Digital thrills

Britain’s digital landscape is probably the most sophisticated in Europe. Ten million analogue souls have upgraded themselves to the digital television phenomenon that is Freeserve. BSkyB’s next-generation set-top box is flying off the shelves. Digital radio is all but established and in the broadband telecom sphere, British Telecom has just announced it is to roll out a 4 megabits-per-second service (4mbps) to 78 per cent of its broadband users, with many being able to access the 8mbps service. This is BT’s bid to stay in touch with its rivals, some of whom are actually offering 24mbps. To put this into context, 24 months ago, most of Britain was using 0.056 mbps!

In the mobile world, the main operators have endured a protracted and often troubled genesis since bidding billions of pounds for the initial 3G licences back in 2000. But, at long last, hopes are rising that 3G is finally set to move mass market, not least on account of positive sentiment stemming from a series of renowned research houses. In a recent report Forrester postulated that by 2010 just 38 per cent of Europeans will have a GPRS phone as their main mobile device – with the majority having migrated to 3G.

Tune in – and text – with Cellcast
Amongst those eager to capitalise on this unfolding convergent future is AIM-listed Cellcast, which describes itself as an ‘interactive digital broadcaster.’ In effect this means the company, which floated on AIM back in September, produces an array of interactive and participatory television programmes for delivery via both digital TV and 3G networks. At present the former is understandably the main focus, yet the latter should come increasingly to the fore as ownership of ever more sophisticated 3G mobile devices starts to soar.

As a sign of things to come, Cellcast announced its first major foray into this market. Its new service will grant users of 3G phones a chance to interact with the company’s existing Text2date show, which is already broadcast on Sky Digital, with viewers using their handsets to participate in the programme by ‘texting’ photos, mobile video clips and other services live.

Further advances into this space will follow over the coming months and Andrew Wilson, Cellcast’s chief executive, reasons that ‘the increasing sophistication of mobile phones is playing a major role in the growth of photo messaging, multimedia SMS and video blogging, all of which are relevant to new programme formats and applications.’

Boasting relationships with all of the major UK mobile phone operators – not to mention BT, Sky and others – and already ‘broadcasting’ in Europe, South America, India and China, Cellcast appears well positioned to take advantage of the opportunities ahead.

According to house broker Daniel Stewart, full year results to December 2005 (due to be published in the coming weeks) should show a £5.6 million surge in sales to £13.8 million and losses of £600,000, with a maiden profit of £1.9 million then anticipated for 2006. Based on the current share price of 71p, this places the shares on a prospective p/e of 11.6 for 2006. This is not expensive considering its strategic position.

Bingo and beyond
Also looking to establish itself in the market is YooMedia, which seeks to provide interactive content (from TV footage and video clips through to gambling services) via a variety of platforms including digital TV and mobile phones.

Through the group’s ‘Media2Mobile’ solutions, consumers can already find a date, watch video clips, even play bingo on the bus and, like Cellcast, YooMedia is increasingly focusing its attentions on the possibilities 3G presents. November saw the group expand its relationship with California-based peer ICTV, which will see the two firms develop and deliver exclusive content for the 3G market, via their new joint venture company BroadbandTV.

While this is expected to start contributing to revenues this year, investors should be aware of a recent trading update confirming that previous forecasts for the year to December 2005 have not been met, with the results being hindered by the delayed launch of a new TV channel developed with bookmaker William Hill. That said, the group still indicates it grew sales from £21.2 million to £84.5 million last year, which grants the company more than a little speculative appeal.

Much the same can be said of fellow AIM firm All New Video, whose technology will be used to provide the technological spine to the YooMedia/ICTV joint venture.
In addition to providing a series of stand-alone solutions – including 3G video conferencing and video answer phone services (provided to Orange 3G customers) – All New remains at an early stage commercially. But while revenues for the six months to October hit just £330,000, chairman John Hawkins notes that the pipeline is ‘very promising’ and progress should be monitored.

DA still seeking its niche
One firm worth steering clear of for the time being is AIM veteran DA, the developer of character animation technologies. Relationships with the likes of phone groups 3 and Vodafone already exist and the company’s offerings have found a limited market both corporately and as mobile phone wallpapers, screensavers and the like. Yet, with attentions now turning to opportunities in the 3G space, it is worth noting that DA, which floated as Digital Animations back in July 1996, continues to rack up losses on minimal levels of revenue.

For the year to March 2006, house broker Daniel Stewart expects static sales of £500,000 and losses reduced only slightly to £1.7 million, with a similar deficit anticipated 12 months on. The 10p shares (market cap £11 million) are to be avoided until signs of a genuine market for its products emerge.