L.A. Firms Cashing in on Emerging Wireless Audience

America is finally waking up to a fact that Europe and Japan have known and exploited for years.

Generation Y has a virtually insatiable appetite for wireless gadgets, and plenty of discretionary income to buy them.

Nowhere are companies moving more aggressively to cash in on teens’ demand for wireless technologies than in Los Angeles. Using money from phone carriers and venture capitalists, local companies are racing to tap into Gen Y’s massive spending power, its willingness to try new things and its never-ending search for fun.

“Simple and addictive entertainment” is how Mitch Lasky, CEO of Santa Monica-based JAMDAT Inc., describes the wireless products being developed.

Founded last fall by former Activision Inc. executives, JAMDAT already has a hit with its wireless game Gladiator, which has won the firm revenue deals with most major wireless carriers.

JAMDAT announced earlier this month that it has successfully raised its second round of financing, $10 million. Led by Patricof & Co. Ventures, the backers included Intel Communications Fund and Qualcomm Inc. JAMDAT also has ongoing alliances with Sprint PCS, AT & T; Wireless and Quest. Lasky said the carriers are starting to see patterns of wireless usage in North America that are similar to those in Europe and Japan.

The surge in interest in wireless entertainment companies like JAMDAT, Glendale-based Animobile Inc. and L.A.-based Moeo Inc. reflect the wireless industry’s shift from cautiousness about the teen market to exuberance.

Datamonitor, a British market research firm, has an undoubtedly rosy projection that revenues from wireless gaming and entertainment in the United States will hit $2.4 billion by 2005, up from a miniscule $200,000 that the firm is projecting for this year.

“The teen demographic is going to be very important to that growth,” said Datamonitor e-commerce analyst Sohrab Torabi. “The industry is counting on 12- to 20 year-olds to be the early adopters. The idea is to get them while they’re young, so that they become lifetime users and make the age group of users much wider.”

Influencing others

The thinking is also that teens will help influence buying decisions of other family members, who could drive sales of wireless devices.

“Until recently, U.S. carriers haven’t been doing the best job targeting the teen demographic” said Torabi, who attributed that weakness to cultural differences. “There’s more trust placed in teenage consumers in Europe and Japan.”

In the United States, carriers have traditionally targeted business users first. Also, credit checks that are required to buy cell phones, along with pricey calling plans, have turned away teens.

But that appears to be changing.

Animobile, a startup launched last year and funded by Hyperion Studio, is counting on interest in the teen demographic. The company creates and distributes animated wireless content mostly talking heads aimed at teens.

“We’ve started out offering animation geared to a teen audience, because that’s been the driving force of what’s happened in Japan,” said Animobile COO Chris Young.

Young said the U.S. teen market has yet to embrace mobile phones to the degree the Japanese have because of the way the devices are marketed here.

“It’s primarily been marketed as a business application or device,” he said. “We’re betting that that the industry here will follow a model similar to what’s happening in Japan.”

In Europe and Japan, the teen market is well-tapped and lucrative. According to the Yankee Group, a Boston-based research firm, 70 percent of Japanese carrier NTT DoCoMo’s popular i-Mode revenues are derived from teens, because the downloading of cartoons and phone ring tones are the carrier’s most popular services. Penetration of mobile phones in Germany is 29 percent, but penetration of the teen market there is 40 percent. In Finland, almost 90 percent of children between the ages of 13 and 18 own mobile phones.

Catching up

In the United States, the market seems to be poised to catch up. As of last year, the U.S. Census Bureau estimated that there were about 40 million children between the ages of 10 and 19 in the United States, or 15 percent of the national population. According to the Yankee Group, about 25 percent of U.S. teens owned a wireless device in 1999. The research firm projects that wireless usage among teens will grow to 35 percent by the end of this year.

“Attracting the teen demographic is a focus for all of the carriers right now,” said ING Barings wireless analyst Frank Marsala. “They realize that the younger generation has a lot of disposable income and that the teens haven’t really been given credit for that. The carriers realize they’re getting to the point where they should penetrate the market.”

The carriers are offering enticements of their own. Sprint and Verizon Wireless, for example, have recently announced special pre-paid plans and family plans that are intended to make it easier for teens to go wireless.

“We make it more attractive for a family to share a bundle of minutes between family members,” said Joe Morris, product marketing manager for Verizon Wireless.

In an effort to target teens specifically, Verizon has launched a nationwide advertising campaign that is “very youth focused,” Morris said.

Verizon has especially high hopes for its text messaging service, which Morris likened to the “whole culture of passing notes back and forth.”

Verizon also offers various games over its network and is “exploring all gaming activities that would make these phones more attractive to the youth segment,” Morris said.

Qualcomm is also taking strides toward teens with its BREW wireless platform, which the company hopes will make it easier for applications providers like JAMDAT to reach an audience wirelessly.

“What has really driven the adoption of wireless-capable services in places like Japan is very youth-oriented applications,” said Qualcomm spokesman Jeremy James. “We think the youth market is one that has been insufficiently exploited in North America.”

THQ jumps in

Calabasas-based THQ Inc., one of the nation’s leading video game publishers, is jumping into the fray. THQ recently issued a press release announcing a “strategic agreement with Siemens AG to produce wireless games for mobile phones and wireless devices, providing THQ with a strong presence in the wireless gaming sector where 200 million game players, or four out of every five mobile users, will be playing games by 2005, creating a $6 billion industry in the U.S. and Europe.”

Will all of the wireless gaming steal teens’ attention from more important activities, like school?

Beverly Hills High School principal Ben Bushman said the state law banning electronic devices on public school campuses keeps mobile phones from intruding on school functions.

But he doesn’t pretend that his students don’t have them.

“We’ve seen the use of mobile phones increase substantially in the past year,” Bushman said. “If we could have our own rule, we’d let students have them as long as we didn’t see or hear them.”