Mobile media distribution strategy of contents players

Mobile media distribution strategy of contents players [Table of Contents] Ⅰ. Mobile Internet Environment Change Ⅱ. Diversification of Mobile Business Model Ⅲ. Distribution Direction for Mobile Media of Content Ⅳ. Distribution Strategy for Mobile Media of Content Player July 5, 2010 Song Min Jeongmzsong@kt.com

Contents Ⅰ. Mobile Internet Environment Change Ⅱ. Diversification of Mobile Business Model Ⅲ. Distribution Direction for Mobile Media of Content Ⅳ. Distribution Strategy for Mobile Media of Content Player

Mobile internet experiencing shift of value to APP/Web Number of mobile internet subscribers ,which showed slow growth due to the lock-in of mobile communication companies, is growing rapidly, even faster than the growth of wired internet subscribers in the past, with the advent of smart phone (iPhone) - iPad was expected to create synergy between iPod+iTunes & iPhone+App Store, and 2 million of them were sold only in 60 days. iPad is anticipated to create new mobile paid-service model in e-Book (22% M/S) and gaming market as well as for the media companies which offer online news - Number of worldwide iPhone+iTouch subscribers grew to 85 million after 3 years from its release. iPhone 4G with multi-tasking function is now released (July, 2010, Korea) [Comparison between growth of wired internet and mobile internet based on“iPhone+iTouch”] iPad • 17 APPs installed per iPad • 5 million eBooks download in 65 days • Open HTML5, 220 thousand APPs • 10 million eBay APP downloads iPhone 4 • Recorded 5 billions download via App Store • Yahoo, Google, Bing search engine setting • 3D game with gyroscope installed • WiFi video calling enabled (iMovieediting) 3

Creativity/Innovation Monopoly Closed Platform App Advertisement Preferred by APP.CP Web 2.0 Open/Share/Participation Open Platform Mobile Web Advertisement Preferred by Web-portals Google Apple Establishment Date 1976 1998 CEO Steve Jobs Eric Schmidt CEO Salary $1 $1 Biz Structure Infra Investment Service Outline Market Capitalization $190 billion $186 billion $36.5 billion Revenue $22.6 billion Think different Don’t be evil Motto Secret for Success Elegance Algorithm Source : The Business Week(2010), Taurus Investment Security(2010) Re-quotation Competition for mobile ecosystem leadership With Apple and Google changing their business portfolio, competition for market leadership between closed (or managed open) and open ecosystem is in progress. Enterprises including device manufacturers, OS companies, and communication companies are struggling to find their own formula for success • With the release of smart phones by Apple, Google, and followed by MS, the opportunity is opening up for the mobile advertisement market based on full-browsing, and fierce competition is anticipated [Mobile leadership? : Closed vs. Open] [Google business structure, Investment in infrastructure, Service outline] Do Document Schedule Management Shopping Find Information Place Person Enjoy Video Audio Game Communicate Story SMS Email 4

10 Billion Downlaod Accomplishment Game Book Music Trip Education Utilities Hobby Rest The 1st rank of book in number of download(18%). Game 15% Book Game Entertain Education Trip Utilities Hobby Rest Innovative Apple opens up new mobile market Apple, which was no match for MS in PC market due to its closed policy, chose the relatively open (managed open) model based on iPhone •Purpose of releasing(Feb) iPad, which is short of H/W specifications of netbooks, is to maintain iPhone UI, increase use of contents, and expand the contents of iTunes/App Store into eBook/Multimedia. Apple’s main strategy is to distribute APP contents, with a concept of open-24 hours store (copyright protection) •Allowed various contents to be sold on iTunes by forming alliance with film makers and broadcasting contents providers such as CNN and CNBC, to expand its contents - Separated contents for Mac OS and Windows, 10 billion songs sold since the opening of music store in 2003, NBC was once excluded for increasing its price ☞ Apple is preparing for an internet TV service through iTunes at $30 monthly subscription, but negotiation with major CPs such as ground-wave channels which are targeting the mass, is not easy ☞Apple recently blocked applications such as Soribada at App Store in Korea, stating their payment method as the reason for abandonment. However, some suspect it as a localization strategy of iTunes [App Store contents before and after the release of iPad] [iTuneshomepage : PC & Mobile phone] Source:Yujin Security. Mar,2010 *PDF viewer and note addition to iPad, 22% M/S of eBook market(June, 2010) Only 3 days later from iPad release in April 3, game App took the 1st rank with 33% of total 5

Google focuses on mobile web 2.0 - Openness/Sharing/Participation/Group Intelligence Core mobile strategy of Google can be summarized as the establishment of combined on/offline platform, LBS (Location Based Service) and cloud computing - Assigned Android for Mobile OS, Chrome for web-browser, and Gears for combined on/offline platform - Cloud computing & web integration are Google’s core strategies in 2010, because explosive use of them is expected as the restrictions of PCs disappear ☞ For cloud computing, Google presented G-sync (Feb, 2010) which synchronizes PC and smart phone data with wireless using MS technology, and acquired companies such as Picnick (cloud-based picture editing S/W, Mar, 2010) and DocVerse (Office program, Mar, 2010) [Google platform profile ] [Google Latitude (finding friends) and Goggles (image search)] [Product line of Google cloud computing ] Documentation using Word/Spreadsheet Conversion of documentation from PC-based to Web-based through Cloud Computing 3D design/Planning Cloud Computing can make internet work as platform such as OS Combined on/offline platform Source : Taurus Security, Mar, 2010 6

Ⅰ. Mobile Internet Environment Change Ⅱ. Diversification of Mobile Business Model Ⅲ. Distribution Direction for Mobile Media of Content Ⅳ. Distribution Strategy for Mobile Media of Content Player 7

Name Provider Name Provider Name Provider Golden age of Mobile App Stores Competition between App Stores is on the rise and developers will gradually wish to develop APPs applicable on cross platform. In other words, dependency on specific OS will be reduced, and direct processing from web-browers and servers will be preferred - Each companies are launching their own App Stores, as Apple App Store does not share its revenue with communication companies and device manufacturers - Gradual change into de facto standard development environment is expected, and Apple also starts embracing HTML 5 web APP - In a short term, global App Store market (smart phone+MID*) is expected to grow more than 3 times from $4 billion in 2009 to $15 billion in 2012 (Gartner, 2010) [T Store VS Show App Store vs Apple App Store comparison] [Competition composition of App Store for mobile ] Smart phone manufacturer and S/W company Name Provider Name Provider Name Provider ,[object Object],No registration fee ,[object Object],(Developer should pay 30 thousand won/case for verification fee, should profit from contents sales occur) -Individual : yearly subscription fee 100 thousand won -Corporate : 100, 200 and 300 thousand won for 2, 5 and 10 cases respectively -Individual : yearly subscription fee $99 -Corporate : yearly subscription fee $299 Name Provider Name Provider Developer registration fee Cell phone manufacturer Name Provider Name Provider The Same ratio, '7(developer):3(communication company)' for all Name Provider Name Provider 7(developer):3(communication company) 7(developer):3(Apple) Profit allocation Mobile communication company Wi-Fi support Name Provider Name Provider Name Provider -Wi-Fi available -Wi-Fi available -Wi-Fi available Name Provider -iPhone unlimited data plan 3G 8GB->$99 3GS 16GB->$199 3GS 32GB->$299 -Data-only plans :internet access fee 3won/1KB, data fee for contents download 3.5won/1KB -Flat-rate plan: Data fee 50won/1MB -Volume-rate plan: Data fee 500won/1MB Plans Independent line Name Provider Name Provider Source:Nikkei Electronics. Nov 30,2009 Source:Daewoo Security, Mar, 2010 *Mobile Internet Device 8

Mobile web growth forecast CPs such as the press prefer App Stores to be ‘Contents sales + targeted ADs' rather than web environment which depends on simple Flash-based online ADs. However, mobile web is expected to be preferred in a long term, avoiding CP discrimination of Apple in a standard web environment such as HTML5 - Apple promotes policy of rejecting Flash for monopolistic preoccupancy of the App Store market, but iPhone OS4 recently embraced HTML5 as well ☞ Main reasons why Apple rejects Flash are the concern about its business model destruction and preemptive blocking for their own mobile AD business - Going along with Apple’s platform is advantageous in a short term, but domestic music portals are beginning to move into mobile web due to factors such as Apple’s discriminatory policies. Decrease in number of App Store downloads is expected in a long term, as APP functions can be replaced by establishing HTML5 (web document rule) standard ☞ Ostensible reason why Apple removed domestic music Apps such as Soribada from its list is because their small-payment system using mobile phones does not comply with Apple’s card payment policy [Movement in a short term: Case of App preference of the press ] [Movement in a long term: Forecast of global App downloads] √ Number of App downloads expected to rapidly increase from 2.4 billion in 2009 to 7 billion in 2013, and drop thereafter - Mobile web functions are becoming more diverse - Device/service companies are developing and installing their own Apps ※ Online bookstore Aladdin recently changed from App to mobile web Contents Contents Major portal Free Press(Newspaper,Magazine) Self portal Low AD Fee PC Web Environment AD Insertion (One way AD based on Flash) Web Environment Advertiser Press moves to Apple model due to high profit Contents (Applications) Contents App purchase cost Press(Newspaper,Magazine) High AD Fee+ App purchase cost Target AD insertion (Apple AD Platform) Apple App Store Advertiser Source: Atlas DB, Mar, 2010 Source : ABI Research 2010 9

Various types of mobile business models Mobile business model became possible with the mobile traffic activation with the appearance of App Store. Five main ways to generate profit are App sales, service charge, fee, device sales and mobile advertisement ,[object Object], ☞ App Store sales portion for smart phone (feature phone) of non-communication companies is increasing rapidly in a short term, and is expected to record 40% M/S of mobile media market in 2012 (Gartner 2009) ☞ i-MOP Sendai port of Japan Koozy is LBS –based mobile AD service to lookup nearby store information and map of each floor, as well as discount information of the store ,[object Object]

Apple acquired mobile AD company (Quattro Wireless, 2010) for device + contents combination model. AD order amount of $60 million after the announcement of OS4 iAD. An announcement by Apple that accumulated App download number reached 5 billion, and $1 billion was paid to developers (Apple WWDC, 2010)

Google released Android, an open-source based platform, in the end of 2007, and signed contracts to share AD revenue with Telco companies that adopted Android[iPhone BM of Apple ] [Android BM of Google] AD revenue Advertiser + Nexus One which bypassed Telcom Mobile Communication Company Application Provider Terminal : iPhone Platform : Mac OS X Contents : iTunes Terminal manufacturing Open API Mobile communication company Google phone provision • Voice-service cost • Data fee • Actvation fee, terminal sales revenue • Contents usage fee through iTunes +iAD(announced in Apr, 2010) • Mobile search, AD and contents usage fee • Registration cost • Voice-service cost • Terminal cost Source: KT Business & Economics Research Center, 2008 10

Applications[1/2] The ranking of the most attractive paid App category before the release of iPadwas in the order of game, eBook and specialty S/W. eBook App and need for Killer App is increasing ,[object Object]

As the number of Apps grow in the future, portion of free Apps will be increased and thus lead to rising interest in buying/selling of digital itemswithin gaming Apps- Under 10 Apps are expected to be used among hundreds, and special version (10 min etc.) is required for publications and newspapers (VOD/Sports) ,[object Object], Accumulated sales expected to be $3 billion by 2010. 99.4% of mobile App downloads are from Apple App Store http://www.rimarkable.com/apples-appstore [Top 15 Paid Apps (July.2009)] [Share of global App Store by category (Aug.2009)] Source: Distimo Report. July, 2009 : Kim Ki Tae(Industrial Bank). Oct 5, 2009 Source: Apps.biz(standard of Aug 18.2009) 11

Applications[2/2] Average number of Apps installed by Korean iPhone users is 86. Intention to change to paid Apps was in order of 'game‘ and 'productivity' - Domestic users download Apps in the order of Photo > Productivity > SNS. Ratio of domestic usage among entire Apps is 1% Q3. Have you ever changed from free to paid Apps? Q4. If yes, what category of Apps did you change? Game Productivity SMS Camera Music Contact Rest 10s 20s 30s 40s Sum NO 48% Yes 52% Apps Registered* About 189,060 types Domesitc User Downloads 1,909 types(1%) Game Book Entertain Education Utility Lifestyle Trip Reference Sport Music Registry Event Download Event Weight News Business Navi Productivity Health Photo SNS Finance Medicine Weather Registry Event Download Event Weight Source: KT Businsess & Economics Research Center 12

Mobile advertisement[1/3] Web mobile AD, which has features such as Targeting, Anytime &Anywhere, Multi-interactive and Highly cost effective, is expected to lead the mobile AD market, and is expected to grow domestically as well as globally with realization of full-browsing in 2009 ,[object Object]

Search is currently the leading method in internet advertising, but internet web related areas are expected to take about 48% by 2011

Domestic mobile AD market is expected to grow 21% from 250 billion won in 2009 to about 300 billion won in 2010 (ET News)

Global mobile AD market is expected to reach $11.2 billion in 2010, which is 51.5% increase compared to previous year (eMarketer,2010) [Targeting AD, the greatest merit of mobile AD] [Domestic mobile AD market status and forecast] AD1 AD2 AD3 AD4 AD5 AD2 Consumer [Estimated portion of global mobile AD in 2011E] [Global mobile AD market status and forecast] Source: Nielsen Mobile. Solomo Investment Security(June,2010), Re-quotation Internet Search TV Game App Video SMS MVS Source: Electronic Newspaper, eMarketer, Solomo Investment Security(June, 2010), Re-quotation 13

Mobile advertisement[2/3] Search ADs and application-based ADs, which are specialized in personalization, localization, and augmented reality, are expected to expand the advertising market - Mobile ADs are classified into message, search, display, App application and videoAD (Classification by Korea Advertisement Academic Society) ☞ 25~30% of mobile media revenue are generated from mobile ADs and ADs based on free Apps (Gartner 2010) ,[object Object]

Apps such as NYT and Urbanspoonare directly usedrather than using search engine for news or famous restaurants- Mash up platform using open API such as LBS, SNS, AR(Augmented Reality)*, 3D are starting to integrate with mobile AD [Mobile AD classification, features, business operators] [LBS mobile AD, 3D AD] Message AD Search AD Display AD Side App AD Footage AD Offered by Admob AD Type •Banner ADs on Mobile websites •Simple message and readability are important due to limited space • Exposed before or after the video or TV via mobile network • Directly linked to shopping through interactive ADs • AD on applications installed in cell phones • High Interest induction • Low repulsion • Based on SMS, MMS • Can be sent to all cell phones • Simple and does not induce interest •Growth rate will be high with the development of mobile internet Offer by iPhone (HoloAD) Main Feature Main Business Operator *Augmented Reality : Technology for showing virtual object or information synthesized to real environment which user watches with eye Sourece : Korea AD Academic Society. Solomon Investment Security Re-quotation. June.2010 14

Mobile advertisement[3/3] iAd, which has been announced with the release of iPhone OS 4 (Apr 8th) , is evaluated as part of N-Screen strategy differentiated from other companies - iAd (released July 1st), which has been announced after the acquisition of mobile AD company, 'Quattro Wireless‘, displays ADs by clicking the banner at the bottom of Apps ☞ iAd received $60 million worth of Ad orders from global enterprises such as Nissan, Unilever and GE (Segye-ilbo, June 14). It is expected to take 48% of mobile AD market in the second half of this year - iAdannounces the beginning of collision between native application usage environment and usage environment based on web by Google ☞ Apple, which does not have a search engine, is scheduled to select mobile AD model based on 190,000 Apps, but will allow web App as well (accepting Web standard HTML5 /safari web-browser), LaLa (online music streaming, Dec, 2009), Siri (Sound recognition search, Apr, 2010) and Intrinsity (chips for mobile, Apr, 2010) were acquired sequentially [Screen from Toy Story3 AD based on Apple iAd] [In-House platform + Cloud strategy outline for N-Screen by Apple] Share email, contacts and documents on iPhone and PC through Mobile Me service Cloud In-House Platform Album company Video company Press company App development company Content & App Profit allocation AD Service Web Service Company Access through Safari, Synchronization through Mobile Me Download&AD Synchronization Synchronization Synchronization Synchronization Native App Use User verification/charge/payment with Apple ID Cloud use Source: Engadget, Atlas (May, 2010), Re-quotation 15

Finding differentiation factors related to contents mobile distribution! Key features of Contents 2.0 are mobile, addictive, multi-platform, participative, new experience etc. (IMMA General Meeting, 2010). Differentiation factors related to these key features for mobile environment and mobile contents are S(Situation recognition), M(Mash), A(Active), R(Rapid) and T(Tailored) (LG Economics Research, Feb, 2010) ,[object Object],- Mash service : Augmented reality (iPhoneRedLaser App combines information from camera + internet shopping mall, provides barcode information) - Active service : Push (checking eBay auction bidding information through iPhone App 'Push Notification') - Rapid service : Offers a path through which users can access service they want with One-Click - Tailored service : App by Barnes&Noble recognizes book cover image taken with a camera and finds related information [Characteristics of mobile internet usage environment and differentiation factors of mobile contents] [Content 2.0] Mobile Strongly addictive Cross media Participative Offering experience Use on the road Terminal with various combined function Personal exclusive use Constant access Necessity for immediate purpose achievement Restriction of control method Source: Gerd Leohard(2010). The Future of News. Publishing&Media, The 80th INMA General Meeting Reference. Press Promotion Foundation 2010 Reorganization Source: LGERI market expection report, Feb, 2010. 17

Key differentiation factors of mobile distribution: Mash up LBS, SNS and AR with contents! As boundaries between traditional contents and services become vague, mash up platform combining contents and services are becoming important. The platform is expected to decide the contents standard (adobe of web) of future devices and offer new business opportunities LBS + AR[Layer] or LBS+SNS[Foursquare] [Case] (source : Youtube) Layer: Offers ADs and information of objects shown on users’ camera. Utilized as marketing method by the third party Foursquare: LBS + SNS • Killer Apps, 'LBS, SNS, AR' through contents/services mash up ,[object Object], (KT Business & Economics Research, March, 2010) √ Picture, 'MoreLomo > PS Mobile' √ Productivity 'Awesome Note’ > Kantacts' √ SNS, 'Skype > Sekai camera' √ LBS, 'Daum Map > Seoul Bus' • Trend of Apple/Google’s LBS becoming closed - Apple rejected Google Latitude* and acquired an LBS service, Playbase • Trend of SNS being OPEN OS in life - Open API as a main trend (i.e. Facebook) - Expansion into marketing OS*** (Australian Airline) - Connecting revenue model based on high royalty √ AD: Facebook etc. √ Item Sales: Cyworld etc. √ Fee: LastDotFM etc. SNS or SNS + Game[Social (network) games, Farmville] [Case] Twitter becoming an OS: Strength in linkage with various social media. Integrated model with existing SNS Zynga** 'Farmville' social game ** $180 million Investment. 12 million active users added from Facebookonly in 7 days. Currently has 230 million users AR: LBS + AR, SNS + AR, Search + AR[Goggles] [Case] (Source: Atlas, Apr 12, 2010) 30% of users access Twitter directly, while the rest use the 3rd party Apps. Usage background is various mash up. Goggles has visual search function * Service provided by Google, which lets family or friends know users’ location information based on Google Maps through cell phone *** Advertisers expect low cost and high efficiency 18

Change consumption behavior of wired environment into that suitable for mobile environment! Secret of Facebook’s successful transition to mobile service lies in preoccupying mobile SNS based on web market by offering the best mobile environment despite the difference in P-N-T with Apps (C content) suited for each multi-platforms and various versions of websites ,[object Object], ☞ Ovum(2010) classified mobile contents into personalization, music, game, TV/video(real time/VOD), and premium(pay per use). Music and video shows the highest growth rate ,[object Object]

Differences between Facebookand Myspace include simple interface, rapid adaptation to mobile App (iPhone, Blackberry etc.), competitiveness of mobile App ‘Facebook Connect’*, and creating an open API-based (known as "Social OS") ecosystem[Myspace and Facebook in the viewpoint of transition of competitiveness from wired to mobile] Facebook - Example of wire influence enlargement through mobile competitiveness reinforcement Myspace- Failed in transition of competitiveness from wired to mobile Service detail Service screen capture Section Detail - Writing a post/reply and uploading photos on blog - Editing profile and search - Making friends - Sending and receiving emails Service Fee Service screen capture Offers same service by changing the existing website to be suitable for mobile environment Being able to upload photos etc. directly using cell phones, and check upload status of other friends Through the 'Friend's Upload' tab Mobile text messaging function - Monthly basic fare : $2.99 * Technology used in desktop and App devices which allows the 3rd party's website to access Facebookaccount information, friends privacy setting etc. Source : Taurus Security, Mar, 2010. 19

Specialize in contents category considering loyalty and frequency of App Store App usage! Looking at the consumer usage behavior by each App category of Apple App Store using loyalty and frequency as two axis, various usage behaviors appear for 19 categories , including entertainment, news, game, book, reference, weather and etc. The result needs to be applied to web as well. - Sustainment measured by how long the users maintained the App after the download – surveyed sustainment ratio for 90 days - Frequency measured by how many times an App which users have downloaded has been used per week ☞ Apps with high frequency and sustainment showed high customer loyalty [Consumers’ behavior by App Store Application category : Loyalty & Frequency] High frequency & High sustainment ratio - Life information: news, reference ,[object Object],High frequency in a short term & Low sustainment ratio - Game ,[object Object],Low frequency & Low sustainment ratio ,[object Object],Medium frequency & Medium sustainment ratio - Social Networking(?) ,[object Object], (finance, travel) - Navigation, education, music etc. Number of use per week Sustainment ratio for 90 days Source : Flurry, Oct, 2009 20

High frequency & High sustainment ratio : News[1/3] iPad, on which 28% of the users planned to read the news, is expected to accelerate 'newspapers and magazines to become online'. UX of iPad, which is similar to paper is expected to offer attractive reading experience, so respective strategy is required ,[object Object]

Features of paper newspaper and mobile media – ‘passive, producer-oriented, entertaining and consuming'vs. Features of PC web - 'active, search and endlessly continuous'[Contents which will be used on iPad?] Path of News transfer Reading magazines ,[object Object]

Payment for purchasing package.. ,[object Object],Internet Surfing Email eBook News Video Source: Gerd Leonhard(2010). The Future of News. Publishing & Media. The 80th INMA General Meeting Data. Press Promotion Foundation. 2010 Reorganization Source: Mario Garcia(2010). Selling Printing to Readers and Advertisers in the Times of the iPad & Beyond. The 80th INMA General Meeting Data. Press Promotion Foundation. 2010 Reorganization 22

High frequency & High sustainment ratio : News[2/3] Smart phone and iPadoffer newspaper companies, which have been suffering from lack of revenue model, with the possibility of paid subscription model. Strategy for paid model focusing on genuine subscribers based on high frequency and sustainment ratio is required - There is no fixed paid model as each newspaper companies have different number of subscribers, characteristics of subscriber segments and media usage behavior of target subscribers ,[object Object], ☞ Attempt to bring 47% of the total visitors who skim through the news website to paid model can be dangerous [Dow-joneslocal media group paid model classification] [Categorization by news website’s usage behavior] Contents free for a certain number of articles 3 articles for non-registered / 10 articles for registered users per month Paid subscription required for more than 10 articles per month Genuine local subscriber 18% 20 times visit per month 2~3 times visit on the same day Subscribers residing within the area One-time visit 47% Once per month Inflow through search engine Complete paid contents Paper PDF service/ Email newsletter/ Breaking news alert function General local subscriber 35% 1~3 times visit per month 2~3 times visit on the same day Assumed to be local subscriber Free contents News from communication company such as AP / Contents using blogs [Portion of page view by loyalty] General local subscriber 3% Once time reader 6% Subscription fee Daily use fee Use fee per article Unknown subscriber 1% Subscribers’ evaluation on online subscription fee Genuine local subscriber 90% Cheap A little expensive Too expensive7 Source : Kurt Lozier(2010). Contents and the Value of Paid vs. Free. The 80th INMA General Meeting. Press Promotion Foundation. 2010 Reorganization 23

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