9 SQUARED Ring-tone pioneer makes millions on company sale

When the phone rings with an unusual sound, it's easier to recognize as yours.
SCRIPPS HOWARD NEWS SERVICE
College dropout James Eberhard, 26, woke up a multimillionaire last Wednesday, and not by winning the lottery.
Rather, British-based Monstermob bought Eberhard's Denver cell-phone ring-tone company, 9 Squared, for $3 million in cash, plus a potential $27 million to $46 million in stock subject to 9 Squared's performance later this year.
"It just blows me away," acknowledged Eberhard, who founded the company in 2001.
A ring tone, for the uninitiated, is the sound people hear when their cell phone is ringing.
9 Squared is part of a fledgling industry that sells custom ring tones -- such as snippets of popular songs or funny noises.
The Yankee Group, a Massachusetts-based technology-research firm, recently estimated the size of the global ring-tone market at $2.5 billion a year. The U.S. ring-tone business was only around $80 million last year, but it's growing at a feverish clip.
In addition, 9 Squared provides other "mobile content" such as phone games.
In all, 9 Squared has compiled a catalog of more than 6,000 pieces of mobile content through negotiations with more than 275 music publishers, record labels, game developers, image providers and film studios.
How this works
Its "RingTone JukeBox" and other brands are provided to such U.S. wireless operators as Alltel, Verizon, U.S. Cellular and Cricket.
Ring tones typically can be purchased and downloaded onto a phone for between 99 cents and $2, and a phone game costs between $3 and $8.
The primary demographic is teenagers to people in their late 20s, "but it's extending pretty far outside of that," Eberhard said.
Products already had been launched in Latin America and Asia, but 9 Squared, Eberhard said, was looking for a partner that could bring in cash, experience and an entry into the explosive Western European market.
Rival Monstermob, a larger provider of ring tones, phone games and other cell-phone content, fit the bill.
"This solidifies our vision of being a worldwide mobile content player," Eberhard said.
Monstermob Chief Executive Martin Higginson said in a statement: "This is a further step in establishing Monstermob as the No. 1 mobile content provider globally."
Eberhard said 9 Squared, which employs more than 20 people, will remain as a largely independent entity based in Denver.
Let's talk money
Monstermob paid $2.95 million in cash Wednesday, and will pay by March 1 up to 22 million Monstermob shares. Those shares were valued at around $27 million before the deal was announced Wednesday, but are pegged to be worth up to $46 million, according to Eberhard.
The compensation also will depend on 9 Squared's fourth-quarter revenues.
In its five months ended May 30, 9 Squared had pretax profits of $395,043 on revenues of $1.4 million.
Illustrating the industry's rapid growth, 9 Squared had a profit of $168,334 on revenues of $480,373 in July alone.
Eberhard, once an aspiring chemical engineer, said he dropped out of Colorado State University after his freshman year.
The company's name comes from his interest in math and science and the "mathematical irregularity" that nine times any single digit will equal a number whose digits add up to nine.
The idea was to "make technology easier, bring it back to square nine," he said.
Along the way, Eberhard, who most recently owned 56 percent of the company, picked up University of Denver MBA graduates Brian Casazza and Ted Suh as partners.
Verizon Wireless spokeswoman Jenny Weaver said it used to be that everyone would scramble for their phone because all cell-phone rings sounded the same. Today, custom ring tones "are extremely popular, a way for people to personalize their wireless phones," Weaver said.
Eberhard said one of 9 Squared's skeptical attorneys bought into the trend when he heard the theme from the TV show "Law and Order." The attorney immediately asked, "Can you put that on my phone?"