On the same day Apple announced a new line of iPods and a dramatic iPhone price drop, the company introduced a new version of iTunes that lets you create ringtones out of (certain) music you’ve purchased from the iTunes Store. The cost to do so is 99 cents in addition to the initial 99 cents you paid for the song itself; in other words, you end up paying $1.98 for the song and the ringtones.

As I recently pointed out, compared to the ringtones you purchase from wireless carriers, this is a relative bargain. As David Pogue noted, T-Mobile and Sprint each charge $2.50, and Verizon charges $3. Ouch! But the carriers also choose which part of each song is used for each ringtone. And for some carriers, it gets worse: Verizon ringtones expire after one year, and Sprint’s offerings expire after 90 days . That’s right—three months later, if you want to keep using a ringtone, you must purchase it (rent it?) again. Not to mention that these ringtones are tied to a particular phone; get a new phone and you have to “buy” the ringtone yet again.

Apple, on the other hand, gives you the full song and a ringtone—one you customize yourself—for two bucks, and you can keep using both forever (or at least until the RIAA somehow forces Apple to revoke your Right To Play).

OK, so Apple’s got the better deal. But is that anything to crow about? You’re still being forced to buy a song twice just to be able to use a few seconds of that song as a ringtone—ironically, on the very same device on which you can already play it as a music track!

(It’s also worth nothing that if you already own a particular song on CD, Apple’s offering is still less expensive and less restrictive than the carriers’, but comes with the stomach-turning knowledge that you’ve then purchased that song three times: on CD, the iTunes Store full song, and the iTunes Store ringtone.)

The song-snippet swindle

This seems crazy to me. Now, I’m a big supporter of artists’ right to be compensated for their work. I think most “music sharing” is stealing. I purchase everything I listen to (and, in fact, have purchased many albums multiple times over the years to keep up with format changes). But no matter how I look at the ringtone market, I keep coming to the same conclusion:

Ringtones. Are. A. Scam.

Strong words? Perhaps. And before I go on, let me clarify: I don’t object to the concept of paid ringtones as a convenience. If someone doesn’t want to deal with creating a ringtone and getting it onto their phone, paying a modest fee to click a button and have everything done automatically may be worth it. I’m also OK with charging someone if over-the-air transmission from the wireless carrier is the only mechanism that person’s phone has for getting custom ringtones. And I don’t have a problem with charging someone for a ringtone based on a song they don’t already own.

No, my beef is with charging people as much as $3 for a snippet of a song when the entire song is easily available for 99 cents. With forcing people to buy that ringtone version even if they’ve already purchased the song as a music file. With forcing people to purchase a new song twice if they want to listen to the song and use it as a ringtone. With eliminating avenues for using tracks from your own music library as ringtones.

Unfortunately for you and me, the ringtone racket, as Macworld contributor John Gruber calls it, is hugely lucrative for the wireless carriers and the music industry. What started out years ago as a way to get cheesy, monophonic versions of your favorite rock songs onto your phone has grown into a huge business: real-music ringtones are projected to rake in nearly $7 billion a year by 2010. The music industry now sees ringtones as yet another music format—like CDs, LPs, and cassettes—that you can be coerced into purchasing, and the wireless carriers see ringtones as one of the most profitable segments of their market (and one that generates lots and lots of revenue with relatively little overhead).

As a result, both industries are trying desperately to maintain this market, even going so far as to implement artificial obstacles to technological problems that were solved years ago. Back when the only way to get a simple ringtone onto your phone was over the air, purchasing such ringtones through your wireless carrier made some kind of sense. But now that many modern mobile phones have the capability to play standard audio files and to use those files as ringtones, carriers often work with phone makers to specifically cripple such features (or at least to disable the ability to transfer audio files to the phones). This way, you’re forced to purchase ringtones from the carriers.

Unfortunately, the iPhone isn’t immune from such meddling. Even though the iPhone is indeed an iPod, Apple doesn’t officially allow you to use songs on the iPhone as ringtones for the phone section. (Think how simple it would be for the Ringtone setting to let you browse your iPhone’s music selection and choose any track as your ringer.) And even though it would be trivial, from a technology standpoint, for iTunes’ new ringtone editor to let you edit any song in your iTunes library, Apple doesn’t allow this.

Apple’s dilemma

Why not? A quick trip around the Web will dig up lots of speculation, much of it characterizing Apple as evil or greedy. Although I won’t argue that money wasn’t a factor—given the huge demand for custom ringtones, and the revenue in selling them, not selling ringtones would have meant Apple leaving a big stack of money on the table—I’m not convinced it was the primary one. In fact, part of me thinks that what Steve Jobs really wanted to say when he introduced the new iTunes was, “Everyone knows that paid ringtones are a scam. So we’ve made it easy to create a ringtone out of any track in your iTunes library and sync it to your iPhone. For free. Boom!”

The bigger reason, I think, is that Apple is in a unique position that effectively limits its options. As a music retailer, software developer, and phone maker, Apple has to worry about relationships with the music industry, with wireless carriers, and more. What music company is going to let Apple sell its music through iTunes if every such song is also a potential loss of a ( far more profitable) ringtone sale? What wireless carrier would partner with Apple if Apple decided to undercut the carrier’s ringtone business with every iPhone sold? I think it’s a safe bet that Apple’ contracts with both industries specifically outline the terms under which Apple can provide ringtones, and possibly even how the iPhone uses them. (You’ll notice that only a fraction of the iTunes Store’s music tracks—around 500,000—can be made into ringtones, definitely a restriction dictated by the music companies, and I have little doubt that the bulk of each ringtone fee goes directly to AT&T and the music companies; ringtones certainly fall under a different license than music, as the iTunes Terms of Service makes clear.)

Indubitably dubious

But that’s just my speculation on Apple’s motives. The bigger issue remains the business of ringtones itself. Why charge people such an outrageous price for a snippet of a song? The answer seems to be, quite simply, “because we want to.” Remember, this is the industry that recently announced ringles —a CD with a single, a remix of that single, an old song, and a ringtone bundled together for $6 or $7. (And I thought $18 for a CD was crazy.)

More to the point, what’s the rationale behind forcing people to buy something they’ve already purchased just to use a snippet of it as a phone ringer? The main arguments I’ve heard from the music industry are that (1) ringtones are simply a new distribution format that you need to purchase to use, much like you did when you bought CD versions of your LPs; (2) ringtones are a “public performance” of a song that requires a separate license; and (3) your phone is another playback device that requires its own license.

The problem with the first argument is that I couldn’t (at the time) easily get my albums onto CDs; there’s no longer such a technological obstacle. It takes only a few seconds to convert a music track to a format usable as a ringtone—if it’s not already in such a format.

And the second argument, if true, means that nearly every way of listening to music—other than private headphone listening—would amount to a “public performance.” (And even headphones are hardly private at times—what about the guy next to me on the train with his headphones blasting so loud that the woman four rows back is singing along? That’s much more of a public performance than the first few chords of “Brown Eyed Girl” that play when my wife calls me.) More importantly, the RIAA itself has argued that ringtones are not public performances, and the U.S. Copyright office has agreed.

The third argument is perhaps the weakest of all. If playing a song as a ringtone requires another license, why is it that buying a track from iTunes gives me the right to listen to it on up to five computers and unlimited iPods that I own—including the iPhone? Perhaps I should just count my blessings; the next thing you know, the music industry will claim that I need to buy a separate copy of each song for every music-playing device.

A fake market

What it comes down to is, as Gruber so eloquently put it, that “the distinction between ringtones and songs is an artificial marketing construct.” The entire ringtone market is based on artificial restrictions—not physical ones, not technological ones, not even logical ones—put in place to create a market where one would otherwise not exist.

After all, a ringtone is simply a digital copy of a song. There’s no precedence for buying a separate copy of a song for every playback device you own. If I buy a CD, I can listen to that CD in any of my CD players; rip its tracks to my computer; sync those tracks to my iPods and iPhone; copy those tracks onto any other of my playback devices (Apple TV, other portable media player, digital music system, other phones, etc.); and even make a copy of that CD for my car. I’m not sharing my music with other people; I’m simply making it possible for me to listen to that music where and when I want. Yet the music industry and wireless carriers—and now Apple—are telling me that if I want to put a song from that CD in one particular place, the iPhone’s Ringtone menu, I have to buy it again, and for much more than I paid in the first place? Sorry, music industry; no dice.

There’s also no precedent for the huge difference in price between a song and a ringtone snippet of that song. Sure, sometimes you pay more for a higher-quality version: cassette vs. CD, CD vs. SACD, standard iTunes tracks vs. iTunes Plus tracks. But three times as much for a lower -quality, 30-second snippet?

Apple users expect more

Although I’m criticizing the entire ringtone cartel here, the truth is that Apple has been taking most of the anti-ringtone abuse lately. And in some ways, I actually feel for Apple in this respect. After all, this scam has been going on for years and rarely got much coverage in the press and around the Web. Then Steve Jobs announces a service that gives you much more for the money, and suddenly Apple’s the bad guy?

The problem is expectations. You would think the best music-playing phone on the market would let you use any music file as a ringtone; after all, the music’s right there for the playing, and the next-best music phones—Sony-Ericsson’s Walkman models—let you do just that. And the iPhone’s interface is so good that, when using it, you can’t help but think, “There must be a button I can tap to use this song as my ringtone.” Finally, given Apple’s reputation—deserved or not—for looking out for consumers when it comes to digital music, people don’t expect—fairly or not—Apple to buy into the music industry’s biggest scam. Yet here we are.

Maybe Marimba isn’t that bad?

Industry motives and Apple’s dilemma aside, the biggest question, to me, is this: Why are we , the consumers, buying into this system? Why aren’t we objecting on principle? As long as people keep buying expensive ringtones—and obviously people are buying lots of them—the music industry, wireless carriers, and Apple will keep selling them.

Personally, I’ll continue to use tools such as iToner, which I’ll be covering this week in my Mac Gems column, to make my iPhone play the music I purchased when I want it. I don’t expect the overpriced-ringtone market to go away anytime soon, but I do hope that consumers will eventually use their collective (non-)buying power to force the industry to come up with something more reasonable. After all, who ever thought we’d have DRM-free music on iTunes?