Mobile TV's Weak U.S. Signal

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And among the small percentage of cell-phone subscribers who do watch video on their phones, the vast majority opt for the occasional $2 download over monthly subscriptions, according to IDC.

To spur demand, at least one carrier is making mobile video more affordable. On Feb. 28, Sprint Nextel introduced a $100 all-inclusive monthly plan with unlimited calling and mobile Internet services—including Sprint TV, which costs $15 to $20 extra with other calling plans. Yet MediaFlo appears to be resisting this tide. This summer, it plans to roll out premium packages, offering extra content for sports and movie fans. MediaFlo's Lombardi says the company's own surveys suggest consumers would actually pay more for extra programming.

On the Cheap?

But many experts believe that, to take off, mobile video will have to be ad-supported and possibly free, much like it is on the Internet. MobiTV has revved up its ad sales efforts and now derives about 10% of its revenue from advertising, says Paul Scanlan, president and co-founder.

Yet much like MediaFlo, MobiTV's business still relies primarily on monthly subscription fees, a model that will face intensifying competition from free services such as Google's (GOOG) YouTube and Nokia's (NOK) Medeo, an ad-supported mobile video portal announced in December. With the proliferation of next-generation handsets and networks, a growing number of wireless users have the speedy data connections needed to connect with these services through a mobile Web browser. "We are seeing growth. We are seeing user interest," says Hunter Walk, head of product management at YouTube, which doesn't run any ads on its mobile service yet.

All these changes could mean MediaFlo and others will have to offer free services, too. MediaFlo recently launched a preview channel on Verizon Wireless, where customers can test-drive the service without paying for it. But that may not be enough. "I do think there's a bright future for mobile TV," says Neil Strother, an analyst with JupiterResearch. "I just think it's going to take time."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.