visiongain estimates that £90 million ($163m) was spent in the UK on Ringtones
According to the latest visiongain report "Mobile Music Downloads: Analysis and forecasts, 2004-2009", Mobile music, in the basic and limited form of ringtones, has been a key application and one of the most successful revenue generators in the wireless internet world. However now more sophisticated music applications, such as downloading music files, will be greeted with the same enthusiasm and willingness to pay.
PR9.NET January 01, 2004 - San Francisco, CA and London, UK; 15 November 2004 - 'True' mobile music is divided into two segments: downloading and streaming, both of which are still in early stages of development in the mobile space. Visiongain believes that while streaming music has limited potential, particularly over GPRS networks, the ability to download full audio tracks represents a significantly more viable long-term revenue opportunity.
With full track audio downloads, operators are not just in the Personalisation business, they are also entering the music distribution business. With master tapes, an operator would have to pay 40% of gross revenue to the record label and (in the UK) 15% to the licensing copyright organisation. A further 17.5% in VAT taxes leaves the operator with a 40% share, which it will have to use for hosting, customer service and marketing costs. In the face of such slim margins, compromise between operators and record label will be essential.
In the UK for instance, where a ringtone costs almost $5 to download, the value of CD single sales fell by 33.6% to £64.4 million ($116.7m) in 2003, while estimates indicate that £90 million
($163m) was spent in the UK over the same period on ringtones. Such has been the success of the ringtones that there are rumours that sales of ringtones will soon be included in the singles chart.
Other factors, including revenue sharing models, revenue expectations and digital rights management, will need to be addressed before music downloads can be positioned as an attractive, viable and profitable service. “There is also the question of user demand and acceptance. Through a targeted, focused approach, mobile music downloads will help facilitate a market worth nearly $1 billion by the end of this decade”, comments Goran Nastic, Telecoms report analysis.
The issue of revenue share will represent a major obstacle between the mobile and the music industries. The established ringtones value chain rarely involves music labels. “Numerous independent service providers sell ringtones to operators, who generally take a 30-40% cut. Once the collection society has taken its 7-15%, 45-60% remains for the mobile operator to share between itself and its content or technology partners”, adds Nastic.
For mobile music downloads to succeed, a number of issues need to be resolved and hurdles overcome. Music phones will have to compete against dedicated MP3 players that offer superior experience and performance. Furthermore, these portable MP3 players in conjunction with iTunes and other online music services are defining the music space, limiting mobile operator’s pricing options for mobile music downloads. Pricing full track downloads via the cellular channel in a way that is both profitable and attractive to the end-user is a major challenge.
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