As ringtone sales flatten, service providers and their partners are looking more
aggressively at ringback tones. But if people aren’t buying ringtones,
why bother with ringbacks?

For months now, reports have lamented flattening ringtone sales, both in the United States and Europe. Yet some companies still are seeing growth. What gives?

There’s not much dispute that ringtone sales are flattening. But there are other ways to get ringtones. A quick Web search reveals numerous offers for free ringtones. Of course, a subscription may be involved, in which case it’s not really free. In other cases, the ringtones are ad-supported, so they are essentially free to end-users who don’t mind the ads.

NOT ALL DOWN & OUT
But this being business, most eyes are trained on sales versus free offers. So why are sales flattening? A number of things come into play, analysts say. M:Metrics estimates U.S. penetration of downloaded ringtone purchases at 9.2% for the 3-month period ending in February – down from 9.5% the previous 3-month period.

Researchers say people are increasingly creating their own ringtones – they want to pick the part of a song they want rather than have someone else dictate that. At the end of February, 23.8% of people changed the ringtone on their phone to a tone that was already on their phone, according to M:Metrics.

Jupiter Research sees similar trends. For a lot of people, what comes with the phone is good enough, observes Neil Strother, analyst at Jupiter Research. For younger subscribers, the ringtone novelty factor has worn off. Those outside the teen and young adult demographic are not as interested in ringtones, or they aren’t seeing the types of music that appeals to them.

Part of it also may be tied to the notion that younger consumers have a greater desire to personalize their handsets, so it’s more challenging to get older subscribers to join the bandwagon, Strother notes. Not only are younger consumers just coming to terms with their own identities, but they’re involved in social situations whereby they want to let others know what they’re like, or what they like. It’s similar to those most involved in online social networks. “When you’re young, you’re active in the work world or in school. Your social network is very evolving; it’s growing and moving and it’s active,” Strother says.

Some industry executives still point to misconduct on the part of a few companies that tainted the ringtone market. Third parties that marketed free ringtones when customers ended up getting charged didn’t do the business any favors, although suits brought against them probably helped clean up the market. The No. 1 question direct-to-consumer company Myxer still receives is “How much does it cost?,” or put another way, “Is it really free?,” according to Founder and CEO Myk Willis. Says Strother: “It just takes a few bad apples. I don’t think it’s messed up forever.”

Mobile Content Storefront Revenue

DEMAND REMAINS
Companies like RealNetworks, which works directly with carriers, say they’re still seeing global ringtone growth and adoption increase among those older than 25. Myxer offers free, ad-supported ringtones. In fact, almost 90% of its downloads are ringtones, followed by wallpapers and video, according to Willis. “We really believe that ad-supported is the future,” he says. About 4 million of Myxer’s 8 million users are between 16 and 24 years old.

Thumbplay, another direct-to-consumer play, reports growth in all areas, with games and videos being the fastest-growing segments. In July 2007, the company facilitated about 8,000 unique title downloads each week; by April of this year, that number jumped to 18,000 unique titles, which include everything from ringtones to games and wallpaper. The growth was driven both by more traffic to its Web and WAP sites, facilitated through partnerships, and through increased content in its catalog, according to a company spokesman.

Novel ringtones are still in vogue, too. Myxer recently started promoting what it calls BrandTones, a clever marketing jingle for brand followers or loyalists. Adidas and Lowe’s are among its clients; a Volkswagen campaign recently featured an engine-revving ringtone to promote a new car.

BACK TO RINGBACKS
While analysts see ringtone sales growth leveling off, a lot of people are talking about the prospects for ringback tones, which have been available at least as far back as 2004, when companies such as Preferred Voice offered a managed ringback service to U.S. carriers. But the general public hasn’t been as familiar with ringbacks. According to M:Metrics, 47% of subscribers heard of a ringback subscription but never used it, and about 34% never heard of such a service before. Conversely, ringtone advertisements are seemingly everywhere.

Granted, ringbacks haven’t been as widely marketed as ringtones, possibly in part because they sit on the carrier’s network and direct-to-consumer companies not affiliated with a carrier don’t promote them. But operators are bullish. Virgin Mobile USA and partner LiveWire Mobile reported back in February that they had sold more than 400,000 ringback tones in a 3-month period. LiveWire, a subsidiary of NMS Communications that acquired Groove Mobile, has a catalog that includes genres from several music content providers, including hits and classics from Universal Music Group, EMI and Moderati.

Roberts: Seeking to provide more information with ringtones, including full tracks.

Helping generate more interest in ringbacks are service bundles, like those offered by Real Networks. The company reports a 25% to 30% uptake as a result of its cross-selling, whereby customers are prompted with the opportunity to buy a ringback tone when they’re already buying a ringtone and vice versa, according to Analisa Roberts, senior director, market planning and analysis in RealNetworks’global marketing and product management division. The next step is to add full tracks, so end-users see a range of music options.

RealNetworks is trying to make it easier, so when consumers are searching for music from an artist like Kayne West, they see as many options as possible, such as reading about him, buying album art or watching his latest video, Roberts says.

Ringback tones have been in the market around the same length of time that it took for the industry to see ringtones take off, observes Mark Nagel, director of music and personalization products at AT&T Mobility. “There’s an inflection point where enough people recognize … that ‘weird’ noise,” he says. Ringbacks are more complex, but no less desirable for carriers and presumably, mobile music fans.

Video Ringtones: The Ultimate Caller ID?

Vringo CEO Jon Medved has seen the looks and heard the innuendo. That’s right, in some people’s eyes, the ringtone business is about a shade better than 900 numbers and sex lines. Kidding aside, the ringtone business actually is a big business, but going forward, Vringo aims to change the way people make and receive phone calls. Medved: Aims to go beyond audio ringtones. Until now, ringtones pretty much have been about audio. But with more multimedia phones now on the market, the notion of seeing a plain-vanilla screen with a name and number will one day be viewed as quaint and historical, he says. Vringo’s service lets a caller select the video ringtone, or Vringo, that plays on another Vringo subscriber’s phone. Both sides have to sign up for the service, which is one way of self-policing so spam doesn’t get out of control. Content already is available from entertainment companies such as Universal; subscribers can load their own personalized video, too. Vringo has less than 100,000 users for its service; it’s in early trials with carriers in North America and Europe and has some important content deals in the works. The big task the company has been working on is getting handsets lined up to work with Vringo. About a year ago, Vringo supported two handsets. That number is now almost 60 and the hope is to support more than 100 by the end of the year. It works on both smartphones and feature phones. Much of Medved’s background is in venture capital. He was an investor back in 1998 in a company that tried to make a business based on user-generated videos on the Web, before the bubble burst. That company didn’t make it, but another company with a similar idea ended up launching, and that evolved into YouTube. If Vringo can make a go of it within the next two to three years, it will be sitting in a good spot – if it takes five or six years, not so good, he says. But he’s optimistic things will take off toward the end of this year, when more handsets are Vringo-supported. Vringo’s board includes Daniel Ciporin, former CEO of Shopping.com; former Cingular executive Jim Ryan, now CEO of Mobile Campus; and Bryan Rutberg, founder and CEO of investment bank Rutberg & Company.