun Sang Kyu.

For more on mobile TV in Asia, visit BusinessWeek's slide show.


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