Ringbacks are making mobile operators sing

As mobile operators have been quick to find out - but not always quick to capitalise on - the money-makers in the mobile world are often the applications and services you'd least expect, writes Karlin Lillington

First it was SMS, a lowly add-on function to mobiles that was only supposed to be a little convenient functionality for techies. Billions of messages later, it is the mobile industry's key moneyspinner and a top communication form of choice for the under-30s.

Now it is ringtones, and a new permutation called ringbacks, that are making the operators sing. The global market for the phone jingles is predicted to reach $4 billion (€3.2 billion) this year, with $1.5 billion of business done in Europe, according to a report by US telecoms analyst Consect.

The Korean market alone - considered one of the hottest for tones and ringbacks - is worth $500 million. That's more than the fledgling American market at $300 million, although the growth potential in the US is evident as that figure is double 2003 numbers.

People in the Republic download at least €7 million worth of ringtones - going by estimates from MCPS, the agency responsible here for collecting royalties on songs used for ringtones - while operator O2 has valued the market at €11-€12 million.

That has made ringtones a key feature on operator websites in Ireland, as well as portal sites such as the recently launched MSN.ie site from Microsoft, which offers the tones at a lower price than elsewhere, according to Irish company Eirborne, which supplies them. According to other industry sources, the Republic is the most expensive market for ringtones in Europe and one of the costliest in the world.

But it is also considered one of the best early adopter markets in Europe, says Mr John Whelan, product manager at Dublin music service technology company Alatto. "Ireland has always been regarded as being an innovative market for launching new applications and is recognised as a test-bed."

That's why he finds it so odd that Ireland is one of the only countries that has not yet introduced the popular new sibling to the ringtone: the ringback.

Ringbacks are songs by the actual artists - rather thathe electronic jingle that forms a ringtone - that play in the background to the ringing tone of someone's mobile phone. For example, a ringback user might choose the Beatles' Hello Goodbye. When someone calls the user, they will hear the song playing in the background to the ringing tone while they wait for an answer.

In Korea, where ringbacks were introduced in 2002, some 40 per cent of all mobile phone users pay for ringback tones. In Italy, 570,000 people signed up for the service from Vodafone within the first two months of its introduction. Another half a million subscribe to T-mobile's offering in its European markets.

Irish operators are interested in the service, says Mr Whelan, but probably won't launch it until the new year. That goes against trends elsewhere, where 80 per cent of operators that don't yet have ringtones plan to get a service up and running before the Christmas splurge on handset gifts.

Alatto, the only Irish company marketing ringbacks to operators worldwide, is hoping for a slice of that market. Cashflow funded in its first four years, Alatto received €1.1 million in venture funding from Executive Venture Partners to develop its ringback offering and a recently launched associated technology that improves the sound quality of songs carried over mobile networks.

Ringbacks are an ideal product for operators as they don't cannibalise their existing ringtone market, and ringtone users are often eager to acquire ringbacks as well. They generally subscribe to ringbacks as a monthly service at a nominal charge in the €2 region, then obtain individual songs for a once off charge of around €1.50, says Mr Whelan. A user can also get multiple ringbacks for different callers.

Ringbacks aren't downloads but are managed at network level - meaning they can be used on landlines and remain firmly in control of the operator, making them very attractive revenue-generators.

"It should be noted that, just last year, waiting tones [ ringtones] worldwide made more revenues than the industry's favourite new service idea, MMS," mobile industry guru Mr Tomi Ahonen said in an interview this week on the Mobile Technology Weblog (www.mobile-weblog.com).

He adds: "My favourite new service last year was waiting tones/ringback tones from Korea. Even with 300 service ideas in my books, I could not foresee these kinds of radically new ideas."

Although ringbacks seem to have emerged quickly from nowhere, negotiating the rights to use songs from the music industry has been, and remains, a convoluted process, says Mr Whelan.

"It took the industry four to five years to understand ringtones and do contracts and deliver content," he says. With ringbacks, companies such as Alatto have to deal with the major recording companies and/or their publishing arm, as well as regional licensing variations, with most companies reluctant to offer current hits as opposed to back catalogue.

"The music industry is failing to embrace this new channel." Then there is the complexity of revenue share arrangements, with 60 per cent usually going to the operators, 12-15 per cent to music royalties companies, and the payments to the publisher or recording company leaving little to spare.

That has spurred the operators to sell low-cost sound effects - including sounds like sneezes and farts along with Star Wars-style whiz-bangery - to circumvent the charges they'd pay to the music industry.

"This failure to make agreements is hurting the music industry the most," says Mr Whelan. But he predicts that, as with MP3 downloads, the industry will eventually be forced to embrace change, ringing up a rosy future for ringbacks in Ireland and elsewhere.