Cell phone giants dial up entertainment in growth bid

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Cell phone giants are going beyond their traditional role as handset makers by offering entertainment and lifestyle content to help grow revenues amid tough competition, analysts say.

Cell phone sales are expected to decline worldwide this year as consumers hurt by the economic meltdown cut down on spending, and phone makers hope the services will help keep existing clients, attract new ones and generate fresh revenue streams.

“The overarching story here is that the various device makers… are looking for ways to go beyond selling just devices into generating revenues from selling multimedia content and services,” said Aloysius Choong, research manager at market intelligence firm IDC.

“Right now, especially in Asia, we haven’t actually figured out the best way or whether there is a right way to be selling these content and services,” he said.

Nathan Burley, an analyst with market research firm Ovum, said bundling content and services into the handsets is also dictated by industry trends as cell phones come with more processing power and wireless connection becomes more widespread.

“For the handset vendors, these are ways to reduce churn and to tie the customer to their services,” Burley said.

“There is no doubt that they see services going forward as a key part of their competitive arsenal.”

Burley said global cell phone sales are expected to fall between five and 12% this year compared with 2008.

“If you look at many companies, in the middle of last year many people were expecting positive growth. Now they expect negative growth in 2009 in terms of total shipment,” he said.

Cell phone makers have come up with different business models on how to package content.

Last Wednesday, Sony Ericsson launched a new service called PlayNow Kiosk, which allows its phone users in the Asia-Pacific region to download the latest movies, television series, games and music from its retail stores.

During the first phase of the launch, the service will be available at more than 80 Sony Ericsson stores in Indonesia, Singapore and Malaysia, the company said.

The stores will feature a station where Sony Ericsson users can plug in their phones, browse from a flat screen panel and download the latest movies within just three to four minutes for a fee.

Popular television series, games, ringtones and music, including more than 1,800 albums and 23,000 individual tracks, are also available.

“The nice thing about the Kiosk idea is that it creates an opportunity for impulse buys and instant gratification,” Choong of IDC said.

“It’s something like hopping into a convenience store to buy the evening paper before you hop on the train home.”

Hirokazu Ishizuka, corporate vice president and head of Asia-Pacific region at Sony Ericsson, said the company launched the service because there was a need to offer something better.

“The competition is getting tougher so therefore we need to differentiate ourselves from our competitors,” he said.

“This is the solution. We will provide a mobile entertainment experience which nobody can do.”

Finland’s Nokia, the world’s biggest maker of hand phones, has already launched its OVI Suite, an “umbrella concept” that allows users to share photos, buy music and access third party services such as Yahoo’s Flickr photo site, among others.

Nokia reported last year that its third quarter to September net profit fell 30% from a year earlier amid falling sales and lower prices for its handsets.

Burley, the Ovum analyst, said Nokia “has taken the most aggressive approach” among the mobile phone makers in offering content and services.

However, Apple’s stylish iPhone, which is bundled as a phone, iPod and Internet device, “has lifted the bar on many levels,” he added.

iPhone user Junel Tan, 50, agreed, saying: “There’s so much fun using iPhone. Never in my life have I enjoyed a phone as much as this.”

IDC’s Choong said mobile customers need more than just music, which is why some phone makers are offering movies and television shows for people on the move.

But he said the content should be widened to include Asian movies and TV shows as well.