High Revenue Expectations Cited for New Entertainment Product

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SAN FRANCISCO -- Ring tones are expected to grow into a $664 million business by 2006, but the music and telecom industries are readying to rollout a new offering that promises even more revenues: ring-back tones.
The new ring-back service will allow consumers to use music and other custom sounds that callers will hear as they wait for the phone to be answered.

Verizon Wireless, the nation's No. 2 carrier, has signed a deal, one of the first by a major wireless carrier, with two music companies to provide ring-back tones to its customers starting in Southern California and Sacramento and then rolling out nationally over the next few months.

What waiting caller hears

Ring-back tones are what a caller hears while waiting for someone to answer the phone. Although a standard ringing tone has been in use for decades, the new feature allows cell phone users to chose a specific sound a caller hears before the phone is answered. Ring-back tones can be specified for all callers to a certain phone, or by individual phone callers.

"A ring tone you select for yourself expresses musical taste to the people around you," said
Michael Nash, senior vice president of Internet strategy and business development at Warner Music Group, which along with Sony BMG Music Entertainment signed up for the launch. "A ring-back tone is an audio experience you select for an incoming caller to hear before you pick up the phone. It's going to be a really big business. Every major carrier is looking at this space," he said, noting that 35% of all mobile phone subscribers in South Korea used ring-back tones within one year of launch.

Dylan Brooks, president and principal analyst of Independence Research in Telluride, Colo., said the U.S. ring tone market was $79.3 million in 2003, but is expected to grow to $245 million this year and to $664 million by 2006. Already, ring tones provide 40% of data revenue for U.S. carriers, the remainder being wallpaper and games.

Projected annual revenue: $492 million

By comparison, ring-back tones are expected to produce revenue for the carriers of $492 million by 2006, Mr. Brooks said. "We expect a very rapid ramp-up," he said.

Technically, the ring tone capability resides on an individual mobile phone, so the ability to have a simple tone or a more complete sound depends on up-to-date cell phones. Ring-back tones, however, are hosted on telephone service providers' networks, much like voice mail products. Ring-back tones will have a far wider penetration because they can be made available not only to all wireless phones in service but also to landlines.

And, Mr. Nash said, if a friend who calls many times keeps hearing the same song over and over, the friend is going to tire of it and ask for a new song, creating a reverse viral marketing plan of sorts. "The amount of music consumed will be even more than by ring tone services," he said.

The service will cost Verizon Wireless customers 99 cents a month, and a one time fee of $1.99 per ring-back tone. The initial target is the traditional audience, tech savvy young teens and adults, although Jeffrey Nelson, a spokesman for Verizon Wireless, said he expects the service, which will be expanded to include oldies, famous movie lines and other classic content, to reach a broader demographic.

Direct negotiations

The two deals may signal a trend in the mobile music business in that Verizon Wireless negotiated directly with Warner and Sony BMG Music Entertainment instead of going thought the customary third-party negotiators.

Mr. Nash also said Warner will seek to duplicate for the consumer the traditional music store model, where multiple labels and content are available, and will not try to negotiate exclusive deals with the wireless carriers. "It's the only thing that makes sense for the consumer," Mr. Nash said. "We'll compete for share."
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