Ringtones are a huge business. According to BMI (via wired.com’s Listening Post blog), revenue exceeded $600M in 2006, but is now in a slight decline for 2007.

So why the downturn, and does this model of charging for a short clip of music makes sense ?

I think people love to customize and personalize their phone, and ringtones in that vein make a lot of sense. We see this phenomena of personalization every day in line @ starbucks when someone calmly asks for an “extra hot, double latte with no foam, half skim half 2%” 🙂

so why the downturn ? some possible reasons:

1) with any new product, the people who consume the product eventually fatigue, and the pool of new customers begins to dry up

2) smartphones make it easy to transfer music to your phone. I’m in this camp – never purchased a ringtone, and now move WAV and MP3 files to my phone if I want some new ring.

3) bluetooth headsets. Ok, maybe this isn’t a biggy, but I see more people being “always on” their own phone and not needing a ring, but simply “click” to turn on their headset.

4) free alternatives. lots of activity in this space.

But what about the model of charging for a ringtone, and often charging for a short clip of a song you already have paid for ? I think in this case, the mobile carriers have been providing a solid service and the market has dictated the value of this service — but I see a larger opportunity for other services.

A ringtone is a public performance in many cases. It’s very common for your phone to ring with many people within earshot, and at the very least you yourself are listening to that ringtone. Given that, shouldn’t we treat it as such and not hear the same ring over and over again ?

With the full understanding that this could become annoying if abused, here are some ideas:

1) free updated ringtones with your favorite sports / news / RSS headlines. If you are a Mets fan, how cool would it be to get the 8th inning score when your phone rings ? Or the latest headline from techcrunch !

2) new product launches. Give away a fun ringtone that also conveys what your new product is good for. This could work really well for products that have a very loyal/fanatical customer base (think apple, toyota, or a new music album) which already blogs about products, created elaborate message forum signatures, etc. Example: “<jingle> – 2008 Prius just broke 100MPG“.

3) Political ads. This could work as both attack ads, and endorsement type of ads. I could see inside the beltway staff in DC having ringtones of “I voted for the 87 billion dollars before I voted against it”

4) customized ringtones pulling in RSS. Example: If a friend calls, pull in their latest RSS headline from their blog/facebook/mysspace/etc and convert it to speech. That way you have something timely to talk about when they call you 🙂

5) and this one is in the category of I hope it doesn’t get abused, but probably will — build a marketplace for paying people to use your ringtone. Ideally people would be shamed into not getting paid for really lousy and annoying ringtones, but if a company like Coke is spending millions on marketing, why not pay people to play your new jingle ! Or on a thursday before a big movie opening, pay people for ringtones promoting the new flick.

Then again, maybe we’ll see a trend in phone etiquette where people will use non intrusive means for getting alerted to a call …. unlikely, but one can hope 🙂