Role of Advertising in Mobile industry - August 31st, 2006

Under a new advertising program, transmitters are beaming out text messages to the
phones of people walking by to ask them if they would like to watch a video-clip ad on their
phone's screen. The commercial, aimed at passengers in Virgin's first-class lounge, touts a
new SUV, the Range Rover Sport.

Two London companies are behind the new ad approach -- Maiden Group PLC, which has
handled billboard advertising for 80 years in the United Kingdom, and Filter UK Ltd., a small
firm specializing in the transmitter technology.
Maiden is installing transmitters on its billboards at 30 U.K. train stations to send video clips
related to the billboards' ads over the next 18 months, and says it plans to extend the service
to large shopping malls. Filter is working at Heathrow.

The British effort takes the nascent field of cellphone advertising to a new level. Most
cellphone ads to date consist of simple text messages, and most go out to a targeted audience
of people who have signed up and willingly given over their phone number to marketers.
Some U.S. television networks, for example, send text messages to alert fans about new
shows.
This billboard in a London train station sends related material to Bluetooth cellphones.

Cellphones offer an attractive opportunity for advertisers because of their popularity,

especially with young people, who are proving harder to reach as they spend less time
watching TV or reading newspapers and magazines. Most advertisers, however, are fearful of
being seen as intrusive -- and having a message pop up on a phone screen risks becoming the
cellular equivalent of the telemarketer who interrupts dinner.

Maiden and Filter executives say they think they avoid annoying recipients by first sending
people a message asking them if they want to view the ad; if recipients click yes, the video
clip appears on their screen.

One limit to the spread of the cellphone video advertising will be the number of phones
capable of receiving the ads. The ads work only on high-tech phones enabled with Bluetooth,
the short-range wireless technology that allows text, sound and pictures to be sent to a
computer, phone or other electronic device.

Here's how it works: When the ad transmitter detects someone has a cellphone with the
Bluetooth function turned on within a range of typically 100 yards, it sends out a message
offering the promotional clip. The transmitters are about the size of a small car wheel and are
installed inside the billboards.

During a recent two-week test, of 87,000 phones discovered by the transmitters at the railway
stations, 13,000 people agreed to download clips. That 15% response rate is high by
advertising-industry standards.

"I think it's done very well because it enables the customers [to choose]. It doesn't force it on
them," says Charles Vine, manager of Virgin Atlantic's airport lounges, which have been
testing the system for the past two months.

Some potential recipients, however, need convincing. Kelly Edmunds, a 24-year-old ecology
and conservation graduate student in Norwich, recently upgraded to a Bluetooth-capable
phone because she likes to swap short videos with friends. She says she doesn't want to
receive ads in principle, though she would "consider" accepting ads on topics that interest her,
such as videos featuring travel destinations.

"I think there is enough advertising around, and I don't see why they have to use mobile
phones," she said one recent afternoon while waiting for a train at London's Liverpool Station,
one of the places where Maiden has installed transmitters on its billboards.

Another commuter, Geoff Green, a retiree from Essex, said an opt-out register should be
introduced so people can elect not to receive ads on their phones. The 69-year-old said he
carries a cellphone for emergencies and under no circumstances would he accept an ad.

There are no regulations in Britain restricting Bluetooth ads being sent to mobile phones,
whether owners want them or not, according to Britain's Office of Communications. However,
the Advertising Standards Authority says it has responsibility for enforcing rules of decency,
taste and accuracy over all forms of advertising, including any sent by Bluetooth. The
Authority says Bluetooth ads raise particular problems because of the difficulty of restricting
the age of people who receive them.

"Say it's an advertisement for an over-18-rated computer game," says a spokeswoman for the
authority. "If you are doing a Bluetooth ad where it is going to everyone, it could be you are
sending that ad out to under-18s with material in it that shouldn't be there."

Alasdair Scott, a co-founder and chief creative officer of Filter, says his company is aware of
potential concerns and has undertaken to abide by Britain's advertising codes, including
those applying to children. If people decline to accept an ad, they will never be offered
another in the same series, he says, although they aren't excluded from future campaigns.

Recently, Maiden's system was used to promote the new album from rock band Coldplay.
Maiden beamed 30-second spots featuring interviews with the musicians and clips from their
music videos. Because sound on cellphones is poor, the band's label, EMI Group PLC, remixed
the music to adjust the recording quality. The clips were beamed out at six central London
train stations for a week before and after the June launch of the "X&Y" album. New clips were
added at least once a day. Large video-advertising screens owned by Maiden told commuters
to switch on their Bluetooth phones to receive the material. "X&Y" hit No. 1 in the U.K. and
U.K. album charts, and EMI plans to use video-clip ads in other promotions.

British Airways used Maiden's service last month to send out ads promoting its Internet site
from billboards around London. The airline calculated that using such a high-tech method to
deliver its ad would foster a cutting-edge image. About 10,000 people accepted the ads during
a two-week period, a 10% response rate, BA says. "It is something we will be looking to do
again," says Anna Martin, an airline spokeswoman.

Maiden agreed to install transmitters on its billboards after being approached by Filter, which
has spent the last two years designing the transmitters it calls BlueCasting, a play on
Bluetooth technology. Filter contends that billboards, long the backwater of the advertising
industry, are more effective if they transmit video and sound.

Maiden's managing director, David Pugh, says he became convinced of the project's value
when the first transmitter detected 4,000 people carrying Bluetooth-capable phones in a day.
"Outdoor [billboard advertising] is seen by some as the poor cousin of TV and press. But when
you add mobile to that, it becomes really powerful," says Filter's Mr. Scott.

Europe is generally ahead of the U.S. in cellphone advertising, as more Europeans have
video-enabled phones. One of Filter's competitors, the San Francisco-based WideRay Corp., is
testing a similar system in 11 U.S. and U.K. movie theaters over the summer. It installed
transmitters in theaters operated by Loews Cineplex Entertainment Corp. so people waiting in
the theaters' foyers for the next show can download movie trailers -- recently for "Mr. and
Mrs. Smith," starring Brad Pitt and Angelina Jolie, and "Kingdom of Heaven," starring Orlando
Bloom -- as well as related ring tones and cellphone "wallpaper."

It isn't clear how many cellphones in use are Bluetooth-equipped, industry executives say, but
analysts say penetration rates are rising quickly. By the end of this year, 19% of all cellphones
in Western Europe will be Bluetooth-capable, estimates Strategy Analytics, a Boston-based
research firm, with the total number almost doubling to 64 million from 35 million last year.
In North America, which lags behind Europe in cellphone technology, 32 million phones --
about 14% of the total -- will have Bluetooth technology by the end of this year, Strategy
Analytics says -- more than double last year's Bluetooth-equipped total of 15 million.