Following on the heels of a brutal Infospace earnings call a couple of weeks ago, Dwango Wireless reported disappointing financials today, and also announced the resignation of their CEO, Rick Hennessey - a key reason in both cases was given as the market transition to MP3 ringtones from the current polyphonic ringtones.
This has been expected for some time, but appears to have hit the marketplace harder than some companies expected. Unfortunately, this is a lose/lose situation since the companies without big mastertone deals (such as the RollingStone-branded service) are seeing revenue decreases, and those offering mastertone deals are seeing gross margins on those services plunge to the 7-15% range from the 40%+ range of polyphonics. Shawn Conahan, formerly of Moviso, does a good job on his blog of taking a look at the specifics of this business. However, the end result is that the ringtone gravy train is coming to an end much faster than some expected, and mobile service providers need to change how they do business, either by introducing other higher margin services, or by changing how they sell them, as Jamster has done.