Nokia Looks To Profit From Free Music Downloads
Nokia is confident its new unlimited music download service will bring in profits for the company, as well as its record label partners.
"We expect to make money both from our traditional device sales, as well as from the ‘Comes With Music’ service," Nokia’s music business chief, Liz Schimel, told Reuters.
"I can assure you that we are looking out for everyone’s interests in creating these new business models, including our own."
The world’s biggest handset maker is the first to aggressively push into the area of content, and its new music offering differs from all others in that customers can keep downloaded music for the entire 12-month service period.Â
Nokia has already finalized deals with Universal and Sony BMG, the world’s two largest record labels, to offer their tracks in its "Comes with Music" service. This will likely help Nokia attract smaller music companies as well, something that could challenge the leading digital music pay-per-track sales model.
"This new model is innovative and creates a positive situation for all stakeholders, but it does require a different way of thinking for our content partners," Schimel said, declining to give details.
Some reports suggest Nokia was paying $35 per each handset sold to Universal, while others imply Nokia would be paying an additional fee for each downloaded song after the first 35 songs, potentially cutting in to its 40 percent gross margins in cellphone operations.
"Recent articles that I’ve seen have fundamentally misunderstood the concept behind the Comes With Music model," Schimel said.
Such unlimited download models could offer a boost to the ailing music industry, which is struggling to compensate for decreasing CD sales.
However, the success of the new service could also harm CD sales as clients turn to phones for their music, instead of purchasing CDs, according to Mark Mulligan, research director at Jupiter Research.
"There is inherent tension in there," he said.
Last year, the music for digital music was only $2.9 billion. If all of the 146 million phones Nokia sold during that time had included the “Comes with Music” service, the extra $20 per handset would have made Nokia’s service larger than the entire market.
"Comes With Music has the potential to equal — and even exceed — the current value of the business," said Tero Ojanpera, head of Nokia’s entertainment and communities business, during a news conference last week when announcing the Sony BMG deal.
"If we sell a single percentage of our total sales as Comes With Music bundles, the revenue for the music industry would be almost the same," he said.
Sales of Nokia’s 5310 and the 5610 models, the company’s top music phones, totaled more than 4 million during the first quarter of 2008.  Unsubsidized retail prices for the phones were $334 (215 euros) and $435 (280 euros), respectively.
Apple shocked the industry last year with its iconic iPhone, but at prices starting from 400 euros it has not secured a mass embrace among Europeans.Â
But in the world of digital music, it is now Nokia that has stolen the spotlight away from Apple. And record labels are now looking to Nokia and others to challenge Apple’s iTunes, which has long held a dominant position in negotiations on issues such as pricing.
"Comes with Music is one of the most exiting things out there in the digital music," Jupiter’s Mulligan said.
"Apple is facing market perception of iTunes looking like yesterday’s service. Basically, iTunes looks pretty much the same it looked 4 or 5 years ago.”
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