Thursday, November 19, 2009

Mobile Content Scamsters On Notice

It hasn't been a good couple of weeks for shadier side of the mobile entertainment business. On Tuesday the European Commission announced the results of an 18 month investigation into 301 mobile content websites, that were allegedly targeting kids, in "direct response to hundreds of complaints coming in from parents and consumers from many different EU countries." You know the sites, the ones that promote free ringtones, graphics or games on TV and the web, that when downloaded opt unsuspecting, undiligent consumers into expensive sleeper subscriptions. 159 of the EC investigated sites had to be "corrected" (shady) and 54 of them were completely shut down (scumbags). As a result, Italian authorities have already imposed $3mil fines on a broad range of perps, including big operators like TIM, Vodafone and Wind and web-to-mobile distributors, Zed, H3G, Zeng, Jamba and Tutto Gratis. Congratulazioni!... but unfortunately that's tantamount to 40 lashes with a post al dente spaghetti noodle if you consider the $1bil European ringtone business that these companies dominate (Zed alone claims $870mil in annual revenue). Hopefully other countries will follow with their own, stiffer, penalties.

The European announcement comes 1 week after the approval of a settlement by a judge in Cook County Chancery Court in Chicago of a series of class-action lawsuits against mBlox, 2WayTraffic,, UPOC, Playphone, etc. that alleged unauthorized sales and billing of mobile content. Same scam, different continent. The deal struck between the plaintiffs and defendants entitles each claimant to a $10 refund from a settlement fund capped at $63mil... now that's more like it.

The really good news is that based on rhetoric from European consumer advocates and the references within the Chicago settlement, it's clear that vigilance over this unsavory sector of our industry is elevated, and that more investigations, suits, settlements and fines are imminent. It can't happen soon enough. Companies involved with these tactics have seriously harmed the perception of mobile entertainment products in the minds of many consumers, and I'll go as far to say that they meaningfully contributed to the delay of broader adoption of mobile content in the pre-iPhone era. They've also hoodwinked other stakeholders in the ecosystem, notably content owners. These distributors regularly use premium entertainment products as a lure to create subscriber revenue streams that primarily inure to their own benefit. When I was on the content side I never once saw meaningful revenue from these distributors despite often having my publishers' content prominently featured.

Just to be clear, this isn't the first time that these distributors have been the subject of regulatory, media or legal scrutiny. Frustration with these tactics reached a boiling point in the UK in mid-2005 as memorialized in this Daily Mail article... which eventually led to some firms making disclosure and cancellation protocol changes. But clearly the punitive stick brought to bear wasn't big enough to put a stop to this bait and switch crap altogether. Hopefully this next round will be and these practices, that have been shamefully tolerated within the industry for the last 10 years, will be brought to their inevitable end sooner than later.

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