Wireless Surprise

In Japan and Korea, mobile content is making money

Keisuke Hashimoto is a cell-phone addict. But it's not voice calls that keep him glued to his handset. What really has him hooked are the data services available on his phone. One gives him access to his e-mail when he's on the move, another lets him check train and subway timetables. When he's traveling, his handset becomes a videophone so he can both see and talk to his wife and kids. When he's lost, he downloads maps that can pinpoint his location and help him navigate Tokyo's maze of streets. And when he has a few minutes of downtime, he plays online games and downloads songs. His total monthly bill: about $85. "I can't imagine life without it," says Hashimoto, a 35-year-old consultant and newsletter publisher.

That's music to the ears of a new group of Japanese and Korean companies that have sprung up on the frontier of the mobile Internet. Never heard of Cybird, Index, Xing, or Com2uS? No matter. These upstarts are seeing fantastic growth as 60 million Japanese and 16 million Koreans regularly use them to log on to 63,000 commercial Web sites and 2.3 million personal home pages designed for small phone screens and wireless connections. And they're expanding to Europe, the U.S., and other points in Asia.

The wireless Web? Wasn't its obituary written way back in 2000? True, mobile Internet services haven't exactly been a ringing success in North America, where most adults use their cell phones to do one thing: make phone calls. And three years ago, Europe's move to the mobile Net -- using a technology called wireless application protocol -- stumbled badly. Even today, European carriers are struggling to come up with high-speed data services that customers will pay for.

Yet Japanese and Koreans have multimedia phones outfitted with digital cameras, crystal-clear screens, and serviceable speakers -- and they're using them. Japan's three mobile carriers made $9.9 billion in data-traffic revenue last year, up 62% from 2001. SK Telecom Co. (SKM ), Korea's largest cellular operator, saw data traffic nearly triple, to $611 million, last year. "Japan and Korea are amazing," says Dylan Williams, head of operations for Black Octopus, a Hong Kong-based mobile content provider. "That's where all the content innovation is happening."

The key to this new service: entertainment. Young people in Tokyo, Osaka, Seoul, and Busan can't seem to get enough of services such as Hello Kitty screen savers (80 cents each), karaoke songs with lyrics that bounce across the screen ($1.70 per session), and personalized ringtones that can sound like anything from Frosty the Snowman to the latest Avril Lavigne hit ($2.50 for a dozen). With their camera phones, users can scan a restaurant's bar code from a magazine, then click on a link to book a table -- with a free bottle of wine thrown in. Others are buying skirts, dresses, and perfume. "Content providers need to make money, and the best way to do that in the beginning is with fun and games," says Giles Richter, an American who co-founded Mobile Media Japan, which helps companies develop mobile content.

No one knows that better than Cybird Co., Japan's largest operator of mobile content sites. In the mid-1990s, Cybird founder Kazutomo Hori thought the success of the wireless Web depended on offering entertainment sites geared to the young and mobile. But to make it a viable business, phone companies would have to collect subscription fees and split the take with the content providers. He took his ideas to NTT DoCoMo Inc. (DCM ), the country's largest mobile operator, and by the time it launched i-mode, its popular wireless data service, it had set up such a payment scheme. Today, Cybird has 3.6 million users and operates 88 sites offering everything from ringtones and restaurant guides to weather conditions around the world. In the half-year ended last September, its sales grew 41%, to $36 million.

With competition intense, innovation is the key to survival. Xing Inc., Japan's biggest supplier of ringtones, sold some $100 million worth of the little ditties last year. Now it's pushing new services such as mobile karaoke, which has triggered a boom in crooning while cruising. Users have access to more than 3,500 melodies ranging from movie theme songs to Beatles tunes.

Danal, a fast-growing Korean company, is going beyond ringtones and developing "calling tones." These are customized melodies or sounds that people hear when they call you. A mobster could make, say, the first few bars of Jailhouse Rock his signature tune, while a stockbroker might choose the sound of a cash register ringing -- paying 75 cents per month plus as much as $1 for each tune downloaded for the service. Last year, Danal made $4.6 million on sales of $26.1 million, compared with profits of $1.5 million on sales of $12.3 million in 2001. This year, says Yoon Sun Young, Danal's general manager, "the mobile content business in Korea will see another quantum leap" as better multimedia phones come on the market.

Even mobile e-commerce -- which has been a bust elsewhere -- is starting to take off in Japan. More than a third of mobile Net subscribers have used their phones to buy such goods as CDs and concert tickets, according to the Mobile Content Forum, an industry trade group. One site, called Blondie, lets shoppers scan bar codes in magazines with their phones to order items appearing in ads. Blondie's turnover: nearly $50,000 a day. A sister site devoted to perfume rings up $170,000 in monthly sales. "People love shopping on their cell phones," says Katsuhisa Oda, general manager of Index Corp., which owns the two sites. Mobile e-commerce revenues in Japan are expected to top $1.4 billion in 2003, 40% more than last year, according to Mobile Content Forum.

What's next? Global expansion. Korea's Com2uS Corp., a game company that expects to rake in $10 million in sales this year, is expanding into Europe, Singapore, and the U.S. Bandai Networks Co., Japan's leading provider of screen savers, using characters such as Hello Kitty, Godzilla, and Pokemon, has more than 4 million Japanese subscribers who pay as much as $2.50 a month for the smile-inducers. Now, Bandai is offering similar services in conjunction with Bouygues Telecom in France, E-Plus in Germany, and Sprint (PCS ) in the U.S. Xing has partnered with U.S.-based Moviso, a Vivendi Universal company (V ), to supply Americans with ringtones. And as China rolls out more advanced networks, that market could prove even more lucrative for services. "There's enormous potential for growth in the mobile Internet," says Park Tae Jin, a senior manager at Korea's SK Telecom. It seems those obituaries for the wireless Web may have been a bit premature.

By Irene M. Kunii in Tokyo, with Moon Ihlwan in Seoul

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