Labels Reach Out And Touch Wireless Services

In search of additional revenue generators in the face of declining sales of prerecorded music, the major labels and their parent companies are more aggressively pursuing business opportunities in wireless entertainment and related services.

In the latest case in point, Sony Music Entertainment has acquired New York-based wireless entertainment company Run Tones Inc. The major is using the purchase to launch a division specifically focused on content and services for mobile phones and other devices. Financial terms were not disclosed.

The Mobile Products Group will be responsible for the expansion of Sony Music's global wireless efforts, which currently include ring tones and album previews; this includes overseeing the Run Tones brand and business.

Run Tones currently operates ring-tone service RUNtones and personal photo service RUNpics. The company also offers a range of business-to-business services.

"What we see going forward is really an explosion—in the U.S. and elsewhere—of new handsets and new technologies and new capabilities, which offer much richer promise in terms of the kinds of audio and imaging and other types of content that can be delivered to the phone," says Thomas Gewecke, senior VP of Sony Music Digital Services (SMDS), the new name for the major's technology group.

Sony is hardly alone in seeing such growth potential.

Warner Music Group (WMG), chasing a similar market, has launched a new promotion and commerce service on AT&T's wireless services platform.

"Wireless companies need music to showcase their new data services platform," says Michael Nash, senior VP of Internet strategy and business development at WMG.

WMG will enable consumers to buy ring tones (some of them higher sound quality, "polyphonic" ring tones), stream-free song clips, and artist audio messages; download artist images; send music links to other AT&T users via text messaging; and connect to amazon.com to buy CDs. Ring tones vary in cost from 99 cents to $1.99.

WMG executives and the other companies involved in the initiative say that in the short term, they view the AT&T wireless offering largely as an information and promotional channel. But they note that the deal helps lay the groundwork for future mobile-commerce opportunities.

Labels and related wireless entertainment services companies say they see a big opportunity in ring tones.

Indeed, beyond the Warner content, AT&T has a whole music-entertainment platform for mobile-phone users. It also features editorial and metadata from listen.com's Rhapsody and Upoc Music, a specialist in hip-hop-related programming; recommendations from amazon.com; and info on live radio playlists from more than 1,000 stations across the country via a service known as Now Playing on YES.

Some studies estimate that more than $1 billion was spent on ring tones in Europe last year; and additional research estimates 1.5 million-plus ring tones are purchased on the Internet each month in North America.

And the market is theoretically only growing. According to some studies, the youth mobile-phone market is expected to double in size in 2003, to more than 49 million subscribers.

"We feel we're on the cusp of a much faster growth rate for these services in the U.S.," Gewecke says. "The thing we're really encouraged about is that historically there haven't been that many handsets in the U.S. that could even support a basic ring tone or graphic and there are a lot more out there today."

J.J. Rosen, VP of mobile technology for SMDS and chief technology officer of Run Tones, points out that the U.S. market is now poised for growth with the rise of integrated billing.

"The ideal way to bill here in the U.S. is integration into the customer's monthly phone bill," he says. "It's only very recently—in the last 12 months—that the carriers have solved those problems."

Also looking to capitalize on that market is Moviso, a mobile-phone services business owned by Vivendi Universal Net USA that has launched a new prepaid debit card allowing consumers to buy ring tones.

Initial distribution for the cards will be through more than 6,000 stores nationwide, including 7-Eleven convenience stores and Wherehouse Music.

Universal Music & Video Distribution will provide distribution services. Prepaid cards are $4.99 each and available on most handsets from AT&T, Cingular Wireless, and T-Mobile.

Movisio says early trials indicate that consumers purchase and change ring tones twice as often—from an average of three purchases per month to more than seven—with the use of retail offerings like prepaid cards.

Likewise, third-party services operating outside the label system are chasing this growing segment of consumers. Zingy, a provider of ring tones and other mobile entertainment services, has cut a deal with Microsoft to have its service carried through the mobile version of its MSN Internet service.