SAN FRANCISCO (Billboard) - As lucrative as the global mobile music business is today -- projected to be worth $9 billion by the end of the year -- times are tough for the companies that started it all.
Early ringtone aggregators like 9Squared, Dwango, Faith West (now Moderati), YourMobile (now InfoSpace), Zingy and others have spent the past 18 months scrambling for new ways to survive in a mobile music market that has changed dramatically since their heyday at the turn of the millennium.
Through the creative leveraging of their technology assets and music industry contacts, these companies are developing new mobile services and applications in an attempt to remain relevant.
The mobile entertainment and music industries are at present inexorably linked. Ringtones and other mobile music revenue contribute roughly half of the total digital revenue collected by record labels today. At the same time, music-related applications make up nearly 70 percent of all mobile content sales -- essentially carrying the nascent mobile entertainment industry.
Clips from a song's master recording have replaced the tinny, synthesizer-based polyphonic ringtones that served as the genesis of today's ringtone market. As of the end of 2006, polyphonic ringtones make up less than 15 percent of today's ringtone sales, with master ringtones being the dominant and preferred format.
BLINDSIDED AND SIDELINED
"The polyphonic business, which used to be thriving, is pretty much dead," says Scott Jensen, vice president of global business development at Zingy. "It's now master ringtones and full-song downloads."
This change in format was a disaster for ringtone companies. In the polyphonic age, they licensed the music and created the ringtones, and sold them on wireless operators' networks and phones in return for a cut of the sale.
But with master ringtones, carriers wanted it all. Operators began striking licensing deals and revenue splits directly with record labels, and sold the new ringtones on their own.
"Everybody just got blindsided," says Bryan Biniak, former chief operating offer of YourMobile. "We just got pushed to the side."
Some, like Dwango, went out of business. Others reinvented themselves as technology and service providers. Zingy, for instance, merged in 2005 with Vindigo, which offers mobile information services like MapQuest and The New York Times. Personalization services like ringtones, video and wallpaper images now make up less than 50 percent of the company's revenue. The company has since added mobile games, mobile advertising and information applications.
Meanwhile, Ztango was bought by WiderThan, which RealNetworks in turn acquired last year, and now primarily acts as a technology provider for such carrier applications as ringback tones. Still others took a direct-to-consumer route, opening online mobile content stores where consumers could buy ringtones and other types of content. The most successful of these are establishing new music-related services in partnership with labels and acts.
9Squared, for instance, markets services under the brand the Mob after being acquired by European mobile media firm MonsterMob. In January it unveiled a new fan club program called "The In Crowd" in which celebrities send text messages and promotional messages to fans who sign up for the service. The program debuted with rapper Snoop Dogg.
Other companies pursuing direct-to-consumer strategies include Jamster, Dirty Hippo and even InfoSpace, which resurrected the Moviso brand it bought from Vivendi Universal as an online content portal.
BUILDING A BASE
A common theme is the desire to sign members to a monthly subscription plan rather than selling content a la carte. Selling ringtones is a low-margin business requiring high volume, and as the vast majority of mobile music is still purchased through wireless operators, the only way to compete is through a subscription plan.
That in turn requires massive marketing and advertising spending, resulting in high customer acquisition costs, which some former aggregators are happy to make.
"If we wanted to be a big business with a long-term future that we controlled and owned, it was going to be about investing in marketing and building brands and owning subscriber bases," 9Squared CEO Brian Casazza says.
As a result, multiple mobile social networks likely will go live in the coming months. The idea is to establish an online and mobile community where members can acquire and share such content as ringtones. 9Squared is working with record labels to distribute promotional ringtones such as one for "Cupid's Chokehold" by the band Gym Class Heroes.
Other pending music-related innovations include voicemail greetings recorded by famous artists and celebrities that fans can assign as their outgoing voicemail message, video greetings and custom mobile fan club offerings.
While few of these innovations are likely to reach ringtones' level of popularity, record labels are interested in experimenting with new mobile services -- particularly with ringtone growth expected to level off this year.