The ringtone at the gate
News Corp.'s acquisition of ringtone purveyor Jamster may prove to be a chink in the wireless phone companies' walled garden, says Fortune's Stephanie Mehta.
By Stephanie Mehta, Fortune senior writer

(Fortune Magazine) -- Rupert Murdoch, the 75-year-old head of News Corp., has added another youth-oriented brand to his media conglomerate.

More than a year ago he acquired the parent company of social-networking portal MySpace; this week he unveiled plans to take a 51 percent stake in Jamba (better known in the United States as Jamster) a company that sells ringtones, screen savers and other fare for personalizing cell phones.

The $181-million-dollar deal isn't exactly being heralded as a slam dunk. On Jupiter Research's blog, analyst David Card wrote: "Huh. Well, I like News Corp. aggressively going mobile and continuing to go 'youth,' but aren't ring tones, like, so 2004?"

Ringtones are yesterday's hot thing, but Jamba's underlying appeal is its ability to reach hundreds of millions of consumers worldwide without being part of the wireless carrier's walled garden of content - and that is, like, so 2007.

Today, if you want to play a game or watch a video clip on your cell phone, the easiest way to get that content is to simply scroll through a menu of choices provided by your wireless carrier, companies such as Verizon (Charts) Wireless, Cingular, Sprint (Charts) and T-Mobile.

Content companies jockey for good positions on those screens, known in the industry as "decks," and industry executives say a good position on these decks can make or break a new mobile game, for example. In this way, the wireless world in the United States is largely a walled garden; unlike the Internet, you can't easily surf for the content you want. Today about 75 percent of all mobile content in the United States is purchased directly from phone companies' decks.

Jamba/Jamster gets around this walled garden by marketing directly to consumers. If you've ever watched MTV or BET late at night, you've probably seen the low-budget ads for Jamster, encouraging you to buy ringtones by sending a text message, known as a short code, to the company. Customers also can buy ringtones and graphics via the Jamster Web site.

With Jamba in the fold, News Corp (Charts). will be able to market its mobile content directly to consumers instead of going through the carriers. This is huge: You could be watching an episode of the Simpsons, and a small ad might appear in the corner directing you to a short code or Web site selling Simpsons wallpaper or short clips of the show for your phone.

And while News Corp. says Jamba will continue to aggregate content from other non-News Corp. properties, there's no question the deal is squarely aimed at getting more Fox, Star and other content out to the mobile masses. (There's a MySpace tie-in of course; News Corp. says Jamba will be the mobile commerce vehicle for MySpace users looking to buy mobile content, and more alliances are coming.)

While News Corp. clearly is on the leading edge of this and other wireless trends - the company dubbed the term "mobisode" - other media brands increasingly are looking to go off deck.

"Every leading media company, from the very top of the company through the organization tells us 'we know mobile is going to be our future,'" says Ryan Wuerch, CEO and Chairman of a company called Motricity, which aggregates and distributes mobile content.

For example, he says, a big music label he can't yet name is on the verge of unveiling a major direct-to-consumer wireless campaign, complete with television ads and heavy promotion, all aimed at getting consumers to buy full-track music, ringtones, album cover art and other content directly from the label - all in lieu of a deal to get on wireless operators' decks.

Thanks to efforts like these, Wuerch predicts that in a few years, off-deck sales will represent about 70 percent of mobile content activity, essentially reversing the current on-deck to off-deck ratio.

What does this mean for the phone companies, who fought so hard to make sure they weren't just "dumb pipes"? (They get a nice cut of the sales of on-deck content, too.)

In the last year or two there's been a bit of softening on the walled garden stance by carriers. They like that customers are still using their airtime, and the carriers still serve as the collection agency for off-deck purchases. (The ringtones and games purchases show up on customers' monthly wireless phone bills.) And most understand that they simply can't provide space on the deck for every piece of content a consumer might want.

Lucy Hood, the News Corp. executive who will head up the Jamba/News Corp. joint venture, told me a few months ago that wireless phone companies encouraged her to create Mobizzo, News Corp.'s fledgling off-deck portal that will become part of the Jamba business. "Carriers want a lot of well-marketed content," she said. "They don't have the bandwidth to do all those exclusive deals or to put it all on their decks."

Still, a flurry of off-deck activity may force carriers to think differently about their decks. Decks may not go away, but they may need to be increasingly customized so that consumers really are getting the kinds of content they want - or it may force the carriers to make it even easier for people to buy on-deck, taking away some of the incentive for people to enter short codes or go to the Web.

Carriers are no doubt already thinking of these things - the News Corp. investment in Jamba surely will accelerate their plans.

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