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11/29/2006
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Elena Malykhina
Elena Malykhina
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Can YouTube Help Verizon Wireless' Video Business?

Next month YouTube, the popular video-sharing site recently acquired by Google, is going mobile on Verizon Wireless cell phones that use its Vcast service for on-demand video clips. YouTube will benefit from the deal by monetizing its free content, but Verizon Wireless will need to lower the price it charges for its video service if it wants more subscribers to tune in.

Next month YouTube, the popular video-sharing site recently acquired by Google, is going mobile on Verizon Wireless cell phones that use its Vcast service for on-demand video clips. YouTube will benefit from the deal by monetizing its free content, but Verizon Wireless will need to lower the price it charges for its video service if it wants more subscribers to tune in.Verizon Wireless charges a $15 monthly subscription fee for Vcast and offers a $3 daily access pass for customers that have a Vcast-capable cell phone. The subscription includes unlimited basic video and there are no airtime charges to stream or watch Vcast content, but Verizon Wireless charges application download fees for 3D games and premium video. And that's in addition to a monthly calling plan that can cost anywhere from $40 to $200.

On-demand video clips are really a matter of convenience and an occasional source of entertainment during downtime and many mobile users are simply not willing to pay $15 a month for convenience that they can get for free on the Web via a PC. That is, unless prices come down for video services like Vcast and if more content becomes available to customers, according to Tole Hart, an analyst at Gartner.

Vcast has seen some success since its launch over a year ago, but not enough to be considered a widely-used service. Verizon Wireless has 56.7 million customers and more than one-third have Vcast-capable cell phones, according to the company. The No. 2 cellular carrier won't disclose how many of those customers actually subscribe to Vcast, although some industry experts estimate it to be about one million. This week Reuters reported that about 10% of Verizon Wireless customers use the service. It's too early to tell if YouTube will attract more subscribers to Vcast, although that's clearly Verizon Wireless' goal. Hart was skeptical when I asked him what impact YouTube will have on the carrier's video business. "It won't do much," he said.

Go figure. The major U.S. cellular carriers are spending billions of dollars upgrading their networks to third-generation wireless technology to support multimedia services like video, so it's technically possible to watch a short clip on a cell phone today (though screen size is definitely an issue). T-Mobile is the latest to join the 3G race, partnering with Nokia and Ericsson earlier this week to build its network. It'll be interesting to see which high-speed services will come out of it.

But what the carriers really need is a good business model and getting a big-name partner on board is not always the key to success. Just look at the demise of Mobile ESPN: Even with a name beloved by sports fans everywhere, the mobile virtual network operator couldn't attract enough subscribers for its up-to-the-minute sports content.

The deal with Verizon Wireless is YouTube's first move into the mobile space. "But it's the first of many more exciting partnerships and features that YouTube plans to create for the mobile user," according to Kelly Liang, senior director of business development for the company. The wireless market is thriving, so going mobile is a smart move on YouTube's part. Verizon Wireless, however, needs to re-think the $15 price tag it placed on Vcast because I don't know too many people that are willing to shell out that kind of money for mobile entertainment.

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