Monday, November 21, 2005

The Ringtone Riddle

The Wall Street Journal pens another article asking the $64,000 question - are consumers dumb enough to shell out $2.49 for a full track music download as they have been doing for ringtones? The carriers and music industry are obviously hoping so.

According to the Yankee Group, "ringtones will probably be a $500 million business in the U.S. this year and a multibillion-dollar business globally. That makes them the third most-popular wireless application behind talk and text-messaging. This spring, Yankee Group found about one-third of U.S. consumers had at least tried to download a ringtone; when asked what wireless service they'd spend money on each month if they additional cash, 13-17-year-olds chose ringtones above all else, and ringtones were the #2 choice among those 18-24."

However, as analysts point out, ringtones arevery different than music downloads. Charles Golvin at Forrester Research said, "Aside from the fact that they're built on music, they really have very little to do with one another.". Yankee Group's Michael Goodman added, "ringtones are about personalization. Music downloads are about entertainment."

The article notes Apple's iTunes helped set the 99 cent price level for music downloads to help stem the tide against illegal downloads and P2P services. Goodman said, "Hate it or love it, it is a fact of life. Anything you do in developing your business model has to take that into account."

Goodman thought "there is no market above 99 cents," and cites a Yankee Group study that found "consumer interest in buying a song download dropped 60% if the price rose from 99 cents to just $1.19."

Goodman note that at "$2.50 per song, an album would cost a whopping $25 to $30." He remarked "Given those dynamics, I don't see how you could possibly think you could get away with a $2.50 price point."