Free Stuff's the right stuff for 3

3 UK's headline metric of the past few weeks must be the 1 million customers the cellco has signed up to its advertising-supported video service, Free Stuff, in just the first six months after launch.

That's an impressive enough number in its own right, but even more so considering that it also represents more than a quarter of 3's customers. Who said people don't want to watch video on their mobile phones?

It's not surprising that the cellco's at the leading edge of video provision in the UK, when it's the only operator able to boast a 100 per cent-3G subs base, and that it also predominantly targets a young demographic disposed to consume on-the-go content.

"People are looking mostly at video news," says Fergal Walker, director of product management at 3. "Then it's really a mix of things. News has a usefulness on a daily basis that the other categories don't have. Mobile is currently short and snappy. It's instant-gratification content, and we can't expect it to compete with TV on the same terms.

"We'll continue adding content to Free Stuff," Walker adds. "Advertisers are very positive about the service. ... They certainly don't see this as backwater advertising at all. They realize that mobile is a platform unlike any other in terms of user engagement. And if they're on mobile and they're looking at content, then you know they've been there. We're very happy with the way the advertising business is going, and we see it growing."

The beauty of mobile ads is that they can be delivered to particular market segments, and that's exactly what 3 and its technology , Rhythm New Media, did for Unilever and its Lynx men's deodorant in May, launching a video advertising campaign delivered solely to the carrier's male customers in the 16- to 24-year-old demographic. Rhythm said brand-message recall for the campaign was 86 per cent.

Using consumer data throws up privacy issues, of course, though 3 says it's hyperaware that this is a sensitive area and also doesn't see the point of digging too deeply into behavioral and demographic information. "We can achieve a lot with targeting, but we're not really mining the data," Walker says. "We're very aware of what we can and cannot do with data, and we're taking the safe route.

"It really is down to what the customer allows us to do, and anyway, it would be a massive amount of work for us to get more data," he adds. "And the benefits of that are as yet unproven. ... Advertisers might well be happy enough to target people using more general data."

3 also boasts live TV, with 18 channels offering streamed programming from UK broadcasters the BBC and ITV, along with content from the likes of Nickelodeon, MTV and Paramount. The service costs £0.49 a day or £5 a month.

Walker says take-up for the service has been "quite good," considering that general market awareness of mobile television is low. "We've found that customers keep coming back to it," he says. "Demand for TV is strong without much promotion, and we already have hundreds of thousands of customers.

"People compartmentalize their lives," he adds. "There's TV at home, and they'll use their mobiles when they're not being otherwise entertained. Mobile TV is very much complementary to broadcast TV."

It looks like 3 mobile TV will be paid-for for some time, with the advertising ethos unlikely to cross over to television just yet. "Ad-supported broadcasting will happen," Walker says.

Research outfit Strategy Analytics thinks so too and is forecasting UK mobile TV advertising revenues of £40m in 2011.

What's already happening at 3 is music. Earlier this year, the 3 Music Store, which boasts more than 1.5 million tracks from all of the music majors and a number of independent labels, won Music Week magazine's "best digital music service" award for the second consecutive year. "We are the UK's number-one retailer in mobile music, and number-two in digital music [after iTunes]," Walker says.

The mobile-music market is getting more competitive, though, with Nokia launching its new music store in the UK earlier this month and cellco Orange announcing that it had sold more than 200,000 full-track downloads in October alone. And carrier Vodafone recently launched a music service, together with mobile-music outfit Omnifone, that brings a different kind of model to the UK, with users stumping up £2 a week to rent rather than buy tracks.

3 sells over-the-air, direct-to-mobile tracks for £0.99 a pop, with dual-download - PC and mobile - songs coming in at £1.29. "The majority of digital music sales are directly to the phone," Walker says. "Customers are downloading via the mobile."

However, 3 recently had to up its OTA prices in an effort to boost margins, which are pretty tight. The UK now boasts the most advanced mobile-music market in Europe and the highest penetration of music-enabled handsets. Price Waterhouse Coopers forecasts the segment to be worth more than $150m in four years.

Walker says 3 will continue to build up its music offering, but he says bigger isn't necessarily better. "We will increase the amount of music we have, but we think we're at the level where simply adding more tracks is less helpful," he says.

3UK subscriber content usage

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