Users of the Internet phone application can buy more ring-tones
Users of Skype’s popular VoIP (voice over Internet protocol) application can buy a greater selection of ring-tones under a deal the company has reached with four music publishers, it said this week.
The agreements, announced lately, are with EMI Music Publishing, Sony/ATV Music Publishing and Warner/Chappell Music. Skype also signed a deal with the MCPS-PRS Alliance, a U.K.-based organization that collects license fees and distributes royalties generated from recorded music.
Skype’s new license agreements allow the company to distribute ring tones from Warner Music Group artists. Skype users can use the ring tones on their PCs or smart phones running Skype software for playback when they receive incoming calls.
A plan to sell ring-tones may be a low-risk ploy to whet users’ appetites for a raft of more lucrative VoIP-based entertainment services.
Madonna had the right idea when she sang, "Ring, ring, ring goes the telephone" in her song Hung Up. Before long, that tune could end up alerting users of Skype, the Web-based phone service, that their phones are ringing too.
Building a Catalog: Skype, which boasts 94.6 million users worldwide, will start off by selling a handful of ring-tones through its content store, www.personal.skype.com. The tones will sell for $1.50 each in the U.S. and for €1.50 in Europe. The company plans to quickly expand its ring tone catalog, which could eventually encompass hundreds of thousands of titles. Skype also hopes to license content from other music recording companies and publishers.
In January, the company struck a deal with Warner Music Group, which distributes music from artists such as Madonna, Green Day and Red Hot Chili Peppers, to sell snippets of songs as ring tones. But in order to sell the ring tones, Skype also had to obtain separate agreements with music publishers that own the copyrights to those songs.
The agreement between Skype and the music publishers is important, because it is the first time music-publishing companies that own copyrights to songs have given licensing permission worldwide. Previously, licenses were granted only for a particular region or country.
The deals mark a major expansion of Skype’s ring tone efforts, which got under way last year. Until now, the personal.skype.com store has only offered a few customized, jazz ring-tones. But Skype is dabbling more in music. It recently gave users an opportunity to call and leave messages for the band Coldplay. The online store’s Extras for Skype section offers a dozen free music-related applications, created by independent developers with nifty capabilities such as getting the home computer to call the user via Skype and play a favorite song from the PC.
Pushing Downloads: Full-blown music downloads could be a huge revenue opportunity for Skype, which is expected by analysts to generate $200 million in sales this year. The digital music download market is growing fast. While today Web downloads account for only 6% of the total music market, within five to six years they will grab one-third of all music sales, says Stephanie Guza, an analyst with consultancy In-Stat.
Currently, iTunes dominates the market with more than 65% share. But rivals Napster and Rhapsody are bumping up their efforts. And Internet brands such as Amazon and Google are rumored to be readying their own music download services.
Analysts reckon ringtones may be just the first steps by Skype into a range of Internet Protocol (IP)-based entertainment services. "A natural follow-up would be gaming and video offerings," says Marianne Wolk, an analyst with Susquehanna Financial Group. "Plus, I look at full-track music downloads as a given."
More Music: While Skype says it has no plans to compete with Apple’s iTunes, Wolk is unconvinced. Wireless service companies used ring-tones to test the waters on over-the-air entertainment services for cell phones. The test was successful and paved the way for the introduction of mobile games and video.
Last year, mobile ring tone sales exceeded $4 billion worldwide, and in 2005, U.S. carriers introduced full-track music services. Might Skype retrace these steps as it expands its entertainment services offerings? Analysts say the chances are good.
Initially, only Skype users in the U.S., the United Kingdom, Ireland, France, the Netherlands, Belgium and Poland will be able to download the Warner Music Group ring tones. But within a few weeks, the rest of Skype’s more than 94.6 million registered users’ worldwide will able to download the ring tones, the company said.
Skype has already demonstrated interest in expanding into cell phones. Already, applications from developers like iSkoot have enabled cell-phone users to make cheap calls via Skype. Skype is establishing agreements with carriers in Asia to make its application standard on their phones. As the company’s wireless efforts ramps up, it will make sense for Skype to sell ring-tones for cell phones. Skype might also become a player in the market for mobile video, says Jon Arnold, principal for VoIP consultancy J. Arnold & Associates.
Crowded Spaces: The effort could be part of eBay’s strategy to accelerate revenue growth. The auctions powerhouse has yet to figure out how to make money on Skype which, for most users, remains a free service.
Plus, Skype needs to keep up with rivals like Google, Yahoo!, and Microsoft’s MSN, which have entered the Web-calling space. But unlike Skype, Yahoo! and MSN already sell full songs. They also offer lots of online games and videos.
Late last year, Google launched Google Music, designed to make searching for artists easier. Earlier this year, Google announced it would be powering search on radio stations’ Web sites for Clear Channel (CCU), another sign that could mean the search giant is gearing up for a digital download service.
Essentially, any strong Internet brand could potentially do well in selling music downloads, says Alan McGlade, CEO of MusicNet, whose technology powers MTV’s music store, expected to launch soon. The outfit is in talks to provide similar capabilities to numerous other companies, he says. "There is more interest than ever, we are so busy, and it’s hard to keep up. You are going to see a lot of companies enter the marketplace."
Teen Tones: That said, most analysts do not expect VoIP ring-tones to be as successful as wireless ring-tones, the best-selling type of wireless entertainment content. Cell-phone ring-tones have appealed to teenagers, but Skype and its ilk tend to attract older users, says Vamsi Sistla, an analyst with consultancy ABI Research. "Your wireless phone is a statement about you," says Tole Hart, an analyst with consultancy Gartner. "But when you are at home or work, where most VoIP calls are made, you might not care about making a statement."
What is more, $1.50 could prove a bit pricey for Skype users. Most online download services charge only 99 cents to download a whole song. And while Skype ring-tones will be cheaper than the $2.99 Verizon Wireless charges for one-time use on regular cell phones (rates go up for prepaid phones), most of Skype’s VoIP customers use the service to save money, so they might not be willing to fork out more for ring-tones, says Arnold.
In an earlier report, several publications, including the New York Post, wrongly stated that the agreements Skype had obtained would be used to launch an online music store that would rival Apple Computer’s iTunes.
But a Skype representative denied these claims.
"We would not be selling full songs," said Erica Jostedt, a spokeswoman for Skype. "There are no plans for selling music online other than in the form of a ring tone."