A recent price war has made Internet song downloads cheaper while the price tag on a mobile phone ringtone has barely budged, and in some cases, is creeping up, according to a new report.

A recent price war has made Internet song downloads cheaper while the price tag on a mobile phone ringtone has barely budged, and in some cases, is creeping up, according to a new report.

The price discrepancy between downloads and ringtones can be laid squarely at the feet of record companies, according to London-based consultancy Informa Plc.

The main culprit is the advent of so-called "sample" ringtones, the latest stereophonic tones pulled from actual studio recordings.

They carry a price tag of as much as four times higher than the typical Internet download price in Western Europe -- a price gap that could prematurely stifle a promising ringtone business, Informa said.

Record labels are demanding mobile operators and other ringtone resellers pay a royalty rate equivalent to between 25%-55% of the total retail price for a "sample" ringtone, Informa said.

"The reseller is really between a rock and a hard place," says Simon Dyson, a co-author of the report. "They are torn between raising the price or keeping it steady in the hopes of establishing a market.

"Demanding such high percentage rates by the record companies could certainly lead to the market being depressed," Dyson adds.

Ringtone sales have become a strong side business for the music industry, one that is expected to grow to over $5.0 billion in 2007 from $3.0 billion in 2003, Informa predicted.

But the problem for the piracy-battered music labels is that licensing restrictions have kept music labels out of the sector's early growth. With "sample" ringtones, the labels hope to cash in on the business.

The "sample" tone's predecessors -- the monophonic and polyphonic tones -- are crude renditions of a sound recording. Royalty payments could be collected by artists and music publishers, usually at a rate of roughly 10% but the labels were sidelined from the collection process.

But "sample" ringtones, because they are often taken from studio renditions, can now be licensed by the labels too.

As a result, prices for "sample" ringtones across Western Europe are on the rise, ranging from the equivalent of $1.38 from Web-based reseller F1-Live in Belgium to $7.35 from T-Mobile in Britain, Informa said.

In contrast, song downloads tend to follow Apple Computer Inc. iTunes straightforward pricing model of 99 cents per track. In Europe, downloads are priced in the range of €0.99 ($1.20) or £0.99 ($1.79).

Meanwhile, the increased competition in the download market has seen download services such as Britain's OD2 and Wippit discount the price of downloads. The more established ringtone market shows no sign of following suit, Informa said.

--Reuters