Mobile Music - Singing a New Tune
By Niall McKay, Fri Nov 22 11:30:00 GMT 2002

Will record labels dominate the wireless music world?


In May of 2000, Finnish girl band Nylon Beat broke new ground by releasing their song “Not Guilty” as a mobile ringtone before it was available on album, tape or CD. Within a few days, thousands of fans downloaded the ringtone for about a dollar a pop.

Of course, many artists are now using mobile culture to promote their music. In Europe last month, the Foo Fighters launched a promotional MMS service, and another Finnish rock group, called Kemopetrol, offers mobile users Java-based video clips of their new song Goodbye. Meanwhile in the US, rapper Nelly followed in the footsteps of Japanese boy bands, perhaps for the first and the last time, by selling a personalized cell phone tabbed the “Nelly Celly,”. Which features games and “Nelly-ized” ring tones. Furthermore, the rapper’s voice is used for voicemail greetings.

It’s the record industry’s wet dream – a new revenue stream. No only do mobile revenues look set to compensate for declining record sales, ringtone production costs are a relative pittance. So are musicians singing their way to the bank? Not very likely. They’ll get a pretty thin slice of this multi-billion dollar industry.

Still, one would be forgiven for thinking that artists may make a killing when the cell phone infrastructure becomes good enough to either stream or exchange high-quality audio files. Again this is unlikely, since artists are still having a hard time fighting for a decent slice of the digitally distributed music pie. Currently, artists that do not publish their own music make less than $2.00 per CD. So can they cut out the middlemen? Er, no. It seems that the record industry won that battle too, but on the Internet.

There is little doubt that that artists are getting hip to the mobile revenue stream which has often promised but seldom delivered massive wealth to those aiming at the youth market. Sooner or later, the cell phone will probably become part of the music distribution cycle – either as an MP3 player, or as a streaming music distribution, but until then, the music industry will have to be satisfied with ringtones.

Ringing Up Value

While musicians may not earn millions from these little cell phone jingles, they can ill afford to ignore them. Ringtones have now been firmly established as part of the market machine, and record companies like EMI, Warner, and Sony now all produce them as par for the course.

In Japan, for example, there are about 200 new ringtones produced each month, and there are dozens of related Web sites and services. In fact, JASRAC, a Japanese record industry licensing group, collected 3.8 billion yen (about USD 32 million at current exchange rates) in royalties in fiscal 2001 on behalf of its artists and music publishers. Artists get roughly the same revenue per ringtone as they do for sheet music versions of their songs, working out to be between 7 to 10 percent of the tone’s retail price, which is then split with the music publisher.

To put this figure in perspective, analysts expect that 40 million of the 140 million mobile phones sold in the US in 2003 will support downloading ringtones, and further expect the average user to buy approximately 3 tones. US operators like Verizon Wireless and AT&T Wireless are already selling ringtones, charging about USD 1 for a standard tone and USD 2 for a ringtone with an on-screen animation.

Furthermore, record companies and artists often provide free ringtones to promote their music, says Steve Myers, a manager for mobile developer and consulantcy Layer-8 Technologies and the editor of Music Media Watch, a Tokyo-based newsletter that tracks the digital music sector. This lowers the average price per ringtone to about a dollar a pop.

Layer-8 manages the process of turning music into ringtones, and also creates musical games such as a Java program that will teach people the guitar chords to accompany the tone they’ve downloaded. Layer-8 is one of about 60 companies in Tokyo that produce both their own tones and work under contract with the record companies to turn artists’ music into ringtones.

“Typically, we will hire a musician to take a tune and turn it into a midi file,” says Myers. “Musicians can earn about $100 per midi file, which for many of them adds up to between $1,000 and $3,000 per month.”

Usually, the musician will work with a keyboard and recreate the tune in a ringtone format. Somewhat sadly, ringtones have yet to establish themselves as an art form in their own right, and most of those that aren’t created from popular tunes are gimmickcy sound effects, such as a dog barking or a fire engine In fact, according to Myers there is just one ring tone business -- called Uwasa no Indie Melo – which focuses on ring tones from up-and-coming independent label artists. Daniel Scuka, who runs another Tokyo-based newsletter, Wireless Watch, says that for the most part ringtones are still an afterthought, and while Japanese network operators such as DoCoMo seem to believe that music will produce the next wireless content revolution, they haven’t really moved beyond ringtones yet.

“The operators here are terrified that their networks will be used to share pirated music,” he says. “So DoCoMo, for example, will only work with Sony’s digital rights management package – OpenMG software.”

This means that no digital music can be downloaded via the DoCoMo network unless it is encoded in the OpenMG format, which of course requires costly software available only from Sony, Scuka says. This effectively prevents smaller and lesser-known artists from participating in this content revolution.

Business As Usual


So if you thought that wireless music, via either ringtones or MP3 files, would revolutionize the music business, taking power from the record company pinheads and putting it back in the hands of the artists, then think again.

Stephen McGarrigle co-developed and ran a San Francisco-based trip-hop and techno online radio station and Web site called X-Radio. The idea was to provide music such that was very popular among the club-going youth but that was never played by radio stations. “We showcased independent artists and labels that were more interested in the exposure and prospect of a CD sale than a royalty,” he says. “But it’s almost impossible to run a small independent Internet radio station legally.”

The site, like many others, failed. Indeed, those that did not fall by the wayside because of lack of revenue were recently dealt a blow when the US Library of Congress mandated that station owners must pay royalties of .07 cents per song per listener, pricing most of the smaller Web stations out of business. One could argue that it would be far more feasible for radio stations geared towards mobile device users (whenever they pop up in the future) to collect this charge, as they could bill their listeners through their wireless carrier.

Aaron Day, who founded a small record label, Auslander Music, believes that the only way to get around the big record companies’ stranglehold on the distribution channels is to offer copyright-free music. “We feel that there is just no way to make money from the music itself,” says Day. “In fact, most bands don't make much money from their CD sales. They make money from merchandising and concerts.”

Auslander eschews record sale revenues by offering free digital music and attempts to make money on its bands’ concerts and t-shirts, offering artists a chance to gain much-needed exposure and listeners through the free downloads.

Still, it’s hard not to regard the record companies as clueless, and their decision-making as both aggravating and greedy. The pricing breakdown for a major-label CD is something like this: about $2 for royalties, $.23 for recording costs, $0.60 cents for edition costs, $1.05 for production costs, $1 for advertising and promotion, $1.58 for distribution, $0.75 for general costs, $0.30 for taxes, and $3 for the retailer markup. That means that the virtually the only cost that could be saved by digital music would be the $1.58 for distribution. Furthermore, the $2 for royalties is split between the artist and publisher.

But nonetheless, the Universal Music Group has made an attempt to get more artists to sign away their digital distribution rights by increasing their digital royalties a whopping 25 percent – upping the payout rate from the equivalent of a single to that of a cd – and cutting bogus charges like “new media” and “packaging” fees. Very generous indeed.

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Niall McKay is a freelance journalist based in Tokyo Japan. He can be reached at www.niall.org.