Mobile music will thrive despite ringtone dropoff

“They are network specialists who control the customers but are not experts in marketing, packaging and selling music to the public,” Holden said via email. “It’s taken the arrival of the iPhone to galvanize the market. Incidentally, I think that now that iPhone 3G is offering downloads via 3G networks – as opposed to just WiFi – we will see the prevalent model for that device – sideloading from the PC – turned on its head, and we should see far, far more iTunes purchases from the iPhone.”

AT&T has benefited from Apple and its iTunes synching of the iPhone, but the carrier’s own music approach has grown significantly as well. Although the last carrier to join the mobile music movement, AT&T took it on with full force, partnering with Napster to offer its 5 million tracks and eMusic for another 2.7 million songs from artists on independent labels. AT&T supports fully mobile versions of the companies, as well as their online business, through sideloading. AT&T also has agreements with Yahoo Music, XM Satellite Radio, Music ID and several third parties including Groove Mobile.

Despite Juniper’s findings, ringtones remain the biggest mobile music revenue generator for AT&T, according to Mark Nagel, AT&T’s director of music and personalization products. With all the ringtones AT&T has sold for popular recording artist Lil’ Wayne alone, Nagel said it has at least covered the company’s costs.

“Ringtones are the biggest in terms of actual sales, but we are seeing a lot of nice momentum with ringback tones, answer tones, and just having launched these full-track services with Napster,” he said. “It’s hard to tell yet, but we are seeing nice momentum.”

It’s that same younger demographic purchasing ringtones and ringback tones from AT&T that is most heavily invested in full-track mobile music, Nagel added. These users have demonstrated a keen interest in sideloading their existing, typically robust music catalogues on the PC to their iPod or other music device. Like Verizon, AT&T is banking on consumers wanting to get that song wherever they are to make the mobile subscription service as compelling.

“It’s a new service, and articulating the value of subscription takes time to sit down and figure out what it’s all about,” he added. “When people have tried, we’ve seen great stickiness around the service. But getting over that first hump of trying a subscription service takes a leap. That will change over time as it becomes more prolific and customers begin to understand the value. But the reality is it’s a new way to consume music, so it takes time.”

More than full-track downloads or streaming music, Holden expects ringback tones to actually have the most potential to provide operator gain, but to date, more than half of ringback tone revenue is derived from China alone. Ringback tones will overhaul ringtones in terms of global revenue generated by 2010, he said.