Ringing IN and Hanging UP by Chris Trayhorn, Publisher of mThink Blue Book, July 1, 2007 In the old days, a telephone came in two designs and had one ring. With the rise in cell phones, the styles are endless and so are the types of rings you can make the phone chime. There are master tones, ringback tones, polytones, monotones and they all have a price. Users can download them over the Internet and program a ring to sound only when mom or that special someone calls. Users can also send a ring out to someone to let them know who is calling. But they aren’t cheap – as much as three times the cost of one hit single from iTunes. But that hasn’t stopped people from buying the tones in droves. The music industry loves that users will pay a premium for the 30-second melodies and still come back for more. What the industry doesn’t like is the Florida Attorney General office, which has it in for certain ringtone sellers over the Internet. Whether or not Florida officials can make a civil case for deceptive practices, the damage is done. When sites such as Blinko.com, Jamster.com and DirtyHippo.com are accused of bait-and-switch tactics by offering supposedly free ringtones that are not free, every ringtone seller over the Internet takes notice, as do consumers. Ringtone affiliates, sites that sell ringtones and networks with ringtone sellers in their lineup are all concerned about the black eye a few misbehavers are leaving on a growing sector of the digital music revolution. “No reason for one very bad apple to ruin it for everyone,” Steve Richter, president and general counsel for Media Breakaway, says. Media Breakaway owns CPA Empire, a network that was at the center of a ringtone firestorm a few months ago when it was discovered that an affiliate’s website offered free ringtones when, in fact, they were not free (the free tones only came with a paid subscription). CPA Empire noted that within an hour of identifying the affiliate’s website, it was pulled down. “We had no idea that this was running,” says Richter. “We took a pretty severe action against this affiliate. Any of our affiliates that are discovered to violate our terms and conditions, we take action immediately.” Tarnished Reputation? Matter closed. Or so it would seem until another online network is targeted. The coverage this issue has received sheds light on the power a few individuals have on the whole reputation of a budding digital music phenomenon and how hard it will be to police the vast reaches of cyberspace. “It’s a highly competitive market and a burgeoning industry,” says David Haverly, senior executive, Mobile Vertical, at MIVA. “It’s very hard to break through.” He says that, “technically there are no free ringtones. But websites must be clear that to get the free ringtones you must buy a few; say 10 or more.” That is what caught the attention of the Florida authorities. The alleged bait-and-switch tactics – when a seller never intends to sell consumers the advertised thing so that it can sell them a more expensive other thing – are pretty much illegal in most states. In the case of Florida, its civil investigation means that the upshot will probably not lead to criminal charges for the companies under the microscope, but can lead to accusations of fraud, which means if someone wants to sue the companies, they could have a pretty good case. “The content provider industry has guidelines to not blur what they are getting,” says Haverly. “Sometimes, in fine print you see that if you sign up, you get the free ones. Our goal is to give a quality experience. We have to say when an affiliate is not clear.” With a ringtone affiliate reaping as much as $15 for every new customer, the incentive is there to cut corners. If more investigations in other states are opened, the reputation of all of digital music sales over the Internet could take a beating at a time when the ringtone market is at an all-time-high. Revenues for ringtones have more than doubled year-over- year, says JupiterResearch. Ringtones brought in about $420 million in 2006 and JupiterResearch predicts the pot will grow to $724 million by 2009. In 2005, more than 24 million people downloaded ringtones to their cell phones; that’s about 13 percent of cell phone users, according to eMarketer. IDC predicts that more than 54 million people will download a ringtone by the end of this year. An Alternative for Record Companies For the record companies, this is good news in the wake of its falling sales of music CDs since 2000. When Nielsen’s SoundScan launched the tracking of mastertone sales in December of 2006 (mastertones are portions of the original recording, whereas polytones are just the melody played by usually a keyboard. SoundScan has tracked polytones since 2004.), the numbers surpassed the sales of single-track songs, and in many cases at three times the price. When the first polytones numbers arrived in 2004, Geoff Mayfield, director of charts at Billboard, has said he was “floored.” The ARC Group in London has predicted that global sales of ringtones will surpass $5.2 billion in 2008 – that’s more than 10 percent of all digital music sales. Internationally, the numbers are equally big. The Wireless World Forum estimates there will be 28 million Indians under the age of 24 with cell phones by the end of 2007, and nearly 15 million in the U.K. That spending on ringtones comes to $23 million by the end of this year. Also, with artists and their labels pulling in less from pure CD sales, other means have to be explored – such as ringtones. David Bowie was one of the first to release unique music to subscribers over his Bowie.net network. Some artists are dipping their toes into ringtone-only releases. Snoop Dog releases ringtones on his website, to name just one artist. “[CD] sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream,” artist manager Jeff Rabhan recently told The Wall Street Journal. Yet some vocal affiliates continue to be wary of the return ringtones offer. One forum poster stated that “I really don’t trust most of the merchants that offer ringtones; their websites have that spyware feel.” He also stated that he had “recently checked my stats and I had a measly amount, which was less than the meager $10 I made last year.” Other voices on the Internet second that sentiment. “Making money with ringtones has never worked for me,” a forum entry states. “I’ve tried the high-paying offers; I tried the low-paying offers. I bought ads with PPC through AdWords and AdBrite and still lost money.” In the short term, affiliates say, the term “free” always gets a higher place in a search engine result and that alone will make it hard to rid the ringtone universe of the “few bad apples.” One affiliate states that “this is actually good for some of the little ringtone affiliate players out there like myself. I always hated complying with the [terms of service] by removing the terms ‘free, no cost,’ etc., from an ad when my competition clearly wasn’t following suit. Makes it a little harder to compete and slims the margins up for a lot of markets.” Another says “all these guys are at the top of search results because their ads get much higher [clickthrough rates] than publishers that are doing the right thing and are staying away from using the word ‘free.'” Leads from ringtones are also at an all-time high, offering no incentive to “fly by the rules.” Some affiliates in 2006 generated as many as 1 million clicks and 100,000 leads through ringtone keywords. The payout per lead has fluctuated anywhere between $5 and $15 per lead. The Search Effect The continued battle for high-ranking ringtone search results has had an impact. Antivirus maker McAfee rates the keywords “ringtone” and “free ringtone” in the top 10 of the most dangerous search terms to use, just after “free screensaver (per chart pg. 62)” and “Kazaa.” Clicking through to sites resulting from these searches is more likely to send the user to questionable sites or install adware or spyware, McAfee states. On e of the most popular “scams” is a “free” tone site that checks a terms of service box for you when you enter your phone number. The terms of service state somewhere that you agree to a subscription price to receive the free tones. When users try to uncheck the box, they can’t. Some ringtone affiliates have said that when they use Yahoo Search Marketing, the titles and descriptions in the ad are sometimes changed to what Yahoo Search Marketing perceives is still an accurate description. The affiliate may bid on the term “free realtone” but submit copy that leaves the “free” out. Then Yahoo Search Marketing will reinsert the “free” since that was in the keywords they bid on. The affiliate doesn’t see the change until it gets served up. In some of these cases, the affiliate will immediately cancel the campaign when they see the mistake. Sometimes, not. Other questionable techniques include using a ringtone company’s images and logos to build a unique landing page that goes to a completely different destination when consumers go to sign up. Some advertise MP3 ringtones that are, in fact, lesser monotone files. Ron Czerny, CEO of PlayPhone, has had experiences with bad ringtone affiliates on his network. “We are very active,” he says. “We are constantly monitoring our affiliates. We take action in 24 hours if we find bad apples and we will report them to the carriers.” The cell phone carrier may pull their short code, he says, which means that the connection between the affiliate’s ringtone servers and the customer will be cut off. “This kind of thing happens in all entertainment areas,” says Czerny. Government Intervention It happens with piracy in movies and music, he says, adding that the slowdown in ringtone sales in Europe in 2005 and 2006 was because of “bad customer experiences” with fraudulent ringtone sellers. What was done in a lot of European countries was the carriers imposed regulations that sellers were required to meet before they could sell ringtones. Czerny says the market over there has bounced back. “[Regulation] is not going to happen in the U.S.,” he says, “because companies like ours are taking that right action,” adding that the bigger companies have a stake in making it work. He says that consolidation is playing a role in weeding out the troublemakers. “We will see consolidation in the top 10 businesses,” he says. “A lot of small ringtone companies are using the backbone of larger ringtone companies and are just simply giving up.” He says the larger market will be in China. Brazil and Mexico have proven they have many willing to pay for tones. Innovations, he says, will come in the way people share the ringtones and not in the tones themselves. As with the online lead generation industry, the perception and the practice need to mirror each other. The top online lead generation firms formed an association last year to help monitor their industry and set guidelines. Currently, ringtone sellers want to keep the market unregulated. “You must have communication with the network,” says MIVA’s Haverly. “We schedule weekly calls with some of the affiliates,” so that the lines of communication are always open. He adds that if a drugstore runs a two-for-one ad for aspirin but you have to pay full price if you want Excedrin, is it a misleading ad? Does the fact that it might be perceived as fraud warrant the government or the cell phone carriers to step in? Who is going to make the judgment call? PlayPhone’s Czerny says the government will not step in. “It will not come to that.” Richard Jesty, an analyst at ARC Group, states that ringtone sales will also see a slowdown in the U.S., but not because of fraud. “Over time, the novelty will wear off, but not yet.” Filed under: Revenue Tagged under: 18 - July/August 2007, CPA networks, Customer Experience, Downloads, Features, Fraud, Lead-gen, Mobile, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.