Skype's ring tone deals: A Music Overture or threat to iTunes??

The internet calling firm Skype joined the burgeoning ringtone business announcing a broad set of agreements with recording firms for ringtones, leading some to speculate the company is lining up its own music store. eBay's newly acquired VoIP pioneer has signed deals with Sony/ATV Music Publishing and Warner Chappell Music, adding to its current agreement with EMI Music Publishing to sell song clips to customers for $ 1.50 each. The licensing deals also include MCPS-PRS Alliance, which oversees song licensing and distribution of royalties in the U.K. The web-based phone service began offering Madonna ringtones on Wednesday, with more artists slated to follow.

Mobile ringtones have been a boon for record companies. In Europe, EMI (the record and publishing group) and Universal Music reported that digital sales - downloads and the more lucrative ringtones - comprised 5.5% and 10% respectively of total revenues. The ringtone business continues to flourish, raking in over $ 4.4 billion in 2005 alone. Skype hopes it can capitalize on the market by selling the clips to its more than 100 million users. For EMI, digital sales more than doubled in the first half of the fiscal year (which ended on March 31). Any more that comes from Skype will be welcome, and the record companies won't be worried whether Skype or eBay actually makes any money from the transaction.

However, unlike on their cell phones, Skype users can already import audio clips directly from their hard drives. Under the deal, users of Skype's popular VoIP (voice over Internet protocol) application can buy a greater selection of ringtones. World-renowned recording artists from Warner Music Group can now be downloaded as ringtones to Skype users in the United States, United Kingdom, Ireland, France, The Netherlands, Belgium, and Poland and within weeks to the rest of Skype's more than 94.6 million registered users worldwide. Skype is offering several Madonna songs currently, ranging from one of her first singles, 1983's "Lucky Star," to her newest, "Sorry," for 1.86 dollars, at personal.skype.com. Eventually, the ringtone selection will broaden to include artists such as Green Day, the Red Hot Chili Peppers, and more from the publishers’ catalogs, Skype said.

But while Skype has denied that it wants to compete with the digital music world's 1000 pound gorilla, iTunes, analysts have said that offering ringtones could be a first step into offering full blown content. "A natural follow-up would be a gaming and video offering," said Marianna Wolk of Susquehanna Financial Group to BusinessWeek. "Plus, I look at full-track music downloads as a given." Skype could take the same approach as mobile network operators, who used ringtones to test the market for mobile content, later offering video and games. But does that make Skype a competitor to iTunes? Since the songs or ringtones will surely be in a format that won't play on Apple's iPod, there's no crossover - so this only competes in the sense that it might take some peoples' money which they would otherwise spend on iTunes songs. But anyone who has Skype but not iTunes has probably considered Apple's product already and decided against it, so that these aren't "lost iTunes sales". It's not really competition - just another outlet for the music companies to make money selling their wares.

The publishing licences and addition of licensed music content coincide with other changes to the Personalise Skype store, including a more simplified user interface and a more visual presentation.