Research firm Ovum has reported that companies should not bank on mobile music downloads has having the same huge revenue opportunities as mobile ringtones.

Ovum says companies have to rethink the market, business models and address digital rights management or they’ll lose their share of the global mobile entertainment market which Ovum forecast to be worth $3 billion by 2005.

Ovum’s research shows consumer demand for ringtones is driven by the desire for phone personalisation. It is more a statement of peer identity and fashion than a music application. By contrast, music samples and tracks are an entirely new market – one populated with cheap and dedicated devices such as walkmans, MP3 players, portable radios. Rosalie Nelson, Digital Media Director, Ovum describes the current situation:

“Many companies involved in ring-tone music, believe the answer for more money is to create downloadable music files.

“Downloading a music track to a cellular device may give immediacy. But it is expensive over the network, it will impact battery life and handset storage. And ultimately users already have a plethora of dedicated devices – MP3 players, CD walkman – capable of doing just this.

“A better approach is not to compete head-to-head, but instead complementing existing forms of music delivery through the use of promotional samples, multimedia messaging, games and greeting cards,” she says.

Digital rights are also crucial in terms of companies making money. Ringtones are legally classified as ‘adaptations of music’ and don’t involve record companies, but offering music samples will require record company clearance. Record companies seeking fat margins from licensing rights and operators seeking high premiums from their music services risk stifling the development of mobile music.