The New Sound of Music:

Ringtones, the Celestial Jukebox and the Mobilization of Media

In his mind's eye, Shawn Conahan envisions a music library that stretches into infinity, its limitless holdings encompassing songs old and new, legendary and obscure - Bach to Beatles to Britney and beyond. He calls it the celestial jukebox. The music would reside in the ether, available to anyone, anywhere, anytime. And every last guitar solo, trumpet flourish and breakbeat would be accessible via wireless device.

"My vision is that someday you'll be able to reach into the sky and pull down entertainment content wherever you are, no matter the device," said Conahan, who is president of Los Angeles-based mobile entertainment provider Moviso. "Your mobile device is the next frontier for the consumption of popular media. It's always on and always with you, and most importantly, it's a network device in the same way computers are network devices. But it's also location-aware, and what that does for media consumption and sharing boggles the mind."

The celestial jukebox is the hypothetical endgame of the mobile music revolution, a future where wireless networks and devices enable consumers to control all facets of the listening experience from the palms of their hands. Here in late 2003, ringtones - those digitized handset melodies that are loved by so many and loathed by so many more - represent that revolution's opening salvo. If the celestial jukebox is mobile music's ultimate destination, then ringtones are its first step on the stairway to heaven. Yes, ringtones are simple, cheap and disposable. They are also irrefutable proof that consumers will spend good money for music content over wireless networks.

Ringtones are the bedrock of the mobile music market in its current embryonic state - a billion-dollar industry in Japan and Europe, they typically range in price from 99 cents for monophonic tones to about $2.50 for higher-quality polyphonic versions. According to research firm IDC, U.S. consumers purchased 4.8 million ringtones in 2002, translating to $16.6 million in revenue. IDC projects that in 2005, U.S. consumers will download 30 million ringers, accounting for $404 million in sales.

Ringtones already are outpacing traditional forms of music revenues: While the top-selling single in the U.S. during the last week of September, rapper Lil' Kim's "Magic Stick," moved 7000 retail units, Moviso sold 17,000 "Magic Stick" ringtones over the same period. For the wireless industry - not to mention a music business decimated by falling sales, which record labels blame on the explosion of online file-sharing services - the potential clearly is enormous.

"Ringtones are the new single, and if airtime helps promote an album or a single, then ringing phones represent the new airplay," Conahan said. "We're seeing a fundamental paradigm shift that is no less important than the shift from radio to the Internet."

The dream of the celestial jukebox is Moviso's raison d'etre. But for the time being, ringtones are its bread and butter. The company is the biggest mobile media publisher in North America, boasting the industry's largest catalog of entertainment content, copyright licenses to more than 100,000 songs and an extensive list of partnerships with wireless carriers, device manufacturers and media organizations. "We have a 70% market share," Conahan said. "I like to tell people that if they hear a custom ringtone, there's a 70% chance it's one of Moviso's."

Conahan began his professional life about as far from music as you can possibly get. "I was an engineering consultant. I started my career flying in helicopters with [topographical] maps," he said. "But music is universal. Everyone is a music fan."

For Conahan, music literally was Universal: When he eventually left engineering, he joined the IT division of what is now NBC Universal, the name bestowed on the worldwide media conglomerate following General Electric's October 2003 acquisition of Vivendi Universal Entertainment. In 1999, Universal dispatched Conahan to investigate online music company MP3.com.

"I was sent to the MP3 Summit to see whether it was an opportunity or a threat," he said. "I realized instantly that this was ground zero for a revolution in the music industry. I gave two hours' notice and was down there working at MP3.com the very next day."

In mid-2001, Universal acquired MP3.com for $372 million, and Conahan was authorized to either develop a mobile media solution or find an existing solution Universal could buy. He found a company called Premium Wireless Services, founded in 1994 under the name Global Music One by current Moviso chief strategy officer Anthony Stonefield and chief technical officer Shane Dewing.

"Global Music One was a technology think tank," Dewing said. "Our mission was to solve the technological and business issues around publishing content on digital networks."

In mid-1995, Global Music One partnered with AT&T Labs to launch the industry's first commercial digital music delivery platform, producing, distributing and managing content for record labels including Atlantic, Capitol, Geffen, Interscope, RCA and Virgin. "Then along came MP3.com and Napster," Dewing said. "They killed our business model."

Global Music One went wireless in 2000 when it launched ringtone portal YourMobile.com. Later that year, Cingular Wireless approached Global Music One to create a branded content portal, prompting the company to spin off Premium Wireless Services, a private-label mobile media application platform for wireless carriers, entertainment companies, handset manufacturers and retailers.

When Universal bought Premium Wireless Services in 2002, the company renamed itself Moviso - an abbreviated amalgam of Mobile, Vision and Sound - and Conahan was appointed its president.

"The strategic decision we made was to follow a B2B model - we figured it was better to join with carriers than to try to beat them," Conahan said. "Our motto here is, 'Keep your head down and run like hell.' There's no strategy that works today other than speed."

What Moviso offers those carriers - Verizon Wireless, AT&T Wireless, T-Mobile and Cingular Wireless are all clients - is an application services provider-based turnkey solution that includes not only its technology platform but also content creation, portal operation and customer billing. Moviso also serves as a critical intermediary between carriers and the music industry.

"We are the platform for major carriers to deliver content - we support the business the carrier wants to do with the record label and generate our revenue off the service provider and the infrastructure," said Mark Levy, Moviso's vice president of publishing. "The labels are learning it's not easy to service the mobile community - there are fast technological changes, and no device standards whatsoever, so to understand all that and be able to maximize the value of a copyright, it's best to partner with a company like ours."

Ringtones have found their most appreciative audience among the 18-to-24-year-old demographic - the sweet spot of the consumer population.

"Ringtones are integral to our business vision," said Howard Handler, chief marketing officer of youth-targeted virtual network operator Virgin Mobile USA, another Moviso client. "Virgin is predicated on giving young people the wireless experience they would draw for themselves if we gave them a clean sheet of paper. Music is an enormous part of that experience."

On a philosophical level, Moviso offers carriers an opportunity to capitalize on one of the great human paradoxes: the mass appeal of individuality. Ringtones enable users to personalize their phones to their own specific tastes - they are as much a manifestation of a customer's lifestyle and sensibilities as a concert T-shirt or a bumper sticker.

"We're not selling music - we're selling a representation of a song someone has heard and made an emotional connection with," Conahan said. "The ringtone is an expression of their personality."

Selling ringtones is easy - creating them is the nightmare. According to Levy, the first step is contacting the publisher, which represents songwriters and licenses music for use in films, ringtones or other media channels. There are five major publishers in the U.S. - EMI, Universal, Sony/ATV, BMG and Warner/Chappell - and about 26,000 altogether. Clearance can take a few minutes or a few days, depending on the song, the publisher and the number of composers involved, Levy said.

That last element is particularly important. The most popular and lucrative ringtones at any given moment reflect mass-market tastes, which means hip-hop is the dominant form of music not just on radio and at retail outlets, but also on wireless devices. The problem for mobile content developers is that, more than any other kind of music, hip-hop rights are often ridiculously labyrinthine.

For example, in the case of a P. Diddy single built on melodies, basslines and beats sampled from other recordings, there can be dozens of different composers credited with the finished product, and Moviso must clear 100% of a song's rights before it can create a ringtone. Also, not all songs are even up for grabs: Some artists refuse on principle to license their music for ringtone consumption.

"It's very complicated, but we've been very persistent," Levy said. "We went to the publishers early, and over time we've continued to show them innovation as the business has grown. They've become much more responsive. They've seen growth that leads them to believe mobile music is going to be their future, but it definitely took some wrangling in the beginning."

Once the rights issues are resolved, Moviso creates ringtones in a variety of different musical instrument digital interface (MIDI) files for playback across a number of wireless network standards and handset protocols. "Each handset has a different format it will support, and that results in different nuances in the creation of a MIDI file," Dewing said. "Even speaker placement and the weight of the handset are factors in creating a MIDI file that sounds good."

According to Dewing, Moviso will create as many as 25 variations on the same ringtone to address 15 different wireless standards and user interfaces, as well as close to 300 different handset models.

Low-fidelity, electronic monophonic ringtones have fallen by the wayside thanks to the richer media capabilities of today's next-generation handsets. The current rage is polyphonic ringtones, which incorporate a series of tones performed by real voices and real instruments.

"It's a much more musical, straightforward experience," said Jeremy Copp, chief sales officer with Beatnik, whose Beatnik Audio Engine is the de facto audio standard for mobile devices. "Now we can use real instrument samples, and hear a greater differentiation between instruments. There's real depth."

Some 50% to 60% of handsets in the U.S. market are now equipped to download ringtones, and with industry observers projecting strong holiday sales for next-gen handsets, logic would suggest that 2004 should represent a banner year for multimedia applications.

"Users are now looking to their wireless carriers for entertainment, and in 2004, we're going to see a very Japanese/European-like ramp-up in our industry," said Paul Towler, vice president of sales for mobile content provider Ztango. "The expectations on the part of the operator are significant - they are talking about downloadable content as a significant part of their [average revenue per user]. They recognize there is significant money to be made and an opportunity to extend their brand reach into areas of the marketplace where they haven't been involved in the past."

Wireless carriers are already moving past ringtones into additional music applications like streaming audio clips, animated content, album cover screen savers and artist information. "We're looking to take consumer habits and behaviors, and move them from online to the in-hand experience," said Jeff Hallock, director of consumer marketing at Sprint PCS. "We understand that consumers want to have a full relationship with their favorite artist or band."

But handsets and content are only parts of the mobile music equation. For ringtones to achieve critical mass in the U.S. - and for more complex mobile music services to establish a consumer foothold - carriers must upgrade their existing networks.

"Most handsets that are able to decode music or video are like little islands that no one can reach because networks don't offer the necessary bandwidth or speed," Conahan said. "Build me a high-speed network, and I promise you I will be the king of mobile media."

The celestial jukebox will require more than just higher-bandwidth networks and Frankenstein-like devices complete with voice, data and MP3-quality music download and playback capabilities, however - it will also need the full cooperation of a record business now mired in lawsuits against users of free file-sharing sites and their ISPs.

What's somewhat surprising, given the full-frontal assault record labels have mounted against online file-swapping services, is that the music industry is for the most part embracing the possibilities of mobile music. The distinctions between online music services and wireless music services are critical: Unlike CDs or digital music files, consumers can download premium mobile content regardless of time and place, with the resulting cost discreetly tacked onto the subscriber's monthly phone bill. Also, in an era where MTV rarely plays music videos and commercial radio playlists are virtually impenetrable, mobile devices offer a new channel to expose listeners to developing artists and potential hits.

But most important, wireless network activity is carefully monitored and controlled by carriers, guaranteeing that while a library of rich media files created for download and distribution over mobile devices is not only possible but likely inevitable, it will never fall prey to the Napster and Kazaa online models whereby users exchange free, unlicensed and pirated content.

Likewise, applications developers and handset manufacturers can add checks and balances to their products to restrict premium content to playback only on the device that received the original download. In short, the inmates will never run the asylum. (For more on the recording industry's take on the mobile music phenomenon, see the sidebar that begins on this page.) "The future is about sharing," Conahan said. "Every product Moviso releases has to meet three stringent criteria: It has to offer some level of personalization, it has to be mobile-relevant, and it has to leverage the network effect of mobile devices."

Conahan said Moviso is a few months away from launching an application enabling users to forward and share ringtones across rival carrier networks. The process will require Moviso's server to determine which iteration of the ringtone format is appropriate for the phone receiving the download, and when the information passes through the server, it hits Moviso's digital rights management system as well, ensuring that royalties are tracked and paid to the appropriate party.

"If you're a T-Mobile customer and you send a ringtone to a Verizon customer as a gift, the revenue share goes to T-Mobile," Conahan said. "If you send your friend a preview, with the option for them to buy it themselves, then the revenue share goes to Verizon. In both cases, the network operators are making SMS money as well."

Even once carriers' networks open and evolve, a host of other issues spanning from battery restraints to interface functionality also must be addressed, but most industry observers agree that the celestial jukebox does exist somewhere on the horizon. The stars simply must align.

"As the processing power and memory imprint of mobile phones increase, some will have MP3 capabilities," said Stuart Dubey, CEO of mobile content developer AIR Media. "But it's going to be awhile before you have an over-the-air service that is user-friendly."

For now, the celestial jukebox will remain a glimmer in Conahan's eye. But other wireless entertainment providers are entering the market that have followed his mandate for expanding the mobile music experience. One such company, Xingtone, has devised a software solution that enables consumers to create their own ringtones.

"My taste in music is really obscure - I don't want the latest, greatest hits, and there's no Devo available as a ringtone," said Xingtone co-founder and CEO Brad Zutaut. "I figured there are a lot of people like me, and they wanted their phones to ring with their favorite songs. The only way they could do that is if they made their ringtones themselves."

Xingtone's software allows users to pull digital audio clips from their PCs' hard drives, adjust and massage the clips to their own specifications, and upload the end products to their mobile phones. Further breaking with the traditional ringtone business model, the company charges users a one-time $14.95 fee for the software, with no additional costs per ringtone. "Consumers used to have to spend a dollar or three dollars per ringtone," Zutaut said. "But with our software, there are no limitations."

And here's the biggest selling point of them all (not to mention the most surprising): Assuming the user has paid for the music content in question, the Recording Industry Association of America has already stated that Xingtone's software falls within its definitions of fair use for copyrighted material - in fact, according to Zutaut, the organization is very much in Xingtone's corner.

"The music industry has not made a dollar on ringtones, and only a small fee is paid to the music publisher," Zutaut said. "Record companies look at us and say, 'Now we can sell our ringtones ourselves' - they're very interested in taking control of their content without a wireless carrier or content aggregator to intervene. Music should be promotional - after all, people hearing samples of music can only benefit the record industry."

Another start-up, MusiKube, offers a service enabling consumers to identify and purchase a piece of music via mobile device. The phone captures a 10-second audio clip of music as it is played over a car radio or tavern's jukebox and sends the clip to MusiKube's servers, where it is compared and analyzed against the 2 million recorded tracks in the company's database. Once the recording is identified, the user is mailed an SMS detailing the artist and title, related album information and instructions on how to buy the CD in question.

MusiKube CEO Ashley Heather said the recording industry is supportive of his company's plans as well: MusiKube has already secured the necessary copyright and distribution clearances from all the major U.S. record labels. "We help labels to promote their music much more effectively," Heather said. "Our concept is to help execute the impulse purchase of music. We believe people will pay for services to find the music they want. The music business is missing a trick in the impulse buy - they've made it too hard to buy music legally, and American society is all about impulse."

And for the mobile music market to succeed, it must reflect the society it serves. Like the old showbiz adage says: Give the people what they want. Today, they want ringtones. Tomorrow...who knows?

"Mobile music is a channel that's still developing - people don't know yet who the major players are and the links that need to be made," Conahan said. "My aim is make Moviso a one-stop shop for mobilizing everything. Truly visionary media companies have the opportunity to shape the future."

The Patron Saint of Mobile Music

Thomas Dolby Robertson has long blurred the lines between entertainment and technology. In 1982, he launched a pop music career with the album "The Golden Age of Wireless," which generated the New Wave classic "She Blinded Me with Science." A decade later, he founded Beatnik, which creates audio solutions for mobile handsets and digital devices. Robertson is now president of Retro Ringtones, which specializes in sampled master recordings of radio hits, movie sound effects, video game themes and other content. Wireless Review asked Robertson to analyze the past, present and future of the market he helped create and shape.

On obstacles facing the market: Rights clearance is a nightmare, especially in countries such as Germany where each song has to be individually cleared through its publisher. There needs to be a reconfiguration of copyright fees and collection procedures. Also, maintaining multiple versions of each ringtone for different handsets, networks and customers creates a huge production chore. Few tools are available to speed up the process. The arrival of 'sampled' ringtones has made matters worse - there are more clearances to get, and more formats to learn. But all of this favors the new larger international ringtone companies, which are better equipped to partner with huge consolidated carriers.

On the U.S. mobile music market: It got off to a slow start because of the lack of a standard delivery method. In Europe, SMS was the standard way to do text messaging and was adopted as the method of delivery for monophonic ringtones. U.S. users are not yet in the habit of downloading ringtones. And more people in the U.S. have cars and PCs at home with fast Internet, so the ringtone fad has never had a chance to spread virally. Furthermore, U.S. users are resistant to the 'rinky-tinky' ringtones that have been popular in Japan and Scandinavia. But this all may change rapidly now that picture messaging is so popular in the U.S., and with the arrival of 'sampled' ringtones which sound much better to American ears.

On the future of mobile music: Ringtones will take over the role of singles, which always provided the music industry an effective way to deploy new songs and launch new artists to millions of people - making a little bit of money but, more importantly, getting users hooked on new music so they had to come back and buy the high-margin product (a CD!). Your cell phone will be like a remote control for your personal music collection, allowing you to preview new music and share it with your friends. You will purchase the stuff you like as a mail-order CD or digital download to your PC, and discard the rest. But it will be a couple or three years before your phone can download and store all your music the way your iPod does: Bandwidth is still too expensive and download times too long.

On his newest venture: We do a lot of special projects for carriers, record labels and phone makers. We helped Vodafone launch their Live! service in Europe by turning the brands they sponsor - like Ferrari Formula 1 and Manchester United - into ringtones. We made a set of Justin Timberlake tones for Motorola when he toured Europe. We are about to launch a library of Endangered Species Mating Call ringtones in the U.K., featuring real recordings made by famous bird recordists. Currently we are working on a set of ringtones for the Nelson Mandela 46664 concert in South Africa in November. In addition, we have the best categories of 'evergreen' ringtones, such as TV and film themes, air guitar riffs, sci-fi sound effects and the like. All this makes Retro very immediate and attractive to consumers, and a valuable partner for the top global carriers.

ON THE WEB

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