Even though the wireless world is speed-dialing licensors with new ways to reach out and touch their audiences–from texting, to ring tones, to games–most companies are opting to dip their toes into the category, rather than dive in head first.

‘Having come through the very painful Internet bubble of the late ’90s, I don’t think anyone is looking at the sector in an overly-optimistic way,’ says Brad Globe, head of DreamWorks Consumer Products. But that doesn’t mean licensors aren’t interested.

At this stage of the sector’s development, they sit in an enviable position. Two of the biggest players in the wireless space, carriers and handset makers, are eager for premium branded content that will get kids and teens to burn more air time and demand newer phones with more bells and whistles. And kids and teens love–love–mobile communication devices. According to a survey conducted by Nick last year, the cell phone was the most popular item on kids’ Christmas wishlists.

Though DreamWorks has yet to sign a deal in the wireless arena, in the last year, it has held more meetings with carriers, handset makers and mobile content developers to discuss potential applications into which its properties might fit. What those applications might be depends on the type of handset your target demo owns, and who their carrier is.

To be sure, there are distribution and technology issues that licensors need to address in order to implement a successful wireless strategy. For instance, not all handsets can support all of the content that developers are creating. Some technologies like i-Mode and WAP allow consumers to surf the Net and download music with their phones, whereas the majority of consumer handsets in use today only support sending and receiving text.

Adding murk to the mire, the telecommunications industry continues to develop new cell phones and standards for transmitting data across the radio spectrum, making it tougher for all involved to determine where the bell curve of consumer mobile technology will lie in the future. ‘This is a category that will have to discover its own entertainment format. We’ll probably have to reconvene a year from now to get a better idea of what’s working,’ says Anne Globe, head of marketing and promotions at DreamWorks.

While that may hold true for the wireless market’s long-term prospects, it’s evident that texting is working. SMS (Short Message Service), the practice of sending messages of 164 characters or less, has emerged as the most popular wireless application, as well as the one that currently offers licensors the greatest profit potential.

In Europe and Japan, where wireless entertainment consumption is a year or two ahead of North America, it has become a way of life, spawning TV shows and magazines dedicated to its discussion. In the U.K. alone, consumers sent 85 million text messages in Q4 2001, a figure that’s expected to nearly triple by Q2 2003, according to Leigh-Ann Haggerty, Hallmark subsidiary Crown Greetings’ global licensing manager who’s in charge of securing branded content for mobile entertainment development arm HIYA.

Launched last year in the U.K. and currently available in Hong Kong, Singapore, Germany, Japan and the Netherlands, HIYA allows users (depending on their handset) to select an image of a licensed character from its site and then send it along with a tiny greeting to a friend. Since most of the communications people send each other are brief–like ‘Thinking of you’–using HIYA is an easier way to communicate than taking the time to key in all the words on your cell phone, says Haggerty.

HIYA currently has mobile content licensing deals for Angela Anaconda (Decode), Miffy (Mercis), Mr. Men and Little Miss (THO/CPLG) and Garfield (PSL and Paws). As a licensee, Hallmark has partnerships in place with carriers and handset makers around the globe to market its content to consumers.

‘As with any product in the traditional retail world, [wireless entertainment] is very much a distribution game at this point, so the more channels you have, the more you can sell,’ says Haggerty. While HIYA has drawn 125,000 monthly subscribers since Hallmark launched the service in Japan in March, numbers for unique users in other territories are harder to extrapolate because consumers get the service on a pay-per-use basis. Consumers pay US$0.50 to US$1.50 to send a HIYA message, and that charge includes a transmission fee of between US$0.10 and US$0.20.

Consumers in the U.S. have been slow to take up texting, largely because most operators aren’t yet set up to allow people to send text messages across different carriers. However, telcos are working towards supporting each other’s platforms, which should allow SMS activity to flourish State-side in the next year, according to a recent SMS report written by Linda Barrabee, a senior analyst with wireless research and consulting firm The Yankee Group. She says kids and teens will play a major role in helping to popularize SMS and other wireless apps in the U.S. and around the globe. According to the Group’s Mobile User Survey published last year, two-thirds of teens rated communications as their highest priority when it comes to adopting new technologies, admitting to spending 60% of their on-line time instant-messaging and e-mailing friends–a market reality that’s not lost on licensors.

‘The mobile phone is yet another screen that allows kids to communicate not only in a peer-to-peer way, but also in a client-to-server way–so they can talk directly with Nickelodeon,’ says Mike Skagerlind, senior VP and GM of Nick Online. Like DreamWorks, Nick has yet to take the wireless plunge, but Skagerlind is optimistic about the category’s prospects as a new kid-reach channel. According to Skagerlind’s vision, kids could sign up with Nick’s mobile service and receive insider information about their favorite characters, enter contests and cast votes–effectively keeping them in the Nick loop when they’re not watching the brand on TV.

While texting and other apps that allow consumers to personalize their phone or PDA (i.e. downloading ring tones and pictures) are clearly dominating the first wave of wireless entertainment, gaming has been coming on strong in the last six months. ‘The great thing about the mobile audience is that it’s absolutely colossal compared to that of any other consumer electronic device,’ says Brian Baglow, global communications manager for Digital Bridges, an Edinburgh, Scotland-based company that specializes in creating mobile games. ‘The current user base for Game Boys is around 120 million; Nokia sells that number of handsets in a year–and that’s just Nokia.’

Launched in 1998, Digital Bridges is trying to establish itself as the first über publisher in the fledgling mobile gaming sector by partnering with traditional gamecos like Electronic Arts and Activision to create mobile titles. Using DB’s proprietary software platform Unity, publishers can create games that meet the handset specs of a carrier’s consumers, whether that’s a simple text-based game for SMS users or a color-animated game for i-Mode customers. DB’s Unity servers located across the globe handle the traffic flow from the games, while the carriers act as the distributor, marketing the games to their subscribers.

Digital Bridges released a mobile game based on EA’s FIFA license last month to coincide with the World Cup. The company also has deals in place with Viacom (Star Trek), Carlton (Thunderbirds) and Cartoon Network (Scooby-Doo).

The gameplay of some mobile games can be charitably described as rudimentary. The SMS version of the Star Trek game, for instance, sends players out on a space journey. Throughout the day, players receive text messages allowing them to choose where they want to go in the galaxy and which aliens they want to make first contact with. That said, most proponents of mobile gaming aren’t concerned that the first wave of titles won’t exactly rival the PS2 experience.

Though Jim Henson Interactive has entered the digital fray, signing a 2001 deal to let Bandai Networks distribute animated images and 3-D stills of Muppet characters to subscribers in Japan, senior VP and GM Craig Allen feels playing games on postage stamp-size display screens will not prove to be an enriching experience for consumers in the long run. ‘Future success in the wireless category lies in architecting worlds of fantasy that marry to worlds of reality,’ says Allen. Socialized gaming, for example, that lets kids participate in a real-world treasure hunt, gaining clues that are sent to their cell phones via a GPS satellite, is one exciting application that developers are currently blue-skying.

As with all new technologies, the challenge for licensors is to figure out how to fit their brands into these new areas. There are more immediate concerns, though, that threaten to short-circuit the uptake of wireless entertainment. The price of paying for cell phone usage (especially in North America), for instance, will have to come down in order to get consumers interested, says Allen.

Furthermore, carriers will have to settle on a consistent way of billing consumers–whether it’s on a monthly or pay-per-use basis–in order for licensors and developers/licensees to build viable business plans for rolling out new entertainment.

Lastly, the wireless entertainment sector will have to build the critical mass necessary to convince consumers that they can use the cell phone for more than making and receiving calls. Digital Bridges’ Baglow believes overcoming that challenge is academic: ‘They all have the handset, so we can reach them. And you can be certain that all of the carriers and networks are going to inform subscribers of new services because that’s where their revenue is going to come from–getting people to use up more air time.’

Whether or not wireless entertainment finds its niche beyond texting and gaming, licensors still see its value as yet another marketing platform. In that sense, DreamWorks’ Globe thinks exclusive, long-term deals with a carrier for multiple properties would be advantageous. Says Globe: ‘We have a bunch of animated family feature films coming out over the next three or four years. We know what the creative is, and we know what the lead times are, so a long-term partnership versus doing one-off projects makes more sense because it will give both companies more time to understand how each other’s business works, ultimately resulting in a more successful partnership in the long term.’