Stake House: Telcos Place Their Bets

In a surprising move, the Captain last week abandoned his rotary dial phone in favor of a slick mobile model. Onwards to new technology, he announced. But likely a larger factor was that his eighth drunken heave of said appliance from his second story window proved to be one too many.

This week he finds himself using his new toy to watch films on its tiny screen. Folks, let's see how long the Captain's attention span is...

The pot has been raised in Japan's telecommunications poker game.

Very recently, Japan's largest mobile phone company, NTT DoCoMo, took a 3% stake in Nippon Television, a play that further strengthens a relationship that began early last year with the seven-year, $83 million limited liability venture D.N. Dream Partners (DNDP).

The move, which follows DoCoMo's purchase of 2.6% of Fuji Television Network shares in January 2006, is the latest gamble linking a broadcaster and a telecom giant in a bid to boost services to customers, and represents another step toward a union within the two media sectors.

So far, DNDP has invested in and produced one movie and four TV programs, including the animated series "Death Note," about a boy's notebook that predetermines death, and "Sasami," a toon featuring a cooking club of young girls with magic powers.

The technology known as "One Seg," which was launched nationwide last April, will allow owners of DoCoMo's 903i series phones to view DNDP content as broadcast on NTV. One Seg utilizes only a fraction, or one segment, of the bandwidth designated for digital terrestrial broadcasting. The result is a sharp picture on a mobile phone screen.

"Primarily using digital terrestrial broadcast content from NTV, DNDP will enhance the value of the content and extend it to secondary businesses such as video, DVD, merchandising, and i-Mode development," says Kouji Tajima, project coordinator within DoCoMo's strategic investment group for multimedia services.

Content for i-Mode, a navigable Internet service for mobile phones, will get another boost from DoCoMo's 3% acquisition of publishing and film giant Kadokawa Group Holdings. As well as having increased access to manga and film content, DoCoMo subscribers will at the end of June be able to purchase tickets for the 11 multiplexes (92 screens) operated by Kadokawa. Reciprocal advertising for Kadokawa products and future joint-film productions are also a part of the partnership.

Since these new services are generally offered free of charge (with only the basic use fees applying), they are not yet moneymakers. Analysts feel their short-term function is simply to be an alluring loss-leader.

"Carriers need new services and content to win and maintain subscribers," explains Hiroshi Kamide, an analyst with KBC Securities Japan. "Flashy handsets and price discounting are no longer enough."

This multitude of options for digital distribution may provide an opportunity to broaden customer bases in a market of 93 million users and $75 billion in annual revenue, but Kadokawa believes that a caveat should be raised over rights management.

"It is technically possible for content intended for the mobile phone to be blocked for other media, such as the personal computer," says Tomomichi Kitao, general manager in Kadokawa's group management strategy division. "But we feel further technical restrictions, such as distributing only portions of image products, need to be put in place for copyright protection."

The relatively short battery length of mobile phones, DoCoMo says, will as well need to be rectified as the market develops. But a more immediate concern is selecting suitable content for the attention span of customers peering into a phone screen.

"We are currently considering how to extend the use of video content intended primarily for television to mobile phones," says DoCoMo's Tajima.

Other coalitions in the industry include that of DoCoMo's chief competitor KDDI, which aligned itself with TV Asahi to expand content sent to its Au brand phones as a means of boosting advertising opportunities.

In late 2005 Tokyo Broadcasting System, Japan's No. 3 network, obtained a 14% stake in mobile phone service eMobile, a subsidiary of broadband company eAccess. EMobile was among three companies granted a mobile phone license in 2005 and is set to launch its services in March.

Perhaps due to vivid memories of the much publicized arrest last year of Takafumi Horie, then president of Internet portal Livedoor, after securities violations were discovered following his firm's hostile bid for Fuji TV, few in the industry are willing to speculate on where these investments are headed.

Given the lack of a clear means for generating revenue, experts wonder how the new services will take shape down the line.

The long-term priority of these alliances, they say, seems to be as a means of garnering turf.

"It feels like a land-grab exercise," says analyst Kamide, "where one is hedging his bets over what is an inevitable move toward media convergence."

Note: A similar version of this article ran in Variety on February 12th as a part of a package on the Berlin Film Festival.