Skype, the web-based telephony group bought by eBay last year, is to begin offering music ringtones from big-name artists such as Madonna and Green Day under an agreement with Warner Music Group.

The deal marks one of the first moves by the online auction group to cash in on its investment in Skype, which it bought last September in a deal worth up to $4.1bn – raising eyebrows at the time over the high price paid for a group with such small revenues.

Several smaller companies have already launched ringtone services that target voice over internet protocol (VoIP) customers, but the deal between Skype and Warner Music is the first involving a major music company and a leading VoIP service provider.

Skype has an estimated 74m registered users but most use the technology to make free computer-to-computer voice calls. Skype sells a range of generic musical ringtones through its online store, but Warner Music will enable the group to provide ringtones – priced $1.50 each – from artists including Mike Jones, Paul Wall and D4L.

Ringtone sales have proved a surprise phenomenon for wireless operators and content providers over the past few years, generating an estimated $4bn in worldwide sales in 2004. That represented about 10 per cent of the $32.2bn worldwide music market, according to Yankee Group, a US-based market research firm, which predicts that the ringtone market will continue to grow and could top $1bn in the US next year.

New York-based Warner Music is the world’s fourth-largest record company and the sale of ringtones could provide the group with a new source of revenue at a time when sales of compact discs are in decline – in part because of illegal music downloads.

“We are excited that more than 70m Skype users around the world will now have the ability to enjoy content from Warner Music artists,” said Alex Zubillaga, executive vice-president in charge of digital strategy and business development at Warner Music.

Edgar Bronfman, Warner Music’s chief executive, has been among the foremost music industry executives in his embrace of legal internet-based music download services. In its last quarter, Warner Music significantly outperformed analyst expectations.

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