Samsung is seeking to leverage its consumer reach, via the internet-connected devices it makes such as smartphones, tablets and smart TVs, to build a new content ecosystem.

“This is one of the biggest paradigm shifts that we at Samsung are going through,” says the electronics company’s VP of content and services, Nicholas Wodtke.

“When you build a service, you need to have a long-term relationship that gives the customer value,” Wodtke adds, speaking in an interview with Media Business Asia. “That is a new muscle that has to be exercised.”

Samsung plans to roll out tentpole apps in the first half of 2014 across five content verticals: entertainment (with a focus on video); lifestyle; music; reading and learning; and sports.

Samsung’s video, music and magazine services will incorporate subscription tools, tailored to infrastructure that allows people to buy digital content in each market.

Apps will be free to download, but customers will be invited to upgrade to paid content, and ultimately to an ongoing subscription.

For its personalized sports information app SportsFlow, Samsung has already partnered with around 25 providers, including the BBC, Yahoo, News Corp (for BallBall), Performa and KickTV.

'Long-tail revenue'

Wodtke, who previously held roles at Disney and Sony Pictures, says that Samsung aims to offer “services that maintain a stickiness and loyalty that go beyond the purchase of that single device,” echoing similar strategies from pay-TV operators and broadband providers.

“Retaining customers and subscriptions is the key to long-tail revenue,” he says.

Wodtke also sees in-app purchases, which are driving sales for many developers, as another possible source of income. There is future revenue potential in using location and consumer data to target ads and content, he adds.

Thanks to its large share of the global smartphone market, Samsung is well positioned as a potential aggregator and distributor of digital content.

Alongside Apple, which has already laid the foundations of its own formidable content ecosystem, Samsung leads in the broader category of connected devices as well, including devices such as smartphones, tablets and PCs.

Historically, hardware is a declining-margin business, requiring expensive reinvestment in research and development, in addition to consistently successful innovation.

“The sophistication of our hardware and technology is evident in our market position, but it has to be complemented by content,” Wodtke says.

Samsung and Apple are the world’s two most profitable smartphone makers, with Apple enjoying a 13% lead over Samsung’s 20% operating margin.

App ecosystem

Samsung’s new content drive also heightens its rivalry with Google, even though Samsung runs Google’s Android operating system on its smartphones and tablets.

Google recently developed its own app ecosystem, Google Play.

Both Apple and Google are well-resourced powerhouses, each with large app markets and strong positions in mobile. Google announced in its Q3 earnings call that mobile traffic accounted for 40% of YouTube views, up from 6% in 2011.

Nonetheless, the prize is substantial. Mobile content, including transactions via app store purchases, in-game upgrades and VOD offerings, is already a multi-billion dollar business, poised for dramatic growth in the future.

It won’t be easy competing alongside some of the world’s biggest tech companies for market share, but Wodtke feels Samsung has what it takes.

“While revenue is important, the most important thing is customer engagement and loyalty,” he says. “We put more of a premium on whether customers use and like our tools.”

Samsung’s size provides the corporate support necessary to support such a quest, he adds.