iPhone answers studios' call

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The debut Friday of the Apple iPhone is as hotly anticipated in Hollywood as a new blockbuster movie, with studios and networks hopeful the device will catapult their content onto the elusive third screen.

Although questions abound as to whether sales can exceed the hype surrounding iPhone, there's a reason digital-minded execs are rooting for its success. Mobile video has largely been a loss leader for media and entertainment companies, but Apple CEO Steve Jobs might have created just the breakthrough that will see communications and content consumption truly converge.

"If iPhone gets more people to actually use music and video and TV on their phones, I think it is good for us," said Bill Sanders, vp mobile networks programming at Sony Pictures TV International. "It'll mean another outlet for our products, another way to reach people, whether with original or repurposed content."

Added Paul Jelinek, senior vp digital media at A&E Television Networks: "iPhone is taking it to a new level with how to align a consumer electronics product with entertainment content. It's about the marriage of product development, software and content into a compelling customer experience. That's what the iPod got so well, and now there's a translation of that into the wireless space."

While text-messaging has been a winner on the wireless platform, other content strategies have struggled to grow in the U.S., particularly when it comes to video. Recently released data from Nielsen Wireless found that 8 million consumers over age 12 have sampled mobile video. As for those who are regular subscribers, mobile research firm Telephia--which Nielsen announced it would acquire Tuesday- reported that they represent just 4% of all mobile users in the U.S., or 8.4 million people.

"The average consumer is still unaware that the handset has enhanced capabilities," said John Smelzer, GM at Fox Interactive Media, noting that Web, film and TV content from the studio is "fully distributed" to every major U.S. carrier.

That has left content companies like Discovery Communications trying to distribute their programming everywhere without seeing much of a return. "I think we're making some money now," said Doug Craig, vp programming for new-media operations. "We're certainly not covering our costs, but we are bullish. In a short amount of time, it'll be a viable platform. It's our investment in the future."

It's a future that appears bright: Premium mobile video subscribers in the U.S. are forecast to grow 207% to 40.9 million by 2012, according to Digital Tech Consulting.

But now, without a groundswell of interest in multimedia phones, the mobile media market remains stagnant for film studios and TV networks. Most execs lay the blame with carriers and handset manufacturers, who they say have done an abysmal job of reaching out to potential customers.

But Apple's aggressive iPhone campaign could change all that. "The marketing is brilliant, simple, elegant, and it builds a lot of excitement," Sony's Sanders said. "In the U.S., where the phone is largely seen as a utility, it'll open people up to the possibilities."

Even rival handset makers are looking forward to iPhone triggering the rising-tide effect. "More attention on the multimedia phone is good for our industry," said Brian Stech, director of global marketing and channel development at Motorola. "With all the excitement around iPhone, it drives consumers to look at all the choices and shop around. With our portfolio of products, we know that one size does not fit all."

Just as the iPod reframed the concept of a portable music-centric device, iPhone could also spur a paradigm shift. "The conversation about cell phones is being fundamentally changed by the release and marketing of the iPhone and all the attendant publicity," M: Metrics senior analyst Mark Donovan said.

The iPhone also might impact the shape of things to come in a more literal way. "It's reinventing the form factor of the phone," Newforth Partners analyst Robert Hoffer said. "We've already seen orders for the particular size screen (3.5 inches) increase at the manufacturer's level. So we'll see a bunch of copycats of the iPhone almost instantly after it ships. The iPhone will have an aesthetic impact. It's fashion leadership."

Apple has yet to prove, however, that the iPhone can jump over some significant hurdles to become a success. First, its price: $499 for the 4GB model and $599 for the 8GB version. Compared to the great deals that carriers are offering for the latest handsets, the iPhone is no bargain. "It's a nice toy but a pretty expensive one," Hoffer said.

Apple, which declined comment, also has withheld many of the crucial details that will determine how the iPhone functions. Although it will offer Wi-Fi, its ability to stream video is apparently limited to YouTube videos (Google is reformatting the videos into the H.264 standard to make them available on the iPhone).

And another deliberate choice has some experts ill at ease. "I believe it was a mistake not to include direct support for Microsoft Outlook and Microsoft Exchange Server," Hoffer said. "By not having support for that, they've opted out of (most) corporate clients. Real, blue-suit America will not be buying the iPhone, even if they lust for it."

Other questions revolve around whether people will love or hate the virtual touchscreen; whether people will feel confined by the Apple TV model that limits users to iTunes videos "side-loaded" from the computer; and whether AT&T's exclusivity and monthly pricing will be a problem.

The 10 million iPhones that Jobs says Apple will sell in the next 18 months presupposes that the company will put out new models in the coming months. Experts say Apple likely will come out quickly with a more affordable, scaled-down model.

Apple also has been mum on whether the iPhone will be made available in Europe and/or Asia. To do so would require Apple to switch phone models from the current G2 to a G3 and take a hard look at improving its texting feature, an important utility for the European market.

But stateside, the consensus is Apple will make an immediate impact. "The iPhone will propel the mobile video business forward at a quicker rate," Discovery's Craig said. "It'll drive awareness of what people can do on their mobile phones."
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