SMS, or short message service, is hugely popular and profitable in Europe, Asia, and Australia. For a variety of reasons, though, the technology - especially its underlying financial structure - has been slow to arrive in the U.S., despite growing demand. As European wireless carriers already have discovered, adult content and services provide important monetary stimulation for the SMS economy, but with significant risk. How does SMS stand to affect the American market? This first feature about the subject takes a look at the basics of the technology and its potential ramifications. More in-depth exposition and analysis will follow in the months ahead. - Ed.
In September 2003, condom manufacturer Durex released the results of its second annual global survey of sexual attitudes and behaviors. One clear trend emerged: People are occupying themselves with virtual sex by telephone, short message service, and e-mail at a phenomenal rate. Of the 150,000 people aged 16 to 55 in 49 countries who responded to the online survey, 28 percent admitted they've engaged in the practice at least once. U.S. respondents led the pack, with 54 percent of them copping to cybersex. Close on their heels were Brits (52 percent), Canadians (50 percent), and New Zealanders (45 percent). The habit is not quite as fashionable in Asia: Only 6 percent of Vietnamese respondents, 18 percent of Chinese, and 19 percent of Thais admitted trying it.
The statistics shouldn't really surprise anyone. Cybersex has been popular ever since the dawn of the technology that allows it. With the advent of the World Wide Web, opportunities for all sorts of hedonistic adventures exploded. Advances in wireless and cellular telephone technology now stand poised to take things to a whole new level with interactive premium SMS.
Widely used in Europe for about four years but unavailable in the U.S. until recently because of monkey wrenches thrown into the system by rampant capitalism, SMS in its purest form is "a text message service that enables short messages (generally no more than 160 alphanumeric characters) to be received and transmitted by digital mobile communication devices," according to TechWeb. "Unlike paging, but similar to e-mail, short messages are stored and forwarded at SMS centers, which means you can retrieve your messages later if you are not immediately available to receive them. SMS messages travel to the cell phone over the system's control channel, which is separate and apart from the voice channel."
In other words, for Americans unfamiliar with the concept, SMS is that handy little service built into current-generation cell phones and personal digital assistants that allows users to type messages back and forth in real time instead of speaking them. Cell phone service providers often give their customers a set number of text messages at no charge and offer reduced rates on messages that exceed the limit, so most of the time it's cheaper to text than to talk. The ease of texting is another matter entirely, but teenagers seem quite adept at it.
SMS is not just for quick, inexpensive communication, however. In addition to basic text messages, those with SMS-capable phones also can receive stock updates, news briefs, sports scores and the like; last year AirAsia began letting customers book flights using SMS. In India, where arranged marriage is still a way of life, parents of eligible unattached offspring can register their children's profiles via SMS and encourage other parents to send them profiles that appear to match. With the further extension of SMS technology via MMS (multimedia message service), users also can send messages that contain images, graphics, voice, audio clips, and short video clips. Some advanced cell phones even can be used to engage in multi-player games.
If statistics compiled by One World Interactive Ltd. and U.S. Cellnet Information Inc. are any indication, SMS and associated technologies could represent a U.S. profit potential unparalleled since the early days of the pay-per-call audiotext movement. In the United Kingdom, for example, the average mobile phone user sends four text messages each month. Filippinos, said to be the most avid texters, send an average of eight messages a month. Canada, which has a population of about 26 million people, sees its wireless airways crammed with 1 million text messages per day. That U.S. mobile phone users send an average of a paltry two messages per person per month leaves plenty of room for growth. Add to that XTCMobile statistics indicating that cellular phone sales outnumber computer sales by three to one, and the enormity of the situation becomes crystal clear. In fact, market analysis firm Visiongain predicts that sales of adult content transmitted to mobile phones will reach $4 billion annually by 2006, out of a total annual adult market of $70 billion.
Comes the Dawn
Although American adult Webmasters have been expecting the arrival of SMS and MMS revenue streams for at least two years, working models only arrived very recently. Blame that on the American competitive spirit where commerce is concerned: The U.S. traditionally has had seven major cell phone carriers on four different platforms. In contrast, Europe has one mobile platform, and all cellular carriers adhere to it.
Recent upgrades to the U.S. mobile communication infrastructure have brought the four platforms more into sync with one another, although the seven major carriers still represent a bit of a roadblock to companies wishing to cash in on the latest technology craze. The transmission facilities and the cell phones to take advantage of all the wonders of SMS and MMS exist now; the continuing headache is how to facilitate payment for premium content. Ideally, users should be able to pay at the point of purchase - meaning right from their cell phones. Both Danni Ashe of Danni's Hard Drive and Norm Zadeh of Perfect 10 magazine thought they had that detail licked in mid-2003 when they partnered with an Orlando, Fla.-based company named Right Angle Media Inc. to syndicate their content to mobile device users nationwide. For reasons that are not entirely clear, both projects died before they ever really got started, and Right Angle Media seems to have disappeared. Ashe and Zadeh, both early adopters of new distribution channels, consider the experience nothing more than a minor stumble in their business plans. Both were seeking new wireless distribution relationships at this writing, though nothing had been cemented.
Ashe was particularly circumspect. "It's hard when you live in the U.S.," she said. "Sometimes it's hard just to get a simple cell phone call to work, so talking about video on cell phones...." she shrugged, smiling archly.
Of course, until the kinks are worked out, it's always possible to employ established payment methodologies, even if credit cards, online checks, and other Internet-age funds-transfer systems aren't the optimal solution. They add a layer of complexity and an impulse-buy-dampening extra step to the American process that do not exist in older, more established SMS markets. Still, that's the approach adopted by Adult Services Network, a division of British giant Opera Telecom, and Las Vegas-based XTCMobile. In both cases, consumers visit the companies' Websites in order to pay for premium adult content they can download to their cellular phones. Lee Ali, business development manager for Adult Services Network, explained that although mainstream operating units of Opera Telecom and those offering adult content in Europe are able to charge premium content and services directly to a user's cell phone bill, U.S. mobile carriers aren't willing to take that step... yet. "For adult content, you have to pay via the Website," he said, noting that may change within the coming calendar year. Currently, Adult Services Network's customers can download static erotic "wallpaper" for $1.50 an image and 20-second video clips - that perform more or less as one would expect to see them on a Website - for $3.
"The technology actually allows for a 20-minute [video] download [to a cell phone]," Ali said, but because many U.S. mobile phones don't yet support that extensive a download-playback scheme, the company limits the video clip files to lengths ranging from 20 seconds to three minutes. Adult Services Network, which has been doing business in the U.K. for two and one-half years and in the U.S. for the past 12 months, plans to introduce true video streaming to U.S. cell phones this year at a per-minute fee.
XTCMobile has partnered with Wicked Pictures to provide Wicked 2Go, which for $7.99 per month not only offers images and video clips of some of the company's hottest stars, but also polyphonic ring tones with an adult theme (the company calls them "moantones"), screen savers, and interactive games. The company plans to add content from other adult video companies to its anticipated lineup of 90 mobile "channels" later this year, and also to expand the number of wireless carriers with which its platform works, both domestically and internationally. Currently, XTCMobile's service is available only to owners of Sprint PCS Vision-enabled phones in the U.S. XTC uses a proprietary architecture that requires an up-front download, but its video clips stream in real time (as opposed to operating in download-then-play mode). Current frame rates are 1.5 per second, making the experience resemble a slide show more than video, but company founder and media director J. Morrison said as network and handset capabilities improve, so will the cell phone streaming experience. He expects cell phone streaming to approximate broadcast quality - 15 to 30 frames per second - in the very near future.
"It is amazing to watch the interest and enjoyment of people watching adult content on a mobile phone or interacting with adult mobile applications like moantones," Morrison said, remarking that - as with other innovations - consumer demand will drive technological advances. "These are the kinds of applications that are going to drive data traffic and people using these type of services on a cell phone much like it did at the inception of the Internet."
Morrison is also thinking ahead and trying to prevent the sorts of legal train wrecks U.S. purveyors of adult materials have suffered through in the audiotext and Internet industries.
"[XTCMobile is] committed to providing a responsible presentation of adult content to mobile phones," he said. "All customers will be age verified, each phone will be enabled with password protection, and all content presented on the network will be reviewed prior to broadcast. The XTCMobile platform will never engage in spamming customers or their cell phones, nor will it ever disclose any customer information to other entities for any purpose."
The Next Generation
Meanwhile, back at the ranch, third-party infrastructure providers are gearing up, too. The first major player ready to roll out the kind of services content providers and consumers alike shortly will demand appears to be a joint venture between European SMS powerhouse One World Interactive and American firm U.S. Cellnet. Together, the companies' technology platform and billing services, respectively, are poised to provide the "missing link" in the U.S. market, partners say. Not only is the group the first to locate its own carrier-grade SMS equipment in North America, but it's also the first to be successful at establishing third-party billing and connectivity agreements with four of the seven major U.S. wireless carriers: Verizon, Cingular, AT&T, and T-Mobile. Anne-Marie Fahrenkrug-Ortiz, chief operations officer for U.S. Cellnet, said she expects to sign agreements with two of the remaining three carriers by the end of 2004's first quarter. All told, it's taken the companies 26 months to break down the major barriers to SMS' potential stateside.
"The real genius of SMS is the billing mechanism," according to Nicholas Loader, president of Lo/Ad Communications and a partner in U.S. Cellnet. Loader made his fortune in the early days of audiotext, and he said he sees the same sort of explosive growth ahead for SMS.
In the U.K., where One World Interactive is based, the adult-content portion of the SMS market currently rakes in about �450 million (about $831 million USD) annually, according to One World's SMS chief, David Ponsford. There, cell phones are used for all sorts of mainstream interactions Americans haven't even begun to imagine, he said. For example, one British television station takes a great deal of pride in providing SMS-based programming 24 hours every day. Viewers use their cell phones to answer polls, enter sweepstakes, vote contestants "off the island," and otherwise make their opinions known - all for a per-interaction price that fattens the station's coffers, of course. Websites take a similar approach, and a broad range of cell-phone-only entertainment is available from a variety of third-party and carrier-based providers. The possibilities are almost limitless.
Not that there haven't been bumps in the road, especially where adult content is concerned. Vodafone, one of Europe's largest wireless carriers, announced in October that it was considering forcing its customers to register online, by phone, or in person when purchasing a new handset in order to be able to receive adult materials through its network. In January, six of the U.K.'s largest mobile telecom operators adopted a new "code of practice" that requires proof of majority before a cell phone user will be granted unfettered access to any network's wireless content. In one of the most telling signs of the times for SMS operators, Total Telecom magazine in January hosted a first-of-its-kind conference aimed at "protecting minors by appropriately regulating and controlling access to adult material on mobile devices." Called "Delivering Mobile Adult Content Responsibly" and sponsored or endorsed by Bango, The Premium Rate Association, and the Network for Online Content, the conference was based on an interesting premise:
As new advances in handset technology provide greater visual capabilities for mobile devices, demand for content of all types continues to rise. Young mobile users have been a driving force behind the adoption of mobile technology and spend an estimated 13.5 percent of their disposable income on mobile services. However, in the past, uptake of pioneering applications such as VHS video and fixed-line Internet has been driven by the demand for adult content. Whether the mobile telecoms industry likes it or not, the demand for adult content services is there, and it will be satisfied one way or another. This fact does not sit comfortably with the telecoms industry, as operators and service providers alike realise [sic] the potential for inappropriate content to get into the hands of minors.
Adult content promises much needed revenue for operators, but also comes with an added social responsibility to control and monitor service delivery. The crux of the issue is how to provide legally sanctioned adult content that has been categorised [sic] and rated to the appropriate audience.
In the U.S., mobile carriers are likely to view adult materials considerably less kindly - despite their potential for shoring up industrial bottom lines - given that unpleasant memories of the phone-sex industry's demise still haven't entirely faded and the current political administration takes a rather dim view of all things pornographic. Loader realizes this, and urges the adult industry to proceed toward any SMS aspirations it might have with caution and common sense. At least initially, he said, no hardcore materials will be allowed to travel over U.S. networks.
The Bottom Line
So how do adult content providers cash in on the burgeoning premium SMS market? If they've had experience in dealing with the audiotext industry, they shouldn't find the concepts too difficult to master. The delivery mechanism may have changed from hard-wired to wireless, but the basic principles are remarkably similar.
First, those accustomed to dealing with the Web's unlimited price points need to learn to think "small." According to Loader, the maximum billable amount through wireless services is $40 to $60 per month per mobile device, depending upon carrier. Fahrenkrug-Ortiz said available price points are set by the carriers, with the majority of services falling in the 49 cents to $9.99 range. Billing options within that range might be 49 cents, 99 cents, $1.99, $2.99, $4.99, etc. The content provider can choose a carrier-set price point, but can't establish his or her own. (For example, although a content provider normally might charge $2.50 for a specific item, that price might not be an option in an SMS payment scheme.) In addition, although it is possible to "cluster" services on a single payment (usually in a "buy one; get X amount more free" format), SMS payments are really designed to be discreet fees: one access equals one charge (or one per-minute charge). For those accustomed to dealing with unlimited access over an extended period (a month, for example) for one fee, this could take some getting used to.
Similar to the way things worked in the old audiotext days, SMS charges appear on a customer's cell phone bill. The carriers collect the fees, keep a portion for themselves, and pay the rest to the content provider. The standard revenue split, according to Loader, is about 50-50, although Ponsford noted that most carriers employ a sliding scale: The greater the price point, the higher the percentage the content provider gets. Fahrenkrug-Ortiz pointed out that because of the carrier percentage, price points lower than 99 cents generally are not feasible, but for services like voting, polling, and sweepstakes entries, 99 cents is a good price point in the minds of consumers.
What it all boils down to, according to those in the know, is that as in most other areas of technology, adult content and services will form the vanguard of implementation and provide the financial underpinnings necessary for broad-spectrum adoption. If the European experience can serve as any example for a Colonial SMS experiment, the rewards may be huge. "Europe experienced magnificent success," said One World's Ponsford, with typically British �lan. Fahrenkrug-Ortiz, who helped one of Europe's original SMS players attain market leadership before initiating Asian operations for the company, added, "It's still big business over there. The money's not quite as good now as it was in the beginning because there are so many players, but a few companies who got in early made fortunes."
One Australian Webmaster, who watched with fascination as the phenomenon mushroomed in his hometown and now makes a portion of his income from SMS services, said Americans should brace themselves for a wild ride. "It's kind of strange that SMS hasn't taken off in the States yet," remarked Andrewb, whose Web operations include DialAnOrgasm.com and CrotchHunter.com. "I remember years ago you could buy Coke from vending machines here in Sydney by SMS-ing the number on the machine. Maybe it's something to do with the fact that you guys still use beepers a lot, which are non-existent here and have been for ages. Just a thought. It's strange for the U.S. to be so far behind in this... just one of those cultural things, I guess. But it'll be huge when it happens!"
