Ringing IN and Hanging UP

July/August 2007 Issue: Page 60

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Ringtone sales may help save the digital music industry or it may be a nail in its coffin.

In the old days, a telephone came in two designs and had one ring. With the rise in cell phones, the styles are endless and so are the types of rings you can make the phone chime. There are master tones, ringback tones, polytones, monotones and they all have a price. Users can download them over the Internet and program a ring to sound only when mom or that special someone calls. Users can also send a ring out to someone to let them know who is calling. But they aren't cheap – as much as three times the cost of one hit single from iTunes. But that hasn't stopped people from buying the tones in droves.

The music industry loves that users will pay a premium for the 30-second melodies and still come back for more. What the industry doesn't like is the Florida Attorney General office, which has it in for certain ringtone sellers over the Internet. Whether or not Florida officials can make a civil case for deceptive practices, the damage is done. When sites such as Blinko.com, Jamster.com and DirtyHippo.com are accused of bait-and-switch tactics by offering supposedly free ringtones that are not free, every ringtone seller over the Internet takes notice, as do consumers.

Ringtone affiliates, sites that sell ringtones and networks with ringtone sellers in their lineup are all concerned about the black eye a few misbehavers are leaving on a growing sector of the digital music revolution.

"No reason for one very bad apple to ruin it for everyone," Steve Richter, president and general counsel for Media Breakaway, says. Media Breakaway owns CPA Empire, a network that was at the center of a ringtone firestorm a few months ago when it was discovered that an affiliate's website offered free ringtones when, in fact, they were not free (the free tones only came with a paid subscription). CPA Empire noted that within an hour of identifying the affiliate's website, it was pulled down. "We had no idea that this was running," says Richter. "We took a pretty severe action against this affiliate. Any of our affiliates that are discovered to violate our terms and conditions, we take action immediately."

Tarnished Reputation?

Matter closed. Or so it would seem until another online network is targeted. The coverage this issue has received sheds light on the power a few individuals have on the whole reputation of a budding digital music phenomenon and how hard it will be to police the vast reaches of cyberspace.

"It's a highly competitive market and a burgeoning industry," says David Haverly, senior executive, Mobile Vertical, at MIVA. "It's very hard to break through." He says that, "technically there are no free ringtones. But websites must be clear that to get the free ringtones you must buy a few; say 10 or more."

That is what caught the attention of the Florida authorities. The alleged bait-and-switch tactics – when a seller never intends to sell consumers the advertised thing so that it can sell them a more expensive other thing – are pretty much illegal in most states. In the case of Florida, its civil investigation means that the upshot will probably not lead to criminal charges for the companies under the microscope, but can lead to accusations of fraud, which means if someone wants to sue the companies, they could have a pretty good case.

"The content provider industry has guidelines to not blur what they are getting," says Haverly. "Sometimes, in fine print you see that if you sign up, you get the free ones.

Our goal is to give a quality experience. We have to say when an affiliate is not clear." With a ringtone affiliate reaping as much as $15 for every new customer, the incentive is there to cut corners.

If more investigations in other states are opened, the reputation of all of digital music sales over the Internet could take a beating at a time when the ringtone market is at an all-timehigh. Revenues for ringtones have more than doubled yearover- year, says JupiterResearch. Ringtones brought in about $420 million in 2006 and JupiterResearch predicts the pot will grow to $724 million by 2009. In 2005, more than 24 million people downloaded ringtones to their cell phones; that's about 13 percent of cell phone users, according to eMarketer. IDC predicts that more than 54 million people will download a ringtone by the end of this year.

An Alternative for Record Companies

For the record companies, this is good news in the wake of its falling sales of music CDs since 2000. When Nielsen's SoundScan launched the tracking of mastertone sales in December of 2006 (mastertones are portions of the original recording, whereas polytones are just the melody played by usually a keyboard. SoundScan has tracked polytones since 2004.), the numbers surpassed the sales of single-track songs, and in many cases at three times the price. When the first polytones numbers arrived in 2004, Geoff Mayfield, director of charts at Billboard, has said he was "floored." The ARC Group in London has predicted that global sales of ringtones will surpass $5.2 billion in 2008 – that's more than 10 percent of all digital music sales. Internationally, the numbers are equally big. The Wireless World Forum estimates there will be 28 million Indians under the age of 24 with cell phones by the end of 2007, and nearly 15 million in the U.K. That spending on ringtones comes to $23 million by the end of this year.

Also, with artists and their labels pulling in less from pure CD sales, other means have to be explored – such as ringtones. David Bowie was one of the first to release unique music to subscribers over his Bowie.net network. Some artists are dipping their toes into ringtone-only releases. Snoop Dog releases ringtones on his website, to name just one artist. "[CD] sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream," artist manager Jeff Rabhan recently told The Wall Street Journal.

Yet some vocal affiliates continue to be wary of the return ringtones offer. One forum poster stated that "I really don't trust most of the merchants that offer ringtones; their websites have that spyware feel." He also stated that he had "recently checked my stats and I had a measly amount, which was less than the meager $10 I made last year." Other voices on the Internet second that sentiment. "Making money with ringtones has never worked for me," a forum entry states. Continued on Page 2...

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