As the music industry continues to struggle with shrinking profits, layoffs and consolidation, cell phones have suddenly emerged as a financial jackpot. Customized ring tones -- synthesized song clips that play instead of a normal ring -- now earn billions of dollars for artists, record labels and the cell-phone industry. Add improved phones and features to the mix, say some record executives, and music via mobile may outpace what's now being sold through retail and the Internet.
"This is the most explosive growth area to come," says Craig Kallman, co-president of Atlantic Records, which had a big ring-tone hit last year with Sean Paul's "Get Busy." "If you can distribute through a cell phone, you have a broader platform than what's ever been seen before."
Worldwide, the ring-tone market is already huge: Users of cell phones (primarily ages sixteen to twenty-five in Asia and Europe) spent about $3 billion in 2003 on hits such as 50 Cent's "In Da Club" and OutKast's "Hey Ya!" along with catalog favorites such as Lynyrd Skynyrd's "Sweet Home Alabama." That's ten percent of the world's music market, and far more than the $100 million to $200 million that's expected to be spent this year on legal Internet downloads.
Ring-tone sales in the U.S. reached only $80 million to $100 million last year, a fraction of the earnings in similar-size markets. But for labels, cell-phone carriers and independent entrepreneurs launching a major push to expand the business, sales are expected to grow by more than fifty percent in the U.S. in 2004, according to the Yankee Group, a market-research firm. By the end of this year, seventy-five percent of the 155 million cell phones now in use in the U.S. will have the ability to play custom ring tones. And it's not just synthesized songs that are expected to drive the growth. Actual clips of master recordings, with names such as "TruTones," "ring tunes" and "music tones," are already available for about two dollars a pop. Carriers and Web sites that are now popular with ring-tone buyers, such as MTV.com and Zingy.com, are expected to eventually sell them, too.
"Anything to hit the Top 100 -- anything on an album in the Top 200 -- will be available," says David Ring, vice president of the music-technology division at Universal Music. "We can take advantage of what clearly is a new market opportunity. People want to enjoy the latest music, and that's fantastic news for us."
But while the cell-phone music market could reach $1 billion in the U.S. by 2008, according to the Yankee Group, the money may not beat a path to the labels' door. New companies such as Xingtone are giving artists and music fans the power to bypass the labels through inexpensive software that transfers song clips from a CD to a cell phone. Sugarcult's new album comes already loaded with a custom version of the software; other artists are making similar plans, according to Xingtone president Brad Zutaut. So while actual song tones are clearly an improvement over the Casio-esque versions, they also raise the question of value: "When you get to the point of paying $2.50 for twenty seconds, people are going to ask why they're paying so much for a snippet of a song that they can buy for ninety-nine cents," says Adam Zawel, an analyst for the Yankee Group.
Nonetheless, the industry remains optimistic, noting that ring tones are especially popular among the age group that might otherwise be file sharing. The industry also has high hopes for the arrival of ring-backs, which give cell-phone users the ability to define what incoming callers hear instead of the usual ring. "If it can be a consumer-friendly experience, the potential is enormous," says Kallman. "I don't think it's a fad."
The Ring Tone Top Ten*
1. "Sweet Home Alabama," Lynyrd Skynyrd 2. "Hey Ya!," OutKast 3. "Milkshake," Kelis 4. Super Mario Bros. theme 5. "One Call Away," Chingy 6. "In Da Club," 50 Cent 7. "P.I.M.P.," 50 Cent 8. "Stunt 101," G Unit 9. "Holidae In," Chingy 10. The Pink Panther theme
The Next Wave of Cell Phone Music
Now that ring tones have become a viable market -- earning about $3 billion worldwide last year -- a fusion of music and mobile phones is catching on. Entrepreneurs, investors, cell-phone carriers and the music industry are working hard on new ways to make your cell phone a musical instrument. Here are some new features on their way to your cellular:
Play "F**k It" for a cheating ex
Already available in South Korea, ring-backs give you the ability to decide what callers hear before you pick up. No Doubt's "It's My Life" for when your mother calls? Incubus' "Megalomaniac" for your favorite Republican? The options are endless.
Expected arrival: 2005
MTV on a Mobile
Why be satisfied with just a song?Future phones will not only ring with your favorite tune, they'll also show your favorite videos, from "Thriller" to "Toxic." But don't drive while watching.
Expected arrival: late 2004/early 2005
The Cellular Jukebox
Dial into your music at home or in the car
Imagine plugging your cell phone into the car radio, which then accesses the music collection on your hard drive at home. It will be possible, eventually. In the short term, be prepared to manage your iTunes or Napster account with a touch of the dial.
Expected arrival: 2007-2008
An iPod That Rings
Download and listen while in motion
Apple hasn't yet shown any interest in uniting with wireless carriers, but more cell phones will soon be equipped with the ability to download and play digital music. Nokia already sells a phone that comes complete with Jay-Z's Black Album. And in August, Virgin Digital will launch an online service that offers cellular access to 700,000 songs. Prices have not been set, but other carriers will be sure to follow.
Expected arrival: August 2004
*As of March 25th, according to Zingy, the leading ring-tone distributor in the U.S.