June 24, 2005

Ringtones Make Sweet Music for Record Labels

WASHINGTON -- Ringtones, those song snippets that announce incoming mobile-phone calls, are now making noise at the top of the pop charts and on the bottom line of multibillion-dollar businesses.

Young cell-phone users see a chance to show off their musical taste and customize an important gadget. Music labels and cell-phone providers see a chance to build a vibrant, piracy-proof market for songs, video clips and other mobile entertainment.

Ringtones have emerged as a promising source of revenue for music publishers and record labels still struggling to connect with a generation used to getting music for free through Internet "peer to peer" services. Ringtone sales topped $4 billion worldwide in 2004 and $300 million in the United States, according to the market-research firm Consect.

While download services like Apple Computer Inc.'s iTunes seem to have settled on a standard price of 99 cents per song, ringtone sellers can charge two to three times as much for a 15-second snippet.

"This is not a fad that will go away in the next year or so," said Thomas Hesse, president of global digital business at Sony BMG Music Entertainment.

Billboard magazine, the music industry's top trade publication, launched a sales chart for ringtones last October.

"We knew it was an area of revenue that had record companies excited, but I don't think we were really prepared for the dimension of success we were seeing," said Geoff Mayfield, Billboard senior analyst and charts editor.

Now the No. 1 ringtone typically outsells the No. 1 download, Mayfield said. Hits like "My Goodies" by R&B singer Ciara have sold over one million ringtones.

Ringtones are even invading the pop music charts. In the United Kingdom, a song inspired by a ringtone of a cartoon frog has kept mega-sellers Oasis and Coldplay from the top singles chart spot for the past four weeks.

"Crazy Frog Axel F," a remake of the 1980s synth-pop hit by Harold Faltermeyer, has boosted sales of Jamster's "Crazy Frog" ringtone as well, said an official with the company that owns the rights to both.

"We've seen very compelling ways to promote the ringtone and promote the single. It's sort of a virtuous cycle," said Dan Mosher, the U.S. head of Jamster, a ringtone seller owned by VeriSign Inc.

Until recently, most phones could only handle synthesized arrangements of pop songs, known as "polyphonics" or single-note "monophonics" that sound like doorbell chimes.

But the technology took a big step forward last year with phones that could play actual song recordings by original artists, known as "master tones" in the industry's jargon. "Ringback tones," which play music while a call is being connected, are another new wrinkle.

While polyphonics and monophonics only provide royalties for songwriters and song publishers, the new forms generate payments for record companies and recording artists as well. Some see even more ambitious commercial use of mobile phones in the future.

"Ultimately we believe the phone will be the player of choice for mobile music," said Sony's Hesse.

Sony BMG already makes as much money from ringtones as it does from computer-based digital downloads, and ringtone revenues at rival EMI Group Plc only slightly trail those from song downloads.

The performing-rights organization ASCAP, which collects royalties for songwriters and song publishers, says the $5 million it will collect from ringtones this year already matches revenue from Internet radio, online greeting cards and other "new media" combined.

Music-industry officials say that they're unlikely to encounter the copyright woes that have plagued digital music because cell-phone carriers maintain tight control over what works on their phones.

Aside from music, cartoonish ringtone voices like Jamster's Crazy Frog have proven popular and porn star Jenna Jameson now markets her own line of seductive "moan tones."

Sellers also hawk games, animated videos and "wallpaper" that serves as a screensaver of sorts for the phones' tiny screens. ThumbPlay Inc. sets more than 2,000 first names to a rock or hip-hop backing for even more customization.

It may take time before the mobile phone becomes a full-fledged entertainment player, said an official with the wireless carrier T-Mobile.

"We're certainly heading in that direction, but on the other hand you have to look and see if customers are really willing to do what they say they want to do and are willing to pay for it," said Michael Gallelli, T-Mobile's director of content services.

Some consumers have complained about deceptive pricing practices at Jamster and other ringtone sellers. One has filed a lawsuit in California, and the advocacy group Consumers Union has begun to track complaints.

Mosher said that Jamster requires customers under 18 to get parental permission before signing up for its monthly service and offers three easy ways to unsubscribe.