MDJ’s scrupulously detailed look at the intersection of ringtones and copyright law. Part of the argument here is that making a ringtone necessitates making an additional copy of the song file, whether it’s truncated or not. That’s just a matter of implementation, though — Apple could easily allow the iPhone’s phone app to play the same song files in your regular music library.
You can peek behind the curtain just a little bit by looking at the FAQ page from TuneCore, a company that takes a flat fee for putting digital music to which you own the copyright onto online stores such as the iTunes Store, Napster, eMusic, Rhapsody, MusicNet, GroupieTunes, and others, both in the United States and internationally. TuneCore swears up, down, and sideways that it does not keep even the tiniest percentage of the royalties from any online store, instead taking a flat fee per year and per album to get your tunes listed. As part of this, TuneCore discloses the royalty rates paid to artists on the various systems.