Qualcomm Inc (QCOM)

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A Big Push For The Small Screen
Putting broadcast TV on cell phones could make Qualcomm a media power
APRIL 3, 2006
INFORMATION TECHNOLOGY

http://www.businessweek.com/magazine/content/06_14/b3978074.htm?campaign_id=rss_magzn

Paul E. Jacobs is definitely not made from the TV executive mold. The 43-year-old CEO of Qualcomm Inc. has a PhD in electrical engineering and made his mark at the cell-phone chipmaker by writing software code to compress speech. But these days Jacobs is sure talking like a TV guy, chatting about 15-second commercials and consumers' viewing tastes with the gusto of a media mogul. "The cell phone is the TV of the future," he says. "And the future isn't that far off."

Real media moguls have no reason to worry -- yet. San Diego-based Qualcomm and its $5.7 billion-a-year collection of patents and licenses won't be taking on CBS anytime soon. But as every tech company from Apple Computer Inc. (AAPL ) to Google Inc. (GOOG ) maneuvers to make money by showcasing video, Jacobs is in a race to make the cell phone your TV on the go. Later in the year, Qualcomm plans to offer the cell-phone industry's first broadcast TV service. Called MediaFLO, it is expected to include 20 channels of near-TV-quality programs, 10 music channels, and the cell-phone equivalent of a TiVo (TIVO ) in your palm, with the ability to store programming in the memory of your phone to be played back later. "It's the ultimate in giving consumers TV when and where [they] want it, and that has become crucial," says Joseph Rizzo, U.S. tech-sector chief at PricewaterhouseCoopers. MediaFLO plans to sell the service to cell-phone providers for a cut of subscriptions, similar to the way TV programmers negotiate distribution on cable and satellite. (Its only deal so far is with Verizon Wireless.)

NEXT-GENERATION NETWORKS
The payoff could be huge. Within four years, as many as 26 million cell-phone users could be spending $3 billion a year on video subscription services, figures technology researcher IDC. With a potential market that vast, it's no surprise Qualcomm is facing growing competition. It's already in a race with phone services that offer their own versions of video on the go. What's more, a consortium that includes phonemaker Nokia (NOK ), chip giant Intel (INTC ), Microsoft (MSFT ), and Texas Instruments (TXW ) plans to offer a rival service, Modeo, later this year based on technology being tested in several European markets.

Making TV programming available on cell phones isn't a new notion, of course. But interest so far has been scant, in part because rather than actually broadcasting, current efforts involve downloading shows and sports from servers, forcing consumers to wait for pictures that can be fuzzy and intermittent. The leading service, MobiTV, has 500,000 subscribers who pay $9.99 a month to watch clips and programs from 20-odd channels, including Fox Sports, Discovery, and MSNBC. Qualcomm and the next generation of TV networks intend to make the picture better, deploying the same broadcast towers and discarded analog spectrums used by the broadcasters. The result: a TV-like experience, with sharper pictures and live video, all on a two-inch screen.

For Qualcomm, the MediaFLO network is a bold departure from its start in silicon and software. Three years ago, as TV companies were being pushed by the federal government to trade their analog spectrum for new digital signals, Qualcomm paid about $87 million for the nationwide rights to the slice of the UHF spectrum that had been reserved for channel 55. With plans to spend up to $800 million, Qualcomm devised compression technology to jam channels into that spectrum. It is also providing 800 minutes of short programs stored in the memory of cell phones that can be replayed later. "We're very geeky around here, so we wanted to make this the very best we could," says Peggy L. Johnson, president of Qualcomm Internet Services.

But the competition is pushing ahead with technology, too. Modeo will use the existing broadcast towers owned by Crown Castle International, which controls more than 10,000 U.S. sites. Taking over spectrum once used by weather-balloon operators, Modeo has tested its service in Pittsburgh and plans an initial rollout in the top 30 U.S. markets, says Modeo President Michael Schueppert. Qualcomm says only that it will launch initially in half of Verizon's markets. Verizon declined to comment.

MediaFLO, a separate unit of Qualcomm, is becoming a sort of mini media company. It has hired TV producers from New York and Los Angeles to create original programming and has started talking to advertisers about "aggregating eyeballs." Gina Lombardi, president of MediaFLO USA Inc., says the company is ironing out distribution deals with programmers. These are believed to include NBC, MTV, and ESPN. Neither she nor the rumored partners would comment further.

There are huge hurdles to entering a business as entrenched as entertainment. TV networks, worried about how their local affiliates would react to the competition, have yet to sign on. And there is no agreement yet that would outline how to share ad revenues with the phone services, says Lombardi. That is making some phone outfits nervous. "It is a proprietary system, and that gives us pause," says Paul Reddick, Sprint's vice-president for business development.

Then there's the larger question of whether folks will even want to watch a palm-size TV. A spate of recent studies shows that consumers want their phones mostly to make calls (box). Jacobs blames the lack of interest on less-than-great experiences with handheld TV. So he knows the pressure is on to deliver. "If we don't do this right," Jacobs frets, "there won't be TV on cell phones for two generations."