Why Ringtones are More Valuable than Mp3s

Does the consistent decline in sales of recorded music mean the end of music? Probably not, but clearly the game is changing. Nick Martens contrasts the abstract value of digital music with its more concrete incarnations–concerts, music videogames, and ringtones.

This recently circulated Associated Press report showed that, despite phenomenal growth in digital music sales, overall U.S. album sales dropped roughly 10% in 2007. This marks the eighth year of continuous decline in the American music industry, interrupted only by a brief bump in 2004.

In an opposite-facing trend, music-based videogames–Guitar Hero III, Rock Band, and various earlier Guitar Hero incarnations–may have generated up to $1.1 billion in revenue in 2007, according to analyst Michael Pachter. Recording industry revenue figures for ’07 have not yet been released, but they clocked in around $11 Billion in ’06, so a 10% drop in RIAA revenue seems roughly equivalent to a $1.1 billion loss.

What we see in these two trends is not necessarily that people are spending less money on music. Rather, they’re spending money on different kinds of music.

But, you might say, when people spend money on Guitar Hero, they’re not really spending it on music. They’re spending money on a music-based videogame, which offers a much different experience than a CD. Well, I agree. My argument about what kinds of music people will pay for today is based on those differences.

The internet has trained much of the younger generation to think that songs and albums have no monetary value. There are so many free ways to listen to any song that an economically rational person would never pay for music. The nearly infinitesimal chance of being caught stealing further bolsters this mindset. Even if you don’t pirate whole albums, chances are good you’re stealing music in subtler ways: having a friend fill up a USB thumb drive with mp3s or using a laptop logged onto YouTube as a DJ at your party.

The widespread availability of free music is the obvious reason why album sales are slumping. BUt I think that another reason is that the value of recorded music has become abstract. A CD becomes a batch of mp3s, and those can become almost anything. If you put an mp3 on your iPod, it invades a million areas of your life; it’s a workout motivation, a soundtrack for reading, a distraction at the store, a replacement for your car’s radio, etc. On your computer, it takes on more roles–background websurfing music, a score for your latest home movie, mixtape fodder, email alert sound, etc.

Intuitively, the versatility of an mp3 should increase its value, but I think the opposite is true. An mp3’s value is intangible. Digital music is more ubiquitous now than radio ever was, and the fortunes of XM and Sirius demonstrate the American public’s unwillingness to pay for radio. I think we see recorded music as a utility like water. It’s so pervasive and abundant that it seems silly to pay money for it. (Yes, you do pay a water bill, but that’s like paying for internet access.)

So, if we don’t pay for recorded music, which has abstract value, but we still pay for some forms of music, those forms must have concrete value. The most obvious example here is concerts. They offer a one-time social and cultural event where you experience music in a unique way, which is a more grounded form of musical value than found on a record.

As far as I can tell, there are no metrics for determining the annual growth of live music as an industry, but I can think of a few indicators that show that concerts are becoming more popular. The first is that, as I discussed here, record labels are now fashioning contracts that give them a percentage of an artist’s touring revenue, which was never the case before.

Another indicator is the proliferation of summer music festivals. Bonnaroo, the revived Lollapalooza, the Sasquatch Music festival, and the Pitchfork Music Festival are only a few of the large music festivals that debuted during the decline of album sales; Coachella became financially viable during the same period. The tickets to these events are expensive in their own right, and the time and travel costs are lofty as well. Yet, these festivals seem to be flourishing, with more and more emerging each year. To me, this shows that people have become more interested in live music just as they have become less interested in paying for albums. I’m not saying people are seeing more concerts because they’re pirating more music–I suspect this is the case but cannot make a causal link–but I do believe that the emphasis on live over recorded music shows an emerging trend towards paying for forms of music with concrete value.

The new genre of music videogames is another form of music with concrete value. Released in late October, Guitar Hero III, across all formats, may prove to be the best selling game of 2007, an impressive feat considering that it was up against Halo 3 and a new Pokémon title. One could argue that this is not a music product but a videogame product, but I would argue that the experience of playing Guitar Hero is primarily musical (even more so with Rock Band). Think of it this way: how many non-gamers do you know that love Guitar Hero? If you’re like me, you know quite a few. I think that these products are so successful not because they attract people who are interested in videogames (a limited market), but people who are interested in music (practically everyone).

The most amazing thing about these games’ success is that they eclipse traditional game sales despite being more expenseive. Millions of people are willing to spend anywhere from 80 to 170 dollars on a musical product in the same era that they are unwilling to spend ten bucks on an album. It’s true that you play Guitar Hero as opposed to merely listening to an album, but you can still only play along with recorded music. The difference is that rather than having a million abstract ways to experience the music, as with an mp3, Guitar Hero gives you one specific, entertaining, and unique way to interact with it. I didn’t bat an eye at paying two dollars for a Rock Band version of Radiohead’s “My Iron Lung” because I knew it would be worth the money, even though I will spend far less time playing the song in Rock Band than I will spend listening to the mp3 of the same song that I paid nothing for. The difference is that the value of the Rock Band version is specific and obvious to me, while the mp3’s value is obscured. (It also helps that I can’t pirate songs in Rock Band.)

The final form of music whose value I think is partially explained by the notion of concreteness is something that has puzzled adults for years: ringtones. David Pogue lays out a great argument against ringtones perfectly here. Why would you pay two dollars for the privilege of playing a song, which you already own, over your phone’s speaker when it receives a call? It seems utterly stupid, considering that a full song that you can play whenever you want only costs one dollar.

A ringtone however, with its severe limitations, has concrete value. It’s a simple expression of your personality and nothing more. Maybe it’s a song you really like, or maybe it’s an ironically bad pop hit, but either way, it says something specific about you whenever you get a call. Unlike an mp3, there’s nothing more to it. You know exactly what you’re paying for (again, previous caveats about piratability apply).

The larger point I want to make is that people aren’t unwilling to pay for music in general. They’re just unwilling to pay for recorded music because its value has been washed away. An mp3 does not have one solid, tangible form of monetary value; it has thousands of subtle values too abstract to pin down. Concerts, music videogames, and ringtones all have simple, obvious utility with clear monetary value. The way to make money in music today is not to guilt people into paying for easily-pirated recorded music with nebulous value. Going forward, it will be much more practical to find solidly valuable forms of music that people are eager to buy.

Nick Martens is a founding editor of The Bygone Bureau. You can email him, if you like.