Fluid Market for Ringtones

In the March 7th New Yorker, Sasha Frere-Jones writes about the cell phone ringtone industry which, in 2004, generated $4 billion dollars in worldwide sales (only $300 million from the US). In Korea, the ringtone market outsells the CD single market. There is a newer, higher quality version of the ringtone that is just gaining popularity. But there is more than just better quality that makes the mastertone interesting; there is commercial appeal,

Record labels, convinced that they have lost millions of dollars in CD
sales to MP3 file-swapping, have been especially attentive to
ringtones, and they love master tones. Polyphonic ringtones are
essentially cover versions of songs: aggregators must pay royalties to
the publisher, who then pays the songwriter. But master tones are
compressed versions of original recordings, which means that record
labels—the entities that typically own recordings—are entitled to
collect a fee, too.

She goes on to explain the royalty deals signed to get these songs were extremely one-sided pushing up to 25% for some record companies. This boosts the overall cost of the mastertones which keeps people from adopting them. Kind of killing the hen before it can get around to laying it’s golden eggs.

This arrangement is unlikely to last. There are now Web-based
companies, like Xingtone, for example, that will convert songs from
your collection into master tones. Or you can do it yourself: some new
cell-phone models can be connected to a computer by a data cable,
allowing you to create master tones from MP3 files at home. However it
is done, transferring music that you own to your phone is legal under
copyright law.

Like a water balloon, exert too much pressure and the market moves around you.

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