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Ringtones: Past, Present and Future (Volume 2 – Market Analysis)
Generator Research Limited, April 2005, Pages: 114
The future structure and operation of the ringtone industry will bear little resemblance to that of the past. Although ringtones were first commercialised by companies in the mobile industry, in the future, music ringtones will be managed by record labels as a new recorded music format. Industry incumbents are finding that this shift will truly be a case of black and white.
The catalyst of such a fundamental shift is the transition from monotonic and polyphonic ringtones to real music ringtones which has allowed the record labels to enter the market for the first time. This volume contains an analysis of the key trends which are shaping the development of the new ringtone industry.
Because ringtones and digital songs offer fundamentally different value sets,they are different product categories, each of which will be characterised by different pricing, promotion and positioning: the fact that a real music ringtone is simply an excerpt of a digital song is irrelevant from a marketing perspective.
As the wider digital music market develops the current price differentials between ringtones, online music and mobile music will converge while ringtone marketing will shift in focus from companies who operate mainly in the mobile industry to record labels who will co-ordinate the marketing of real music ringtones with other formats, including digital.
Record labels and mobile operators: a content-distribution alliance
Having been badly affected by peer-to-peer file sharing and piracy, the record labels are now enjoying early and unexpected success with real music ringtones, which are currently in an explosive growth phase. Now, through a range of sometimes aggressive initiatives the record labels, especially the majors, are sending a clear signal to the industry that they see themselves at the top of the ringtone food chain: having arrived at the table five years late, the label's are hungry and are in no mood to pussy-foot around with business partners. Labels are currently interested in getting the biggest bang for the buck as fast as possible and so they have naturally been attracted to the mobile operators who can offer the largest distribution channel.
Meanwhile, facing constant pressure from investors, analysts and the media, the mobile
operators are painfully aware how important it is to boost mobile content revenues and they are therefore naturally drawn to content providers that can offer branded content for which there is mass demand. For these reasons the major labels and the operators are pairing off in an informal content-distribution alliance that will persist until entrepreneurs and market forces produce viable off-carrier distribution channels.
Move over mobile aggregators…
Because they are being increasingly bypassed in the new ringtone value chain and are also subject to consolidation pressures coming from the wider mobile content arena, the outlook for pure-play mobile content aggregators is bleak. Mobile service companies are today being forced to choose between one of two paths: developing a direct-to-consumer mobile content/retail brand or offering a portfolio of broad-based mobile services, although the commercial risk facing emerging direct-to-consumer brands is far higher than that facing mobile service companies.
Operator content portals: music may be the straw that breaks the camels back
Rapid advancements in the capabilities of mobile handsets and the opportunities offered by the mobile Internet are pushing the mobile operators into dangerous waters. The challenge is to achieve a balance between maintaining control of their de-facto distribution monopoly while allowing third party content providers and music brands direct access to their customers.
A ballooning number of would-be digital music retailers will all want to sell real music ringtones and many of these companies ranging from branded players to niche specialists will want direct relationships with their customers, while avoiding the premium priced distribution fees currently charged by mobile operators. Meanwhile, entrepreneurs and venture capitalists are trying to break the stranglehold that the operators currently have over mobile content distribution.
In the end the mobile operator's content revenue mix will have to evolve in acknowledgement of these pressures to the point where a range of services are offered to merchants, depending on which of the operator's services are needed. Some
merchants will be happy to pay a premium while many others will just want to pay a simple distribution fee.
At the same time as these forces are at work on the operator's content portal strategies, mobile phone vendors are rushing to add digital music player functionality to their products and digital music brands like Apple are developing mobile-based digital music strategies. Meanwhile, some mobile operators are mulling the launch of online music stores to complement what is available from their mobile content portals. Being a new,emerging recorded music format, real music ringtones will soon be routinely appearing for sale on all these platforms. Not only will these on-going trends produce dramatic changes in how real music ringtones are promoted, priced, retailed and distributed, they will force operators to open online music stores and take their brands into the fixed arena.
Covertones and create-your-own ringtones
Although both contentious and controversial – covertones are here to stay as a viable component of the market. While there will always be some companies that can make a business out of selling cover version ringtones, as in other parts of the music industry, the category will be limited to a small part of the market mainly because of commercial pressures being exerted by labels on key distribution channels. The create-your-own ringtone market will be limited to a niche because of the increasing insistence by labels that retailers and mobile operators use DRM and also the roll-out of authorised, paid-for ringtone editing tools which will begin appearing on label-approved online music stores.
Chaku-uta Full: Europe and the U.S. have missed the boat
The phenomenal success of full-length song downloads to mobile in Japan is unlikely to be repeated in Europe and the U.S. mainly because of the different development trajectories that have been taken by the Internet which in Japan is mainly accessed using mobile phones while in the U.S. and Europe, consumers understand that the Internet is accessed using PCs.
While European and U.S. markets will find success in adding music player features to mobile phones these will be used mainly to transfer songs from the PC to the device, rather than to buy music from an operator-branded mobile or online music store.
In the sister report, Volume 1: Executive Profiles, we offer readers a collection of indepth interviews with decision-makers at thirteen different companies who are centrally involved in the ringtone business at different parts of the value chain. These profiles provide a highly valuable source of information which reveals the latest thinking that is shaping the development of the ringtone market.
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