Fox Mobile sale shows how far things have moved on from ‘Crazy Frog’

By Guillermo Escofet

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 $388m.

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.

Declining fortunes

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.

“Most VAS companies are up for sale,” a prominent value-added-services company told me recently. By VAS company, read: mobile entertainment company or mobile content aggregator. These companies are ascribed a variety of labels, but they are essentially the mobile content giants of yesteryear – mobile startups that aggregated and adapted content for mobile phones and sold it via either operator portals or their own off-portal sites using PSMS short codes.

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.

Shifting focus

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. In Italy, for example, there was a 40 per cent drop between 1H09 and 1H10 – twice as much as for ring tones.

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, I was interested 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.

News Corp.’s divestiture doesn’t come as a surprise. Back in March the Financial Times reported that the media giant was intending to sell FMG, and this was confirmed five months later by News Corp. COO Chase Carey. Carey also told investment analysts that News Corp. was writing off some of FMG’s value for the financial quarter ending June 30. He said that US$217 million would be written off in impairment and restructuring charges from News Corp.’s outdoor and mobile businesses combined, without specifying how much in each case. Over the previous year or so, FMG suffered numerous layoffs and saw the departure of its CEO, COO and CMO.

Fox Mobile history

News Corp. acquired 51 per cent of Jamba from Internet-infrastructure-services provider VeriSign in September 2006, for $188m, and acquired the rest of the company for an additional $200m in October 2008. Jamba was amalgamated with News Corp.’s existing mobile investments, such as Mobizzo, to create Fox Mobile Entertainment – later redubbed Fox Mobile Group.

FMG remained wedded to its core direct-to-consumer mobile entertainment brands – including ring-tone-, game- and image-download portals Jamba and Jamster (the name by which Jamba traded in English-speaking countries), trivia-games site Mobizzo and German-language dating service iLove – without expanding enough into other areas to adapt to changing market circumstances. Other surviving aggregators have refocused on business-to-business services, for example, but although FMG sells services to operators and device makers, its B2B business is not that significant. Buongiorno, by contrast, now earns 43 per cent of its revenue from B2B.

The News Corp. unit tried to update its offering with the launch early last year of Bitbop, a subscription-based on-demand video service geared toward smartphones that offers unlimited streaming or downloads from Fox, NBC, Universal, Discovery and other content providers. Take-up of the service has been modest, however.

The FMG sale also has to be seen in the wider context of News Corp.’s divestiture of other digital assets. Last year the company got rid of movie-review site Rotten Tomatoes, photo- and video-uploading site Photobucket, religious site Beliefnet and a big chunk of online-ad network Fox Audience Network. It is also looking for a buyer for the once-dominant social network MySpace.

News Corp.’s new mobile focus

News Corp.’s focus on the mobile content front is now on smartphone and tablet apps designed to deliver its wealth of print, TV and film content to paying mobile users. It also provides access to some of this content via operator portals, though that is becoming a less significant route to market for the company than apps. The media giant sees mobile as a strong element in its strategy of placing its digital news content behind a pay wall and of extracting a further premium from its pay-TV offering. Sky subscribers in the UK, for example, pay an additional £5-6 (US$7.80-9.35) a month to view the TV service on their mobile, and nonsubscribers pay £35 a month.

So, rather than persisting with mobile-specific content and services, News Corp.’s focus on mobile will now be on bringing its core content to handsets and other mobile devices, as part of a wider multiscreen strategy. This, to a certain extent, reflects what is happening to mobile content in general. Whereas a few years ago mobile content largely belonged to a separate branch of digital content in the parallel universes of WAP and PSMS, now it is increasingly an extension of mainstream digital content. That’s not to say that lot of the new mobile apps being created are not specific to mobile – a lot of them are, especially games – but the boundaries between the Internet and mobile worlds are increasingly becoming blurred.

Although the sale of FMG was expected, the identity of the buyer was unexpected. Market speculation leading up to the sale pointed to Zed or Buongiorno as potential buyers, as well as fellow aggregators Dada.net and Flycell, or even operators such as Vodafone, Telefonica and Telecom Italia.

In a press release announcing the acquisition, Jesta Group’s president, Jason Aintabi, expressed the belief that “mobile entertainment is an important emerging market” and listed “FMG’s unique ten-year history in mobile entertainment services, its stature as a trusted partner with carriers and device manufacturers, and its many successful consumer brands” as giving it a “clear advantage” in the mobile entertainment sector.

What next?

FMG will be renamed Jesta Mobile Holdings and will be co-headquartered in Berlin, Germany, and Beverly Hills, CA, US, as it has been up until now. The company will continue operating in North America, Europe, South America and Australia, the press release adds.

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.