The Sweet Sound Of Success - TIME
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`SINGLE LIFE: In some markets, artists like Usher, left, sell more
`ring tones than singles
`
`The Sweet Sound Of Success
`
`By MARK HALPER Sunday, Aug. 08, 2004
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`It was a gloomy December morning in Helsinki in
`1997 when 26-year-old Vesku Paananen woke up
`with a hangover after a night of Koskenkorva vodka
`and beer. Paananen, a chief technology officer with
`new-media company Yomi Group, was jolted out of
`bed by the annoying ring tone of his Nokia 6110
`mobile phone. "I didn't want to hear 'de de de de
`deeeee 'ever again," Paananen recalls. "I wanted to
`hear Van Halen's Jump, and I was willing to pay for
`it" The technology was there to program mobile
`phones to play pop tunes rather than electronic
`bleeps, so he tried to talk operators and handset
`makers into offering a selection of popuiar hits. But
`his pleas fell on deaf ears: 'The biggest resistance was
`from the operators, who said, 'Ring tones, what's
`that?"'
`
`After almost a year of failed pitches, Paananen
`managed to convince Finnish operator Radiolinja
`that ring tones couid help workers in open-plan
`offices distinguish their own incoming calls from
`those of others. So in the fall of 1998, Radiolinja
`launched the world's first commercially available ring
`-tone service, allowing users to download songs like Smoke on the Water and
`the Finnish national anthem.
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`An industry was born, and last year about 2.6 billion ring tones -those
`musical ditties that sound off when a mobile phone receives a call- were
`downloaded worldwide, one-third of them in Japan. Delivered by the Internet
`or text message, they account for 80-95% of a ''phone personalization" market that was worth $3.2 billion last year
`and will reach $6.5 billion in 2008, according to London market -research firm Ovum. That makes ring tones a
`bigger business than CD singles, which last year racked up $1.4 billion in sales. And the market is even bigger if
`"caller tones"- in which the caller, not the recipient, hears the tune- are included. Caller tones are already big in
`Korea, and Ovum predicts they'll be worth an additional $2.8 billion globally in 2008.
`
`With that kind of money in play and with new "real tones" that play actual (rather than synthesized) songs, a battle
`is brewing. Mobile operators and the small outfits that supply the synthesized songs -Finland's Jippii, Italy's
`Buongiorno Vitaminic, France's Musiwave and Germany's Jamba! -are clashing with the big record labels over
`whose slice of the ring-tone pie shouid be biggest.
`
`But how did an uuiikely innovation like ring tones get to be such a big business in the first place? It's definitely not
`about the music. Most ring tones are only about 20-30 seconds long, and until recently have had at best [an error
`occurred while processing this directive] an approximate relationship to the melodies on which they're based. But
`like the craze for plastic mobile-phone covers, ring tones are more about making a personal fashion statement.
`"You're not buying a ring tone to enjoy Christina Aguilera," says Ovum analyst Dario Betti. ''You're buying it to tell
`everyone else who you are." And for that assertion of identity, high-use mobile-phone customers (read: teenagers)
`are willing to pay dearly. British consumers pay the most- between $2.70 and $640 for a ring tone, while it costs
`just $1.45 to get the whole song online. Though charges elsewhere are less, replacement rates can range from once a
`year to several times a month, and some users change frequently ''based on movements in the music Top 10," says
`Ovum's Betti.
`
`The latest innovation is real tones - genuine song excerpts, not electronic cover versions. First introduced in Japan
`in 2002 and Europe last year, they are a fast-growing segment of the market. And that's where the record labels
`come in. Still hurting from a 7.6% drop in sales to $32 billion in 2003, the labels have been left out of the ring-tone
`party because they don't own the synthesized tones; instead, composers and song publishers have been claiming up
`to 20% of royalties from suppliers who have been "composing" ring tones based on originals. But "real tones" come
`straight from the record companies, and they're demanding a big piece of the action: as much as 50% of sales. The
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`The Sweet Sound Of Success - TIME
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`disarray. Up until now, mobile operators like Vodafone and Orange have taken around 40% of the ring-tone fee;
`middlemen like Musiwave and Buongiomo, whose roles range from composing and aggregating songs to delivering
`them, around 40%; and music publishers- which are sometimes owned by labels and sometimes aren't- up to
`20%, which they share with the actual songwriters. "The 40% that's getting squeezed are the guys in the middle,"
`says Patrick Parodi, chairman of the London-based Mobile Entertainment Forum, an industry association whose
`members include companies from all sectors of the ring-tone business.
`
`Not surprisingly, the middlemen firms don't want to give up their cut to the labels, and fear a fight over percentages
`could push up prices. Andrea Casalini, chief executive of Buongiorno, argues that record companies "should
`consider low double digits as reasonable. Ultimately, they'll realize that if they make rational judgements on pricing,
`the market will keep on growing. Otherwise, they'll limit the growth."
`
`If middlemen like Buongiorno are looking for sympathy from mobile operators, they're unlikely to get it. Operators
`don't ultimately care much where the tones come from, and increasingly they are hooking up directly with the
`record labels on real tones. Industry sources say that operators, too, are unhappy with the share that labels are
`seeking, though Vodafone's head of music Edward Kershaw says, "I don't think [the record labels] are being
`unrealistic." Not to be forgotten are the music publishers and artists, who complain their rights are ignored. "For the
`most part, they are not getting paid," says David Simmons, chief executive of Songseekers International, a London
`company that represents EMI's publishing division in ring-tone matters. He says publishers last year collected just
`$3.6 million in ring-tone-related fees in Britain, well below 10-20% of that country's estimated $130 to $165 million
`in overall sales. That's because many fly-by-night ring-tone suppliers are not paying. So national "copyright
`collecting societies" are stepping up their efforts to monitor ring-tone companies.
`
`In response to the squeeze on their earnings, the middlemen are rushing to consolidate. Last month, Britain's
`iTouch bought Jippii for €12 million; in June, the Mountain View, California-based security company VeriSign Inc.
`bought Jamba! for $273 million. If the merging middlemen can gain some market clout, they might be able to retain
`their early advantage. But if real-tone songs catch on, firms like Jippii and J amba! could well find themselves out of
`business. Either way, ring-tone companies will have to change their tune fast. Otherwise, the industry that
`Paananen helped launch may be in for a hangover of its own.
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`The Sweet Sound Of Success - TIME
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