The Changing Ringtone Economy
By Matthew Maier

(Business 2.0) – Consumers plunked down an astonishing $3 billion last year for ringtones, but the music industry was caught flat-footed. After stumbling in the first digital-music boom, the labels failed to exploit this one too. So when cell phones chimed a few notes of Nelly's "Hot in Herre," neither Universal Records nor the rapper cashed in. But the labels are fighting back. Until recently the market consisted mainly of polyphonic tones—those bleepy renditions of pop hits—and almost half the revenue went to the middlemen, or "ringtone aggregators," who created them. Now polyphonic tones are giving way to a new format from the major labels called music tones. These 20-second clips of actual recordings already account for nearly a quarter of all ringtones sold, and they could dominate by next year. Here's where the music-tone money is going. — MATTHEW MAIER