A research report by Needham released more details today about InfoSpace's announcement Wednesday that it was losing part of its business with a major carrier.
I reported today that the carrier is probably Cingular Wireless, which is the company's largest mobile customer. InfoSpace said the customer in question decided to work directly with music companies rather than work through InfoSpace to sell ringtones.
The report gave a bit more detail on what the loss of Cingular's ringtone business will mean for InfoSpace.
For the first six months of they year, InfoSpace generated almost $90 million in mobile revenue, of which "label tone," or ringtone, sales represented about $55 million. Needham said it assumes that ringtones have about a 15 percent operating margin, which would mean InfoSpace had $4.5 million in operating income from ringtones during that time period. That equates to 20 percent of the company's total operating income, Needham calculated.
This clearly puts into perspective how big of a hit the company will take over this loss. Additionally, Needham wrote: "While the one carrier client was cited as a near-term loss, we expect InfoSpace's other ringtone partners will go direct over the next year as well."
Those include Verizon Wireless and T-Mobile USA. However, both companies confirmed Wednesday that they continue to work with InfoSpace.
I wrote an article in July on the vulnerability of InfoSpace's business model and what it was trying to do about it. Check it out here.