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Radioactive: Crazy Frog's legacy - it's boomtime for ringtones
Just watch that pricing...

By Futurity Media

Published: Monday 16 January 2006

It was a bumper year for the UK ringtone market. But, asks Futurity Media's Anthony Plewes, will ringtones remain a lucrative revenue stream for the music industry, or will high prices eventually turn teenagers off?

The irritating amphibian - Crazy Frog - originated as a ringtone before it strangled the singles charts, and the mainstream music publishing industry has taken heed. Ringtones are an ideal way of soft-launching a record while building up a bit of incremental revenue without the expense of printing and distributing CDs.

Music publishing has always been a high-margin business, with rights holders collecting revenue from activities such as adverts and films. Now ringtones are also proving to be money for old rope.

But they are also a product of the digital download revolution. The nature of the music industry has changed and consumers are increasingly buying tracks on download rather than physical CDs.

According to the BPI, CD singles sales in the UK dropped 19.1 per cent to only 21.4 million units in 2005. Fortunately for the music establishment, much of this slack has been taken up by the growth in legal music downloads and ringtones. Market analyst Informa estimates the ringtone market is worth £133m per year - and it continues to grow.

Given the importance of digital downloads, it is surprising that it was left to third parties such as Apple to step into the breach to prove the viability of the digital download model. It was a canny move; over the Christmas period Apple sold a whopping 14 million iPods, boosting its total quarterly revenues to $5.7bn.

Ringtones are a slightly different beast to full-track music downloads. A ringtone is a public demonstration of the phone owner's musical taste, while digital downloads are a more private affair. Ringtone users can be creative with their ringtones by attaching poignant music messages to specific incoming callers. Some enlightened music publishers have even encouraged users to create ringtones out of their albums to act as a walking radio station.

But the biggest difference between ringtones and full-length track downloads is the willingness of the consumer to pay. Ringtone downloads are driven by peer pressure and wall-to-wall late night advertising. Legal downloads on the other hand have been driven by the use of 'illegal' file-sharing networks such as Limewire, and the original Napster. Even with Apple's success with iTunes, US pollster Ipsos found that Napster remains the most recognised online music brand, with some 80 per cent of teenagers recognising the brand.

A study published by JupiterResearch found that three times as many European consumers used file-sharing networks than legal services, and that 34 per cent of all 15- to 24-year-olds download copyright-protected tracks without paying for them. Forty percent of this same age-group do not see the CD as good value, claims Jupiter. The same is true in the US. At an October 2005 Web 2.0 conference session, on the Future of Entertainment, ex-FCC head Michael Powell joked that his son said music should be free even though he spent $40 a month on ringtones.

Although the Jupiter survey makes for grim reading for the music industry, they only have themselves to blame. The industry long feared music downloads and spent considerable effort putting barriers in place to protect their copyright. This included threats of draconian action against teenage music fans, limiting their music catalogues and attempting to put in place copy protection. Instead of getting these consumers onside early on, it looks as if the industry has alienated them.

Superficially, ringtones look to be a simpler prospect. The payment mechanisms are in place and secure, and users are still dependent on their mobile service provider to deliver the purchase. This comfortable arrangement with an array of middlemen wanting a piece of the action has kept ringtones priced extremely high. Consumers are being charged more for a 15-second ringtone than they are for the whole track.

But this state of affairs will not last and the music industry should not rely upon continuing growth in ringtone revenues. Software is already available that allows users to create their own ringtones. In fact it is not even necessary to use specialist packages such as Xingtone to create them. All one needs are some music-editing skills and a simple ringtone can be created out of a favourite track.

Once these ringtones have been created, consumers will be able to swap them in file-sharing sites much as they currently do with full-length tracks. There is even evidence that novelty ringtones will become more important than they are now, representing no revenue to the music publishers whatsoever.

As mobile phone devices improve, consumers will no longer be dependent on receiving over-the-air ringtones. The big names from digital music are already moving into the mobile telephony space. While Apple's collaboration with Motorola might have created the damp squib of the 100-track Rokr phone, the company looks determined to establish itself in this market. It has reportedly put on hold plans to launch a ringtone section to its iTunes site; but it is only a matter of time.

Instead of reacting by trying to prevent other players from joining the ringtone market, mobile operators and the music business need to reconsider their pricing policy. Consumers are willing to pay for downloads even when there is an illegal alternative. Even the JupiterResearch survey found that up to 10 per cent of European consumers are willing to pay for downloads. Cheaper prices will drive more uptake and a smaller slice of a big pie will generate just as much revenue.

Anthony Plewes is a freelance journalist and director at Futurity Media