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Sponsored Data, a Loss Leader? Think Again!


Written By:

Kiran Matty, Marketing Manager (SP Marketing - Mobility Solutions, Cisco)

Ola Mabadeje, Marketing Manager (SP - Business Architecture Marketing, Cisco)

As Mobile Operators around the world march toward developing strategies to monetize their networks, I was quite intrigued to see an announcement from a major Programmer of Sports Content to subsidize data for its subscribers who hit their Mobile data cap. This business model is called Sponsored Data. I imagine sports fans of all stripes that enjoy watching sports on their smart devices but do not have a high value data plan to support their viewing habits would welcome this with fanfare.

Lets try and analyze this strategy. According to Cisco VNI, iOS and Android users consumed over 800MB/mo. of data under tiered pricing in the last quarter of 2012, with the lion’s share of data (45% for Smartphone and 50% for Tablet) going toward Video viewing. Further, the proportion of mobile users generating more than 2GB/mo. has increased to 18% of the total mobile user base towards the end of 2012. Our model assumes a Content Provider that has an installed base of 16 million subscribers that access video content exclusively from mobile devices and earns an affiliate fee of $2/sub/mo. That gives us a revenue estimate of $384M/year (excluding Advertising Revenue) for the programming service. On the cost side, our model indicates that the cost to subsidize data could account for as high as 7.5% (making a conservative assumption that 2% of the Content Provider’s subscriber base hits data cap/mo., and typically pays overage fees) of their programming revenue, excluding Advertising Revenue. The overage charges in the U.S. could be as high $15/GB/mo. If Advertising revenue does not offset the cost of subsidizing data, then the Content Provider’s margins would be squeezed. That begs the question why would a Content Provider pursue such as strategy?

There could be many reasons for that. First, it has been observed that people drastically alter their video viewing behavior as soon as they near their data cap. Given the current state of the economy, upgrading to a higher value data plan might not be an option for all. This would translate to fewer eyeballs, which does not bode well for the Content Provider’s Advertising Monetization strategy. Further, in a recent Cisco Sponsored Bain and Company survey, 40% of the respondents stated that they would increase their video viewership by 45% if data were to be sponsored. The second reason is related to “Big-Data”. More engaged viewers would mean more data to analyze and create insights vis-à-vis subscriber viewing behavior. This essentially opens up new opportunities to tailor content, tweak pricing, not to mention upsell and cross-sell opportunities.

I believe that it would make perfect business sense for a Content Provider to partner with a Mobile Operator. As a part of the service agreement, a mobile operator could absorb a portion of the subsidies. Wait! What’s in it for the Operator then? According to a mobiThinking article, it’s predicted that the Mobile Ads market would be worth $24.5B in 2016. Further, a VB article states that people spend an average of 158 minutes each and everyday on smartphones and tablets. Hence it comes as no surprise that Ad Networks and Advertisers are willing to pay top dollar for targeting information, as high as 2.5x the untargeted CPM (Cost per Mile) per a Cisco internal study. Mobile Operators could potentially disrupt the Mobile Ads market by adding relevance and personalization to the Ads. They can do so by opening up their networks to the Ad Networks, and Advertisers to mine and correlate contextually relevant data a.k.a. Data in Motion e.g. Anonymized subscriber information such as location, Gender, Zip code, Device type, Data Quota balance, Data plan type, most viewed channels, past internet activity, etc. all in real time. Additionally, RAN congestion analytics could be exposed in real-time to the Ad networks and Advertisers to help them decide whether to push a higher CPM rich media Ad unit, as opposed to a static banner Ad. All of the above could lead to higher Click Through Rate (CTR), and subsequently higher conversion rate. On the other hand, a Content Provider could glean critical insights through analytics such as content consumption based on Geography, Device type, and much more, and use them to make compelling offers to their subscribers. Hence, it’s a win-win all around.

With the Cisco Quantum Solution, which consists of best of breed Policy, Analytics, and Network Abstraction Suite, Cisco is well positioned to enable a Mobile Operator quickly monetize their network assets by becoming a valued partner in high growth value chains such as Mobile Advertising. Our analysis estimates that with the Sponsored Data model, a mobile operator could earn additional revenue of up to $3.06 on average per video viewing subscriber based on the rev-share agreement between the Operator, Content Provider, and an Ad Network.  Kudos to the Content Provider for thinking outside the box! Without a doubt their strategy would be successful if executed well with the help of a Mobile Operator and a technology partner like Cisco. I believe that other Content Providers would see tremendous value in sponsoring data and would follow suit soon.