Ringing in the New Year.(increasing demand for ringtones)
By Sue Marek

Real-song ringtones, or true tones, are gaining stature as record labels team with operators to release new singles in ringtone format before the songs even hit the airwaves.

Remember the sound of an old-fashioned standard cell phone ringer? That sound may soon become extinct as personalized ringtones - whether monophonic, polyphonic or true tones - become increasingly prevalent.

As those personalized ringers increase in popularity, wireless operators and record labels are pushing the envelope to keep customers ringing up repeat ringtone sales. The latest innovation - exclusive ringtones - allows customers to download a ringtone of a song before the single hits the radio stations or the CD appears on record store shelves. But does exclusive status equate to more ringtone sales? Will customers buy a ringtone when they aren't familiar with the song?

Die-hard fans of the artist will buy a ringtone even if they haven't heard the song yet, and industry insiders say both the wireless operators and the record labels stand to gain from the excitement an exclusive ringtone can create over a single. Additionally, carriers benefit because it can help get customers to migrate from polyphonic ringtones to the true tones, which are higher priced. "Both the carrier and the record label win in this arrangement," says Kanishka Agarwal, vice president, new products at Telephia. "Carriers want the higher premium with true tones. And already we see that consumers are willing to pay for personalization. Plus they are adding a time element - you are the coolest if you have a true tone that hasn't been released yet."

Status vs. Sales Nearly all the Tier 1 operators have tried this strategy, but Cingular Wireless is perhaps the biggest proponent with its Cingular Sounds program. Launched in April, the service features Coldplay's "Speed of Sound" single from the rock group's X&Y album. The ringtone debuted April 12, but the record wasn't available until June 7. The operator has launched similar campaigns with singles by artists such as Gwen Stefani and most recently the "Don't Give Up (Africa)," a song performed by Alicia Keys with 100 percent of the ringtone sales going to a nonprofit group that provides lifesaving AIDS medicines to children and families with HIV/AIDS in Africa.

Jim Ryan, Cingular's vice president of consumer data services, says that besides the altruistic benefits of the Alicia Keys ringtone, it also offers significant crossover appeal. "This is a Peter Gabriel song, so there is a generation of folks that love this song and don't necessarily download a lot of ringtones," he says. "We think this will expand the appeal of ringtones and help out a great cause."

Ryan wouldn't provide specific sales numbers on Cingular Sounds' exclusive ringtones. However, he did say that some of the ringtones offered through this program have been extremely successful. "When we pick the right artists and package it, we sell more ringtones than we would have otherwise," Ryan says. "Customers see it as a value-add and the artist sees it as a value-add."

Of course, much of that success is based on the packaging and the promotions. Mary Stuyvesant, vice president of marketing and merchandising with InfoSpace, which works with Cingular on its ringtone program, says record companies are interested in exclusive ringtone promotions because they generate excitement about the single. For example, when Cingular debuted the Coldplay ringtone, the carrier sent phones with the downloaded ringtone to radio stations across the country. "DJs played the ringtone of the song on the air," Stuyvesant says.

Still, she admits that for most exclusive ringtones, consumers must make a leap of faith because many carriers' download systems don't allow customers to preview the ringtone before they buy it. "For most artist and releases, I don't think that it is a successful model if the measurement of success is purely transactional," Stuyvesant says.

However, if the measurement of success is branding and strategy, it's very successful, she says. "If part of your strategy as a carrier is to offer exclusive content so that people want to subscribe to your service, this is a big success."

New Distribution Channel Cingular isn't the only company using exclusive ringtones to generate excitement, tap new markets and elicit more sales. Broadcast television networks and even cable channels are starting to tie in mobile content purchases with popular shows as a way to entice viewers to purchase ringtones and perhaps other types of content.

CBS and Capitol Records launched a cross promotion of Coldplay's single "Talk" by embedding it into a Nov. 30 episode of the hit show "CSI:NY." In the episode of the drama, a lead character is investigating a case when his cell phone rings and the ringtone is the single "Talk."

Following the scene, CBS ran promotional messages alerting viewers about how to purchase the ringtone, which was available exclusively for one week from operators T-Mobile USA, Cingular Wireless and Sprint Nextel. At deadline, CBS hadn't yet offered any insight into the success of this campaign.

This type of cross-promotion between wireless operators and broadcast or cable channels is becoming more prevalent, particularly as record companies and wireless carriers look for ways to sell ringtones to new audiences. Stuyvesant says operators typically stack their top deck with ringtones from artists who likely will appeal to the teen and young adult audience because they generally buy the most ringtones.

But those ringtones don't necessarily appeal to older purchasers, and most buyers don't want to sift through pages of ringtone listings on their phone to find an appealing selection. Plus, this provides little opportunity for new artists who may not have developed a ringtone following.

The ability to sell ringtones and other mobile applications to a specific audience was the impetus behind BET launching its mobile service BET Mobile. The cable network, which targets African-American consumers and is available in more than 80 million U.S. homes, is enticing viewers to buy ringtones by having them text message codes displayed during music videos.

The ringtone purchases aren't exclusive; instead, the music video is used to entice the viewer to make the ringtone purchase. BET Mobile is starting with ringtone sales but plans to progress to other mobile content, including full-track downloads.

Although the ringtone purchase isn't being made through the wireless operator's deck, the operator plays a key role in the purchase because it has the billing relationship with the customers, says Ryan Wuerch, chairman and CEO of mobile content solutions provider Motricity.

"The carrier is a key part of the system because they are the billing party," Wuerch says. "Even though this is off their deck, they will see great growth potential from this because they are still receiving a piece of the overall sale."

Wuerch sees the BET deal as a big step for mobile content distribution, which so far has been limited to the carriers' top decks. Off-portal content distribution has been growing, but many of those companies lack consumer awareness.

The BET deal couples off-deck purchasing with a huge marketing and promotion channel. "BET is a paradigm shift. This is a huge brand that is a large distributor for record labels. Instead of launching an MVNO, this is how BET is going to do their mobile business," Wuerch says.

However, Wuerch admits that requiring consumers to text message a certain short code to purchase a ringtone isn't the most streamlined purchasing process, particularly given that text messaging in the United States hasn't been as popular as it is in Europe and other countries.

Motricity is looking at other purchase modes. Although Wuerch wouldn't provide specifics, the company hopes to introduce something this quarter that will improve the process.

Although much of the recent buzz around mobile music has focused on full-track downloads, ringtones are still the most popular mobile content purchased by consumers. With exclusive ringtone deals and new distribution methods, such as the BET Mobile deal, wireless operators are attracting new buyers and enticing repeat purchases - and that's a strategy that may keep the sector from growing stagnant even as attention shifts to full-track downloads.