SERVICE PROVIDERS TARGET YOUNG MINDS

The Walt Disney Co.'s decision to launch a wireless service aimed at its best customers — pre-teen children and their families — has focused a spotlight on two significant industry trends: the growing segmentation of services marketing and a fascination with the hottest of those segments, the youth market.

Disney has teamed with Sprint to create a mobile virtual network operator (MVNO) service that targets families with children and adult Disneyphiles, according to Andrew Cole, analyst with AT Kearney.

“This is a niche, but a high-revenue niche,” he said. “The Disney brand is extraordinarily powerful — there are adults who spend an astounding amount of money on Disney stuff. And then there are the children who are obsessed with Disney, and their parents.”

Other service providers in the wireless and wireline sectors have targeted youth in large part because they are avid consumers of new technology and the harbingers — and often the drivers — of new market trends. Text messaging and ringtones are but two examples of markets driven by younger consumers.

A Forrester Research study, released in late June, shows that teenagers are not early adopters, but household influencers, said Charles Golvin, principal analyst. Service providers must be more in tune with their consumers' needs, and that can start with the youth, he said.

“Success is all about customer focus — understanding needs and putting those needs before the needs of the carriers, and that means flexibility in pricing as well as network design,” Golvin said.

Service providers already address the youth market, with cell phones designed for children and home networking packages that bundle wireless routers and multiple e-mail accounts with broadband service, said Daniel Briere, CEO of TeleChoice.

“I would expect them to do more,” he said. “For example, service providers should be trying to add a visual experience to the presence-based Instant Messaging that kids all use.”

BellSouth is building a broadband wireless trial around the specific needs of a younger demographic — college students. The Athens, Ga., trial of pre-standard WiMAX will allow University of Georgia students to not only do all of their communications wirelessly and avoid landlines altogether, but also to suspend their broadband service during the summer without de-activating their account and its associated e-mail address.

“They will be able to check their e-mail from wherever they are and then go back to using the service in the fall, without having to re-activate and pay a fee,” said a BellSouth spokeswoman. “They can pay $10 a month in the summer versus $40 a month for a broadband service.”

In launching its FiOS service, Verizon targets the younger set by running the FiOS Design Challenge, a contest for students ages 13 to 20 to come into a facility, called a FiOS Lounge, and use the computers and fiber-to-the-premises services to design a music video, Web site or poster that promotes FiOS, a spokeswoman said. Winners can earn a $5000 college scholarship or other prizes.

“Young people come in with their parents to see what FiOS is all about,” she said.

According to Disney, its new MVNO isn't just about children — both the service and the content are tailored not only to kids but to the parents who buy the service.

“There's a high degree of trust in our brand,” said Steve Wadsworth, president of Disney Internet Services. “That said, the bar is set quite high. We have to deliver on those expectations.”

Disney Internet Services already licenses content to other wireless carriers and content providers, and while the MVNO will carry a lot of Disney content, it won't necessarily be a repository of all Disney entertainment. George Grobar, senior vice president and general manager of Disney Mobile, said that Disney will likely offer family-oriented services and content from other entertainment providers as well. It will also likely have components unique to Disney Mobile. Grobar said Disney has much more flexibility in how it distributes that content over its MVNO simply because it will have complete and direct control over the service itself.

But Disney is not looking at the MVNO as a way of distributing a large amount of Disney content to its users. It's not expected to be a data cash cow, Wadsworth said. “We're not in any way expecting we'll be driving incremental revenues high up with this service,” he said. “It's not something we're counting on.” Disney aims more to target its specific niche demographic, to basically capture a significant portion of an already large and loyal segment with a well-rounded wireless service, Wadsworth said.

The company is a clear example of the growing segmentation of services marketing. Its first venture into an MVNO tapped a very different segment — sports fans.

Early next year Disney plans to launch ESPN Mobile, and its strategy is one of multiple MVNOs for multiple market segments. Because it owns powerful brands, Disney is able to build MVNOs around an individual entertainment property instead of using an MVNO as a vehicle to distribute its vast stores of content.

Manish Jha, ESPN Mobile senior vice president, said that 97 million people watch some type of sports programming every week, and of those, he estimated that 15 million to 20 million would be considered “sports fanatics.” It's those sports fanatics, almost all of which partake in one or more of ESPN's properties, that ESPN Mobile is targeting. Jha said ESPN will be looking to leverage Sprint's new EV-DO network, which Sprint began rolling out this month, to deliver real-time content, but like Disney Mobile, ESPN is looking more to capture a sizable user base than use the service to drive data downloads.

Few companies, however, have the huge brands that Disney owns — brands big enough to build an MVNO around. In fact, Wadsworth said that the Disney and ESPN brands are probably the only two brands within Disney Corp. itself that could support their own MVNO. Those two brands have built such large audiences that they can afford to be so narrow in breadth, said Patrick Zerbib, Adventis wireless analyst.

“Disney isn't targeting all families,” Zerbib said. “It's targeting a specific type of family — one with kids of an appropriate age. That's a highly differentiated and specific service.”

Zerbib believes Disney may be able to corner the market on the specific segments it goes after. While there may be room for multiple youth MVNOs, there won't be room for multiple Disney Mobiles or multiple ESPN Mobiles.

David Steinberg, chairman and CEO of mobile virtual network enabler InPhonic, said that MVNOs are likely to get very specific in the markets they target in the near future. The first MVNOs in the U.S. attacked broader segments like youth, but a segment can only be so broad before the Tier 1 carriers start becoming interested in the business. Virgin Mobile, which targets young people, is actually a joint venture with Sprint. Youth MVNO Boost Mobile is owned by Nextel. “There's a reason why they've grown so fast,” Steinberg said. “They are partnering with the carriers owning the network.”

At the same time an MVNO can scale too small — the laws of diminishing marginal returns come into play. Some MVNOs are so specific that their potential customer base is negligible, Steinberg said. The key is to strike a balance. Steinberg estimates that an MVNO has to expect to build a customer base of 250,000 to 500,000 subscribers in order to have a business case.

SOME MAJOR MVNOS

MVNO	Wholesale network	Launch timing
Disney Mobile	Sprint	next year
ESPN Mobile	Sprint	next year
Virgin Mobile	Sprint	2003
Amp'd Mobile	Verizon Wireless	this year
Time Warner Cable	Sprint	currently in trial
SK-EarthLink	Carrier not yet named	this year