Coming To A Cell Phone Near You...

PacketVideo gives Hollywood an entree to the mobile Net

Over three decades, Hollywood bungled three big opportunities. In the '70s, it moved slowly on cable, then scrambled to catch up with HBO. Next, without a fight, it surrendered the video-rental market to the likes of Blockbuster Inc. And when the Net ballooned into a global medium, Hollywood blinked, allowing Yahoo! Inc. and America Online Inc. to build the first great portals.

Now, the mobile Internet is taking shape, and nobody is blinking. In a remarkable melee, studio executives are pushing and shoving with wireless carriers and handheld-gadget makers for a piece of a tiny San Diego (Calif.) startup called PacketVideo Corp. The company has nothing to show but an early-stage technique for delivering pictures to cell phones and handheld computers. But PacketVideo has already attracted about $60 million in backing from 35 media companies, including Sony and Time Warner, along with a gaggle of device makers and telecom interests. All want in on the ground floor of the mobile Net. "This all may seem a little freaky today," says Gerry Purdy, CEO of Mobile Insights Inc., a market researcher in Mountain View, Calif. "But believe me, in a few years, it's coming."

Mobile Internet services such as text-based chat and Web surfing account for a tiny part of cell-phone use in the U.S. today. Forrester Research Inc. in Cambridge, Mass., figures revenue from such data services will be just $5.3 million this year. But the total should swell to nearly $4 billion over the next five years, it predicts.

To drive this movement, PacketVideo needs some compelling applications. And that's a tough one. Right now, its system can support just five frames of video per second--only one-sixth the rate of television. Slow means choppy. And it's not clear what people will watch on phones--especially when they are paying dearly for each megabyte.

PacketVideo says that the first likely applications will be utilitarian. People will pay to view traffic at specific intersections, for example. And parents may pay for a daytime peek at their babies, says Robert A. Tercek, the company's programming chief. Cell phones, he says, could display shots from cameras in kids' rooms. plans to offer such a service, extending one that it already provides to daycare centers via the Web. PacketVideo figures young people will also want to scan movie and music clips before ordering tickets or songs. And sports fanatics won't mind watching replays--even scratchy ones--on cell phones, frame by frame.

Entertainment content will follow as faster third-generation, or "3G," cellular networks are deployed over the next few years. But don't expect a rerun of boob-tube fare. To appeal to mobile viewers, Warner Bros., ABC News, Universal Studios, and others will have to develop original short-form content.

AD BLITZ. They'll have commercial incentives to do so. Advertisers already see a gold mine in the mobile Internet. If just a couple of these applications take off, advertisers will happily bombard mobile surfers with wireless video messages, which have certain advantages over wired e-mail spam. The most important: Marketers can tailor their ads to the user's location, which cell phones continually broadcast to the network.

PacketVideo's cachet rests in powerful technology for compressing images encoded in an emerging format known as MPEG-4. That term may not ring a bell today--but neither did MP3 a few years ago. The new format marries the video standard used for DVD with some tricks of videoconferencing. MPEG-4 makes it relatively easy to strip out nonessential parts of the picture so that video looks its best whether it is shipped over a fast network or a slow one. Moreover, MPEG-4 will vastly improve the quality of digital audio sent over slow networks.

Wireless carriers are counting on wireless multimedia to spawn new services that will help justify the billions of dollars needed to acquire radio spectrum and equipment. About eight different carriers have tried out PacketVideo's technology, including Sonera, Finland's biggest operator, Sprint in the U.S., and NTT DoCoMo in Japan.

REAL RIVALS. Telecom-equipment makers are hot on the new technology. Semiconductor giants Intel, Texas Instruments, and Qualcomm were early investors in PacketVideo, which was co-founded by two former Motorola execs in 1998. Network infrastructure suppliers Nortel and Motorola also are developing switches that would enable interactive multimedia over wireless networks.

PacketVideo has grabbed the early lead in wireless multimedia, but its future is far from assured. Security and privacy concerns could limit the appeal of mobile e-commerce and advertising. And PacketVideo is expected to face formidable competition from both Real Networks Inc. and Microsoft Corp.

On the bright side, access to capital has never been a problem. In April, a sharp drop in tech stocks scotched an IPO that might have netted PacketVideo $65 million. But now, says company co-founder Jim Carol: "We're talking about alliances with big companies that would make [$65 million] pale by comparison." Insiders are betting on AOL and Time Warner, which has already committed about $5 million. The media giant may soon up its stake. It might also develop original programming and set up a network of servers that users can dial to access content on the go. One way or another, Carol is counting on continued support from media conglomerates that won't want to miss the boat. And he's right: Three missed opportunities are probably enough.

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