As anyone who's heard a cell phone ring in a crowded room knows, there is a nascent industry growing around the delivery of content to mobile phones.

As anyone who's heard a cell phone ring in a crowded room knows, there is a nascent industry growing around the delivery of content to mobile phones.

Though still in the early stages of development, there are numerous types of content and information currently available, including news and stock quotes, entertainment and games. New technologies even allow for streaming content and video conferencing.

So far, ringtones are by far the most successful such service, with reported sales of $2.5 billion-$3.5 billion dollars worldwide in 2003. U.S. sales last year accounted for only 3% of this figure, or about $100 million dollars, but are expected to increase exponentially this year, driven by greater market penetration of handsets that support polyphonic ringtones.

Early ringtones were monophonic, meaning that they only played one note at a time--like playing a song using a touch-tone phone. Also, they had to be downloaded from the Internet and separately installed onto the mobile phone from the user's computer. Now, anyone who buys a new phone can download a polyphonic ringtone directly to the phone through on-phone menu selection.

Polyphonic ringtones make use of MIDI technology to deliver a wider range of tones simultaneously. If tweaked correctly, instrumental pieces can sound almost like the real thing. However, the newest technology allows for the delivery of samples of actual master recordings directly to the user's mobile phone. This new generation of ringtones are variously called "mastertones," "trutones," or "ring tunes."

Ringtones represent a wide variety of previously untapped revenue sources, but there is a thicket of legal issues and hidden costs. First, a seller of ringtones must purchase a mechanical license through the Harry Fox Agency or directly through the publishers. Arguably, a ringtone provider would also have to purchase public performance licenses through performing rights societies, such as ASCAP, BMI and SESAC. This would allow the ringtone to be heard in public each time the phone rings. Finally, a ringtone provider typically pays a percentage of each sale to the carrier on whose service the ringtone provider is listed.

Mastertones, or trutones, represent a whole new opportunity for record companies, who typically own the masters to the artists' sound recordings. In order to sell mastertones, the ringtone provider must pay a royalty to the owner of the master to the sound recording of the song being sampled. The first such deals have already been announced by such ringtone service providers as Zingy and Faith West. As of yet, no industry standard rate has evolved.

Finally, new business models are developing which demonstrate the vibrancy of this new market for mobile music--and possibly threaten the industry standard of doing business. In 2003, Xingtone began selling software that allows users to convert music that they already own into ringtones without paying a fee to any ringtone provider, copyright holder, or wireless carrier. So far, no major publisher, nor the RIAA, ASCAP, or BMI has taken an official public stance on services such as Xingtone. While many artists and labels are skeptical, some see a revenue generating opportunity.

As exciting as the ringtone business may seem, it is just the tip of the iceberg in terms of content or applications that can be delivered to mobile phones. Many new companies have begun to successfully offer games, local entertainment and food listings (Vindigo), news updates (Diggit), music audio recognition (MusiKube), fan clubs (Wicked Wireless), social interaction services, video conferencing, streaming television, and even pornographic images.

As the technology of mobile devices improves and consumer adoption of such devices become more widespread, the potential for generating revenue in the wireless industry will increase for content providers and copyright holders alike, as well as the carriers.

The challenge will be to capture users attention and create innovative and compelling licensing models that offer a good value proposition while still generating enough revenue to sufficiently compensate copyright holders.

Steven Masur is a partner with MasurLaw, a boutique entertainment, intellectual property and business law firm in New York. His colleagues Peter Moran, Andy McCormick, Cheryl Wickham and Mark Anderson contributed to this piece.