Mobile music has been a one-hit wonder. But the big follow-up to the lucrative ringtone market may not be ringback tones, full-track downloads or any other single application. It may be advertising.
Ringtone revenues in the United States will shrink in 2008, falling to $510 million after generating a record $600 million in 2006, according to BMI. Meanwhile, carriers and their partners continue to spin their wheels with full-track download services that have yet to capture the imagination – much less the dollars – of on-the-go music lovers.
Only 8% of U.S. mobile users listen to music on their handset, according to recent figures from M:Metrics, and it seems that far fewer are actually buying the stuff from carrier-operated download services. More importantly, there doesn’t appear to be much of a business case for over-the-air downloads. Carriers must charge a premium to make on-the-go services a money-maker, and music lovers aren’t inclined to pay much more than the standard 99 cents for the privilege of getting a tune delivered to their phones.
“If the billing process takes nearly 50% of the billed revenue, you can’t offer 99-cent music and bill it to the mobile phone,” said Betty Cockrell, director of product management at BSG Clearing Solutions, a Texas-based developer of payment software. “With the royalties and other costs, the math just doesn’t work out. Compare the cost of billing purchases to a credit card and it’s easy to see why mobile payments aren’t taking off.”
Gotta have faith, faith, faith
There are signs of hope, to be sure. Nokia Corp. and Omnifone are hoping to move the needle by packaging music services with mobile devices, and <streaming wireless music offerings seem to be finding an audience.
Ringback tones – those clips a caller hears before the party on the other end picks up – are quietly gaining traction, too. BMI projects U.S. ringback tone revenues will surpass $210 million this year, marking a 50% increase compared to last year’s sales. While that progress may not mirror the “hockey stick” uptake of the heyday of ringtones, analysts generally agree that ringback tones will continue to enjoy steady growth as more subscribers are exposed to the audio clips.
But advertising may be one of the most important keys to unlocking revenues in mobile music, according to a recent report from eMarketer Inc. The firm predicts ad-supported services will explode from a mere $42 million worldwide market last year to surpass $1.5 billion in 2012 as mobile music overall ramps up to exceed $13.4 billion.
“Bands and artists are increasingly using mobile to form direct relationships with their fans that are then monetized through other means, such as tickets to live shows, merchandise and fan clubs,” wrote John du Pre Gauntt, an eMarketer senior analyst. “In addition, given consumers’ reluctance to pay for music on their phones, marketers are finding new opportunities to partner directly with carriers, labels and even music artists themselves.”
That strategy may seem like a no-brainer, considering that wireless subscribers have shown little interest in paying for music beyond ringtones. And Verizon Wireless, among others, has tinkered with the concept, using music to promote stars such as Timbaland, Prince and Shakira.
But those deals have largely been retail efforts that attempt to leverage exclusive relationships to push music sales. And ringtone revenues notwithstanding, carriers have long struggled in their efforts to serve as content vendors.
Making things complicated?
“I think content in general is something the service providers have struggled with because it’s new to them,” opined John Barrett, director of research for Parks Associates. “Telecom companies used to not offer any content, then there were ringtones . and for a lot of them, their eyes just glazed over. They thought, ‘We’re going to make millions.’ And I think they kind of learned the hard way that it’s more complicated than that.”
Of course, music labels have long struggled with digital platforms. CD sales have plummeted in recent years as consumers have turned to online storefronts such as iTunes – or, worse, to torrent sites – to access music. Margins from digital music sales are razor-thin, with retailers using the stuff to get consumers to buy other stuff at the virtual sales counter (Amazon, Wal-Mart) or to shell out big bucks for hardware (Apple).
While the traditional music-publishing space continues to take on water, ad revenues could help bail it out.
“The music business has really been struggling with (the Internet),” Barrett said last month. “Their model was to take that one hit track, squeeze so much revenue out of it, bundle it with other tracks, and repurpose it on a greatest-hits album or a soundtrack.”
Ad models
Using music to drum up ad dollars will require an entirely different way of thinking for both carriers and music labels, of course, and most viable efforts are probably months or even years away. But one of the most potentially lucrative – and potentially controversial – ad-supported applications is already coming to market. China Mobile last month launched ringback advertisements, encouraging customers to adopt marketing messages as their personal ringback tones.
A handful of similar services have come to market around the world, and LiveWire Mobile, a division of NMS Communications, hopes to join the field in the coming months as it teams with operators to offer incentives to subscribers in return for adopting ringback ads. While such services are sure to annoy some consumers, they may prove a novel and effective way to approach mobile users on their phones.
“We see a very interesting business model whereby people can opt in to selecting advertisements in lieu of music and gain compensation in multiple forms, credits or minutes for allowing advertisers to use that valuable airtime and impression,” John Orlando, LiveWire’s VP of marketing, said via e-mail. “It’s too soon to tell where the CPM (cost per thousand impressions) will fall, but we plan to be in trials closing this year or early next year.”
