Ah yes, this hot topic. Something can be extrapolated from the fact that, in the MEFCON agenda, at least, four people are listed as supporting the above query, while only two have offered themselves up to argue against ad-suported content.

The “pro” team was led by Ujjal Kohli, ceo of Rhythm NewMedia with Nicholas Covey, director of Inisghts Nielsen, Niren Hiro, vp of biz debv from AdMob and Roger Wood, SVP/GM,Americas, Amobee.

The “anti” team was led by Patrick Kelley, Impact Mobile., with John Fletcher, analyst at SNL Kagan, Sean Rosenberg, director of mobile marketing at RCA Music Group and James Cannella, president of Digitainment Consulting.

Each side had ten minutes to present their case, and the “pro” side started first.

Kohli started by saying that no media flourishes without ads, from live theatre to radio. He said he’ll talk about all the stakeholders in mobile: advertisers, operators, content creators and customers. Covey spoke first about consumers. What consumers don’t want, he said, was to pay for content because of expense. What will we do to monetize folks who will never come onto this platform? Ad-supported content is a way to monetize it, said Covey. The willingness to pay for entertainment has increasingly declined over the last century, he added. Advertisers’ POV was repped by Wood of Amobee. Wood said reach and frequency are a consistent and dominant factor in the decisions of advertisers, and mobile has a great advantage in this regard. There are inherent advantages for advertisers to buy on mobile and those advantages will become more clear over time.

Niren at AdMob spoke about the reasons he thought carriers would have to embrace advertising. In saturation markets where penetration is high, the only way to grow ARPU is through new sources of revenue, and advertising is one such source. Internet access through the phone is another way to grow ARPU, and advertising drives discoverability. That will help grow adoption numbers. So advertising can be a key ingredient in growing ARPU. All-you-can-eat data plans will grow in importance, and pricing will thus stay flat. One of the few models that grows with bandwidth costs is advertising, which helps carriers to stay a “smart pipe” and retain audiences through innovative services.

Kohli ended with the idea that ad-model is also positive for content producers. Many have a large amount of content and customers won’t pay for all of it, and they might as well monetize that. Also, new content providers who may not be able to cut content deals with carriers can monetize their content via advertising.

The “anti” team made their case with a PowerPoint display. Rosenberg pointed out that consumers like things for free, low-cost, without barriers for entry, but that wont’ make sense. Content is copyrighted material, and advertising isn’t enough to cover the gap of its value. Current business models won’t allow fair compensation for copyright owners. How are these people getting their money back? On TV, ad revenues cover operating costs as does TV, but not performance rights or synch license. It doesn’t turn into actual revenue generation for the copyright holders. In mobile, the same thing is going on, but the carriers want 50 percent of everything going on. Mobile has a smaller addressable audience. It’s not an advertiser-friendly environment, said Rosenberg.

Ninety percent of mobile phone ARPU was from voice or messaging, he reported. He pointed out that, for landlines, consumers formed a National Register for Do Not Call. Sure, the phone is on all day long, but consumers have proven that it’s a one-to-one communication method not open to advertisers.

How will we target the youth market? U.S. youth loves mobile media; we think there are 17 million people we can get to in that demographic, whereas MTV gets a much larger segment of the key demographic that advertisers are going after. The numbers don’t add up, said Rosenberg. Content owners are getting fractions of a penny for ads served up; with a full penny rate, they need 100 million streams to get to $1 million of revenue. Ouch. Avril Lavigne had the most video streams ever on YouTube: 84 million, and another 20 million songs were streamed on MySpace. But it’s nothing compared to the revenues of download. Yes, mobile is ancillary but it doesn’t cover costs and won’t make a worldwide star.

What works now? A sponsorship model works, where it’s still free to the consumer. Brands pre-purchase bulk content at a fair market price that is wrapped with their advertising message. Wholesale discounts may apply and no cost is passed on to consumers.

In conclusion, the mobile phone is a personal and private means of communication which will limit the impact of advertising. How can you target beyond geography? Audience has too far to grow for a sustainable market. Qualifying the buyer and audience is neaqr impossible for targeting mobile advertising.

Next came the rebuttals. Kohli pointed out that ads are being streamed and demographically targeted in the U.K. He stressed that he’s not talking about replacing any existing model but adding to it. Why not also access this big bucket of revenue which is advertising? ARPU goes toward voice and text and nothing is left, said the anti team; that’s exactly correct and now consumers don’t have money to spend on anything else. Kohli also reported that studies proved that if the ads are done right, customers are happy; customer satisfaction run at 94 percent because the consumer is getting free content.
Covey said that talking about the National Do Not Call List was relevant; Nielsen has asked people what kind of advertising they want on their phone. They’ve learned that one-third of mobile users are open to advertising for free content. With unique capabilities to respond to ads targeted at specific demographics, advertisers are interested, he added. For current artists with hot titles, there is a revenue model that works, but there are plenty of artists not getting $1.99 for a download. Woods also pointed out that there are incredible generational differences in how people enjoy media. People born between 1944 and 1960, they have one relationship. Those born in 1990 onward are almost unrecognizable in their media consumption preferences. The aspect of the man-machine interface, how the mobile phone displays entertainment is evolving in 12-month cycles, said Wood. “You’ll see a rapid move to a host of devices with aspect ratio and interface more conducive to entertainment,” he said.

Niren made the point that the inertia of the music industry is a bad example for mobile entertainment. He used to be in the music industry at MTV and noted that content owning companies are afraid. Ultimately, he said, we know what happened with radio and music. Advertising will play a role - that’s clear, he said. AdMob does a lot of business in click-to-call to, for example, hearing a message from their favorite artist. If you add up companies represented on our team, we reach 25 to 30 million unique users, so this is a real business with real opportunities. And advertising comes with that. Look at what is happening in advanced markets like Japan and Korea, at the games industry which has been disrupted by the ad model. In summary, said Kohli, it’s great for customers looking for free entertainment, it’s terrific for advertisers who see click-through at least 5x as good, and for content publishers who want the widest possible audiences. Why go after one bucket of revenue when you can go after two?

The “anti” rebuttal group said that content isn’t free - the consumer has to watch an ad. We’re talking about demographics said Kelley, who noted that the Federal government is taking a strong look at this. By introducing a commercial aspect, individuals not of legal age, children have cell phones and many organizations are leary. It will affect all of us in the value chain, he said. We don’t know who the ad is going to, especially with a family plan. Verizon can’t share the information nor can their aggregators. There is no reliable way to target age groups reliably. Geographically, an area code doesn’t mean that the consumer lives in that area. Intellectual property rights owners have spent millions of dollars to slow down the money lost through peer-to-peer distribution. To try to suggest to buyers that it’s okay to receive content for free is [irresponsible]. We have laws, he said, and someone has to have rights in this chain to distribute the content. Does each advertiser have to purchase sub-license rights?

Fletcher also noted that with regard to ARPU, people buy phones to communicate with other people, not to play games. Cannella pointed out the difference between sponsorship and advertising. Direct sponsorship is a one-to-one brand/artist/studio relationship and the artist retains control over who gets to sponsor his/her content. Doing the ads right is very subjective, he also countered, because the Tivo generation has figured out how to go beyond ads whether they’re done “properly” or not. Carriers are not going to give up information to advertisers; if anything they will continue to restrict it.

In America we’re spoiled with all our multiple devices, said Rosenberg. Advertisers isn’t going to fix that for everyone. It’s a cultural difference. Nobody has figured out a viable model for online download, so mobile has a way to go, he added. He also questioned the results of all those click-throughs. The click-through rates on online has dropped, but 6 percent of the people are responsible for 90 percent of the click-throughs, he noted, so you’re targeting the same small group of people over and over again. He also pointed out theh problem that spam became with everyone opting in.

Questions from the audience attacked both sides. “Go straight to the jugular,” encouraged moderator Andrew Bud, MEF Global Chairman who earlier said he hoped the event ended in fisticuffs. Attendees had only 5 minutes to ask questions of each side.

QUESTIONS FOR THE “PRO” SIDE:

Do you really think anyone will make money besides you in mobile advertising?

Niren said that many companies were surprised at how much money they could make. There are plenty of indicators to suggest that they will make money.

Isn’t ad-supported revenue another way for network operators to stick their hands in our pockets?

Kohli said that CPM rates are running 5x more than for TV. Advertisers don’t stay long unless they see a real revenue model.

What’s the business model that could power an amount of advertising?

Kohli pinpointed the models as call to action and brand. Companies like AdMob, Amobee have demonstrated some great call-to-action and brand models. Both pieces of the advertising eco-system lend themselves to this model.

QUESTIONS TO THE ANTI TEAM:

Couldn’t you agree that advertising is part of a package of revenue models?

Yes, but is it a viable model today? No, it’s an ancillary model that has yet to prove itself. Yes, there is some money there, but it doesn’t equate to a rounding error.  The numbers don’t add up.

What do the numbers look like on the content side when you eliminate the traditional music process? What happens when you eliminate that and look at content made for mobile?

Work for hire, you can do whatever you want with it. If you out-right own everything - Elvis and Pink Floyd are as popular as ever. You might have older demos who are ingesting things like this. But there is no example of made-for-mobile working.

If you see the end of per-track transactional model, how will that work?

There aren’t enough impressions in this space.

How is it that buying out a catalogue from a content owner and giving it away to users for free and monetizing it via advertising isn’t entertainment? That’s what they do in Japan.

If you go to YouTube now, thousands of advertisers gravitated to one model. A specific campaign around one artist, one song - a sponsor might say they want their name and logo against an Avril Lavigne tour. When you’re serving random ads up, it [doesn't work].

Finally, the audience was invited to text in their vote. With a two-thirds majority, the pro-advertising team won the vote. How would you have voted?