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Our interview with Mobile Thinkers

May 7, 2012

Mark Lubow, Founder and President of 423 Digital, Inc., 3D is coming soon to a mobile device near you.  Consumers, manufacturers and wireless carriers are in position for a big US debut but the star of the show — 3D content — is still en route to the theater.   Mark Lubow, Founder and President of 423 Digital, Inc., an entertainment technology company that licenses and distributes short-form 3D content for autostereoscopic (eyewear-free) mobile 3D devices, recently gave Mobile Thinkers an overview of 3D smartphones and explained how 423 Digital is stepping in to make 3D content readily available. Tune-in below for Mark’s insights on this emerging industry.

Can you describe the state of 3D mobile devices and content availability in the US?

Mark:In a word, “emerging.” The first mobile 3D smartphones were launched here last year by Sprint (HTC EVO 3D) and AT&T (LG Thrill), with combined unit sales in the low seven figures. This represents a penetration of less than 1% of total mobile phones in the US. Adding the Nintendo 3DS gaming console to the mix and you get a total installed base of approximately 5-6 million autostereoscopic (eyewear free) 3D devices in the US. It’s not a huge number, but it’s a good start. Globally, there are around 20 million devices, a figure expected to grow to over 300 million by 2015.

Regarding mobile 3D content, there is clearly not enough available today to sustain the market. This is the very reason why I started 423 Digital, Inc. two years ago. After analyzing the 2009 launch of the first mobile 3D device in Japan (the Hitachi Wooo), it was clear that the lack of available 3D content short-circuited the chances for 3D devices to woo the market. Since we saw the same situation about to materialize in the US, we decided to jump in and fill the gap.

What obstacles exist for widespread adoption? 

Mark: It may sound trite, but this is a classic “chicken and egg” situation. Due to the incremental production costs and relatively small distribution footprint, many producers aren’t committing to create content for any consumer 3D platform today – 3DTVs or mobile devices. While Hollywood may make it seem like 3D is ubiquitous, only 45 of 610 films (7%) released in 2011 were 3D. However, I’d note that 6 of the top 10 highest grossing films last year were 3D – a testament to the tremendous popularity of the format!

On the flip side, OEMs (Original Equipment Manufacturers)are hesitant to commit to mass producing 3D devices until there’s more content available and component costs come down. Also, despite the recent spike in 3D feature film interest, consumers still watch less than 5-10 minutes of mobile video per day on average. While these durations will increase as larger screens come to market, we believe that short-form 3D will be more relevant over the next few years. This is why 423 Digital has focused on cultivating a catalog of professional short-form 3D titles. We have access to about 500 premium 3D titles at the moment.

What opportunities does 3D content development/distribution present for wireless carriers, media companies, brands or marketers?

Mark: I think the opportunities for each of these groups are compelling. For a wireless carrier, whose basic services have been commoditized, mobile 3D presents a great opportunity to differentiate from competitors and establish itself as a leader in next generation mobile entertainment. Additionally, the fundamental benefits for carriers include the opportunity to generate additional data ARPU, spark handset sales and drive content revenue.

For media companies, one of the obvious opportunities is to establish an incremental revenue stream from ad sales. Once the medium achieves greater adoption, I’d anticipate that 3D ads will command higher CPMs due to the materially higher recall and engagement rates that 3D video yields. Hopefully this will help even out the current imbalance in mobile ad spending, which apparently is only 1% of total ad dollars but 23% of total media engagement.

One of the opportunities for larger OEMs like Samsung, Sony and LG, is being able to offer 3D content across all of their video platforms (e.g. smartphones, laptops, tablets, 3DTVs, etc.). Branded content portals will be the glue that holds these platforms together, and I think 3D will definitely play a role here. Unfortunately, mobile OEM pure-plays like HTC, Blackberry and Nokia will be challenged to replicate this offering. The secondary benefit of this strategy is to wrest “ownership” of the customer from the carriers. Ironically, this is taking a page directly from the carrier playbook when they figured out years ago that there was a strong correlation between service subscriptions and loyalty rates (i.e. the more services a consumer had with a single carrier, the less likely they were to churn). As you know, Apple is successfully deploying this strategy in the US with the iPhone, iPad, iPod and iTunes.  Now consumers are increasingly selecting their carrier based on the device brand, and not the device based on the carrier brand. This model is prevalent in Europe since switching carriers essentially requires swapping out SIM cards – one of the benefits of standardizing on GSM from the outset.

Is there an international market that is leading the way and is there something we can learn from this market?

Mark: As can be expected, the Asian market is leading the way as most of these devices are produced in the region. In particular, Japan and Korea are hotspots for mobile 3D launches but India and China are also showing strong growth potential. Europe is also seeing strong demand for 3D devices and content.

While we’re still in the early phases of mobile 3D content development and distribution, one of the broad lessons we are learning from Europe and Asia is that their proactive investment in fixed and mobile networks will be a positive enabler for mobile video (2D and 3D). While their mobile networks can readily support high definition 2D and 3D content delivery, our networks still struggle with delivering still images. There are many drivers that contributed to the less-than-optimal state of network affairs here, all of which are resulting in slower data speeds and a poor mobile video experience. And if you think that buffering, pixilation and time-outs create a frustrating experience for today’s 2D content, just imagine how much worse it will be with 3D!

Thankfully, we understood this challenge from the beginning and have worked hard to mitigate its potentially negative impact. To address this, 423 Digital has identified an amazing new compression technology that is expected to use 5-10x less bandwidth than today for mobile video streaming – both 2D and 3D content. We anticipate that this ultra-compression technology will alleviate many of the issues associated with video delivery on today’s highly congested mobile networks.

Can you give an example of effective 3D mobile content that is being used in the US today?

Mark: I think the most effective usage of mobile 3D content in the US would be on the Nintendo 3DS. While it’s not our business model, they have a very thoughtful approach to 3D content distribution which includes the curation and presentation of a small number of shorts. They are definitely aiming for quality over quantity. They also pay for content upfront, which makes producers especially happy.

That said, we are seeing some friction around different content licensing models, since this is a new market with relatively little pricing precedent and transparency. In general, producers want upfront payments or guaranteed minimums, and distributors would prefer revenue share deals. However, until major investment dollars are pumped into this market, I think both parties are going to have to deal with a certain amount of risk here. As a distributor, we recognize that this dynamic exists and are sympathetic to the producers’ perspective so we’re trying to be creative and flexible while the market gains its footing.

What is driving interest in 3D on mobile devices and what role do you play in meeting this demand?

Mark: First and foremost, carriers want to offer a great customer experience. Imagine you walked into a carrier store last year, listened to a whiz-bang 3D sales pitch from a retail associate and then paid a premium for the latest and greatest mobile 3D device. When you walk out of the store with your amazing new 3D device, you’d expect there to be a good selection of high quality 3D content available to watch, right?

Well, you would have been disappointed that there were only about 3-4 3D videos to download. Not a good customer experience.

The issue is that neither carriers nor OEMs are really in the business of delivering video content. They are in the business of selling voice/data services and devices, respectively. In the 2D world, the video delivery role is played by iTunes, Hulu, Netflix, Vudu, YouTube, Amazon, etc.  Fortunately for these companies, the content sourcing process is pretty straightforward and concentrated among a relatively small number of distributors. In contrast, the universe of non-theatrical 3D content is highly dispersed, fragmented and generally “offline.”

To meet this demand, 423 Digital is developing an online content store – think iTunes for 3D – that will be accessible online via a web and mobile user interface. Behind the scenes, we perform three primary roles:  aggregating, encoding and distributing content. For content aggregation, we’ve established a global network of talented 3D producers with existing content libraries and strong production pipelines. The encoding function takes the content from any native 3D source (e.g. RealD, Dolby, IMAX, etc.), and reformats it to work on consumer 3D screens. Distribution involves streaming the content to any 3D-enabled screen or device.  We plan to go live in the second half of this year…so stay tuned!

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