Labels: Don’t Get Too Excited About Ringback Revenues Just Yet

noah | September 20, 2007 2:35 am

Mobile music, and the prospect of making gobs of money from cell-phone users around the world once again becoming willing to spend money on music–only this time in the form of ringtones, ringbacks, and voicemail messages–is one of the hopes that’s kept the music industry from committing suicide in these lean times. But Jupiter Research analyst Mark Mulligan is cautionary, saying that now might be a great time for record labels to step back and re-examine what, exactly, it is they’re doing in the wireless world, and how embracing it too closely may result in album sales being even more cannibalized:

•24 months ago ring tone sales were booming and true tones sales were ramping up. The music industry looked at ring tone growth as being indicative of major mobile music opportunity. The problem is that ring tone adoption has more in common with logo buying than it does music listening. Its identity not music consumption. Hence the anticipated mass market conversion factor hasn’t happened. • The other factor is that 24 months ago mobile handsets were much more of a closed ecosystem where OTA downloads was the main realistic way of getting music onto your handset…unless you struggled with Bluetooth. Now handset manufacturers such as Nokia and Sony Ericsson (and of course Apple) have shifted the focus to developing devices that are designed to work with computers. Thus mobile phone music playback is going to look pretty much the same as MP3 player usage i.e. the majority of content is going to be from sources other than digital stores.

The other inherent hurdles facing mobile music are well documented (battery life, download speeds, file quality etc.) but they are improving. Nokia and Apple’s focus on WiFi downloading of full quality tracks (rather than the industry norm of dual delivery) is a smart move that dodges the download and quality issues inherent with 2.5 and 3G networks. Nonetheless, mobile music downloading will remain an inferior experience to PC music downloading. Mobile ‘broadband’ speeds will always pale in comparison to PC broadband speeds. Even with WiFi the processing power of mobile handsets means that downloads are significantly slower than to a PC or laptop.

Most crucially, these inherent limitations mean that mobile music will remain a single track dominated business for the midterm future at the very least. The music industry is already close to crisis point with PC digital music with single track downloads accounting for the vast majority of downloads, thus pushing consumers away from buying full albums and thus reducing label revenues and margins. But whereas the industry can realistically try to tackle that trend and drive sales of albums on PC stores, that is prohibitively difficult on mobile.

I can hear the labels’ counterarguments now, and it pretty much is summed up like this: “But we can charge double or more what they charge on iTunes now for those tracks–even when they’re just snippets! And isn’t that better for our bottom line?” Sigh.

A Thought for Record Labels About Mobile Music [Mark Mulligan]