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Digitizing the entire day

NY TIMES NEWS SERVICE, SAN MATEO, CALIFORNIA
Sunday, May 21, 2006, Page 12

In a nondescript office park, hard by a freeway and other markers of suburbia like Circuit City and Trader Joe's, a band of creative souls is working on another staple of the American experience: new forms of entertainment for people to fill the few remaining gaps in their media-oversaturated days.

Digital Chocolate is this company's name, and the business focuses solely on developing games and applications for mobile phones. Although it has some trappings of a Silicon Valley start-up, circa 1999 -- one recent morning a 20-something employee rolled up for work here on a skateboard -- Digital Chocolate differs in one significant way. Its founder and chief executive, Trip Hawkins, is not a typical bootstrapping young entrepreneur.

Hawkins, 52, was employee No. 68 at Apple Computer before he left that company in 1982 to start Electronic Arts, now the pre-eminent video game maker. Never shy about expressing his opinions, Hawkins, not surprisingly, brandishes a theory about programming for the mobile phone.

"Content is just a means to an end, so there's something to talk about," he said.

In other words, social connection trumps all. Accordingly, Digital Chocolate's creations appear decidedly low-tech, the easiest-to-use games possible without fancy graphics or elaborate storytelling. And its newest games and entertainments are designed to foster conversation, flirting and in the case of MLSN (Mobile League Sports Network) Sports Picks, a little friendly trash talking.

In this interactive sports game show, which costs US$2.99 a month, people can compete against friends by predicting outcomes of sporting events. The system keeps track of the standings for bragging rights.

That resulting connection, that social interaction, can be much more lucrative than costly, classic content, in Hawkins' estimation. The first big mobile hit will be a completely original creation, he contends.

"If you're going to really establish something as a new medium, you can't do that with content that is derivative and a second-class version of another medium," Hawkins said.

Needless to say, plenty of entertainment and media companies do not share that pointed opinion. From Hollywood to the Bristol, Connecticut, campus of ESPN, companies are spending hundreds of millions of dollars to adapt their current brands in television, movies, games and news and information to the tiny screens of mobile phones and creating new programming.

DIARY SEGMENTS

The creative team behind Lost on ABC plans to produce video diary segments, two to three minutes long, for cellphones. CBS is pushing ahead with a made-for-mobile soap opera. Last week, HBO's Entourage began shooting mini mobile episodes focusing on the exploits of two of its characters, Turtle and Johnny Drama. And NBC is creating casual games based on the fractured, deadpan humor of The Office that will be available this summer.

Ultimately, whoever guesses correctly the kind of bite-sized, time-wasting distractions people want to snack on over their phones could be showered with a bonanza of profits, at a time when technology is squeezing the traditional businesses of media and entertainment firms.

Still unclear, however, is how eager Americans will be for all this mobile phone content and how much they will want to spend on top of already-hefty monthly cellphone bills.

"Consumers right now are not really looking at the phone as more than a way to communicate," said Linda Barrabee, an analyst at the Yankee Group, a research firm based in Boston.

In the US, analysts estimate that only about 5 million people own third-generation, or 3G, phones, the ones designed to play decent-quality video and music. Only about 2 million have signed up for data and video packages, which cost anywhere from US$10 to US$25 a month.

The Yankee Group estimates that pure mobile entertainment -- games, music and video -- accounted for about US$500 million last year, less than 5 percent the wireless carriers' data revenue. And the data revenue represented a small fraction of voice revenue. While people are watching video on their phones in increasing numbers, another researcher, eMarketer, predicts that even by 2009, fewer than 10 million subscribers will be willing to pay for premium services.

Studying such numbers convinced Hawkins to tailor his games to a more lucrative piece of the mobile phone business.

"Because it's when you're mobile, you're the most socially needy and vulnerable and insecure, and that's when the one platform you have is the mobile, wireless platform," Hawkins said.

Digital Chocolate's summer release, The Hook-Up: Ava Flirting, allows players to create an avatar, an image representing the user in a virtual reality, and interact with others' avatars, in a PG-13 setting. People willing to spend US$2.99 a month can decide everything from their avatar's hair color to shoe choice and then socialize in settings ranging from a hip nightclub to a library. Then they compare notes with friends.

There is also the potential, if two avatars hit it off and are willing, to exchange text messages and perhaps meet in real life.

CONVENTIONAL MEDIA

While he says he believes that this kind of original material will be the most successful form of mobile programming, Hawkins concedes that conventional media offerings -- movies, music and games -- will also find a market on cellphones, just not a particularly valuable one.

"Of course you're going to use the devices and the network for a variety of things," he said. "But it's not going to be your favorite way to watch a TV show or watch a movie or listen to high-fidelity music, or play an immersive game. There are bigger screens, there are bigger boxes, with more power electronics in them, that are in environments that are more conducive to a high-fidelity experience."

Entertainment and video game companies, he added, "have big businesses they need to protect, so it's just a natural tendency to play defense."

Hawkins' disdain of established entertainment company behavior, however, might in part be recognition of his competitive situation. He finds himself up against bigger companies like Electronic Arts, which has solidified its lead in the mobile game marketplace through mobile versions of hits like Madden NFL and Need for Speed and the US$680 million acquisition last year of Jamdat Mobile, home to Tetris. He has also been wrong before. His early 1990s foray into digital video console and games development, 3DO, floundered, and filed for Chapter 11 bankruptcy protection in 2003.

Digital Chocolate does not disclose revenues, but it expects to be profitable in the next year.

At traditional media conglomerates, some early financial figures on mobile-content revenue, though small, cheer top executives. In a conference call last month with analysts, Leslie Moonves, chief executive of CBS Corp, said the company's deal with Verizon Wireless to show CBS material -- including video clips of Survivor and The Late Show With David Letterman -- on its VCast network will bring in about US$3 million in subscription revenue this year.

Peter Chernin, president and chief operating officer of News Corp, said at a Milken Institute conference last month that the short-form series spun off from the Fox series 24 was profitable thanks to payments from wireless carriers around the world (he declined to disclose the profits). And for its newest miniaturized series, Prison Break: Proof of Innocence, Fox sold a sponsorship and product integration package to Toyota.
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