Ringtone Shakeup – Part 1
If asked what an unknown article in the DMConfidential might cover, longtime readers as well as significant others to writers of this publication might guess any of the following – a) Google, b) search arbitrage, or c) the ringtone market. Call this one predictable then, but it covers two of the three directly, Google and ringtones. More than that though, call this the story we knew would happen, but we didn’t know when. What we’re about to report is not good news. We discuss what amounts to nothing short of a dramatic change in the way much of the ringtone market works. From a performance marketing standpoint, if you did email you ran the various subprime offers – credit cards, pay day loans, and other financial services. If you did paid search, you ran ringtones. Like the subprime offers, they appealed to a broad audience, had a relatively high cost per acquisition, and converted well, a part of which was due to the flexibility allowed to affiliates to customize the look and feel. Unlike many other offers, ringtone offers cost money. And, when there’s money involved, especially when it’s perceived as easy money, there comes scrutiny. It has happened with secured credit cards (a company was even briefly raided and shut down) and it has begun with ringtones.
Current State:
No different from Columbia House, ringtone offers revolve around a subscription service. Consumers sign up for the service because of an incentive, and the end advertisers monitor the length of their stay to determine what they will pay for a new user. When it comes to ringtones, the end buyers – companies that have structured deals with both the cell phone carriers, i.e., Verizon, T-Mobile, at&t, etc., and the content providers, i.e. Universal Music, generally charge a fee of $9.99 per month to the user. The subscription service providers, referred to as "off deck" marketers because users purchase content via the web as opposed to the built in menu on their phone, split almost 50% of the billable amount with carrier. Let’s say you bought a ringtone through your phone. You would pay 1.99 per tune. These services entice you to sign up by offering you the equivalent of 10 to 15 tunes for the price of five tunes. It’s not a bad deal if you like your music and stay active in the service. Unfortunately, many users, or at least those on the side opposed to the current marketing methods, would argue users sign up without a clear understanding of the service or the price. As a result, many will leave after the first month. If all users stayed on the service for six months, then a company would make (6 * (.5 * 9.99)) or roughly $30 per user. That isn’t the case though. Like a radioactive isotope, users fall off each month.
For a company to pay $15 for a new user means that all users must stay a little more than three months for the company to break even. As mentioned, though, that doesn’t happen. Because users constantly fall off, in order to simply break even at a $15 payout, a company usually must wait six or more months. Given that they must pay the marketing company / cpa network a few dollars on top of that, all of the sudden they often must wait close to a year before breaking even. And to think affiliates complain when they get paid longer than fifteen days after the month. Imagine spending millions each month only to receive a fraction of it at a time. That said, these companies have made it work, and so too have affiliates. Of all ringtone subscriptions generated online, upwards of 60% come from affiliates (via the CPA networks such as Azoogle Ads, CPA Empire, Primary Ads, etc.) as opposed to the direct to consumer marketing by the subscription providers. And, when it comes to affiliates, they’ve signed up new users on the companies’ behalf not by promoting the brands directly but generally starting users off at what has become known as carrier pages.
The ringtone subscription providers, companies such as Dada Mobile, Blinko, Playphone, and Thumbplay to name a few, much like any company, excel in certain areas more than others. One company might know how to monetize users from at&t better than the other, whereas one might not even accept users from T-Mobile. Over time affiliates realized the strengths and weaknesses of a particular provider and started to adjust their traffic accordingly. They paid per click, so it was in the affiliate’s best interest to route the traffic to the most effective buyer. This method worked well for affiliates but didn’t always sit well with the end buyer who might have preferred an even mix of users instead of a mix based on their particular strengths. The buyers made differing amounts based on the user mix, and if a company sent them only certain types of buyers, that threw off their new customer acquisition formula. This has led to a back and forth between those wanting new customers and those driving them.
Despite what might seem like saturation in the market, new contenders on the user generation side continue to emerge. The vast majority of companies leveraged search, where given the carrier landing page approach, a new site could spring up almost daily. Those buying traffic could, and would, constantly tweak their pages or come up with new ones to try and maximize search. This meant users had a lower likelihood of knowing from whom they subscribed. The real issue, though, came prior to this when fewer restrictions existed governing the languages companies – both end providers and their affiliates – could use in marketing to potential customers. Prior to June or so of this year, a company could market to users saying get "free ringtones." As a user though, the ringtone didn’t come free of charge; it came by joining a subscription service. Not that there was any misleading taking place; it was simply a new market, unsure what it could and couldn’t say – constantly adjusting and ideally self-regulating.
The ringtone market though, has fallen victim to its own success. Throughout its growth, it has tried to correct its issues, e.g. the banning of the word free, but not quite fast enough. The "free" issue and attempts to ban the use of the word and related words led to a level of scrutiny on the entire process, including an inquiry by the Florida Attorney General. In their eyes, the current method is flawed, and they want changes. Which brings us to where we are today – upwards of a hundred thousand new subscribers daily, almost no barriers to entry from the affiliate side, a large reliance on Google, carriers seeing increased complaints from users, the off deck providers seeing higher costs and lower returns, and everybody wanting a say in how the business operates going forward all at once. It’s the perfect storm for a business that was frothy, ripe for change, but not necessarily for what it’s about to get.
Ready to know more? Join us now in Part 2 of the Ringtone Shakeup
