Music Industry Struggles to Get Cell Phone's Numbers

September 14, 2004 WSJ #1

"Music Industry Struggles to Get Cell phone's Numbers"

There is a new trend bringing together cell phones and digital music called ringtones. These ringtones are customized ringers that a customer can download directly to their cell phone. This business has seen quick and expansive growth in the past 2 years and is expected to grow for at least a couple more years. Initially cell phones came with just a handful of default ringers the user could choose from, but now they are able to download digitalized versions of their favorite song. Some new phone technologies even allow the ringers to include actual samples of real music including vocals.

The ringtone market is a strong competitor with the online music market. The ringtone version of rapper 50-Cent's song "In Da Club" actually outsold digital sales of the song. This is impressive because this ringtone was only 30 seconds, had no vocals, and priced at nearly two dollars was twice the cost of downloading the full digital song from Apple's iTunes digital music store. Customers of Sprint bought 500,000 copies of Beyone's "Crazy in Love" at $2.50 a piece. Estimates of world wide sales claim that ringer sales in 2003 reached nearly $3 billion. According to BMI, the royalty collection group, the American market was between $66 and $68 million in 2003 and is expected to reach $240 million in just the first 6 months of 2004.

The licensing of music to be turned into a ringer faces several legal issues. All parties involved in originally creating the music must agree to have their music digitally recreated as a ringer. The article reports that many songs, especially in the rap industry, involve many collaborators which further extends the licensing dilemma. The hit song "Yeah" by Usher took over 6 months to reach ringtones because one of the many parties involved held out in tough negotiations. While the major online ringtone publishers face these legal battles, there is another ethical issue that arises concerning the grey-market operators that provide cheap versions of hits without licensing. Further, this is legal discussion as to who should be getting the bigger piece of the royalties involving the ringtones. The publishing companies turning out the digital ringers typically get 10% of the sale price