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Nokia’s music service hailed as ”game-changer”

06 октября 2008

Hyperbole perhaps. But Nokia, the world’s largest handset maker, is not the only one placing a big bet on its music service. The music industry is looking to Nokia to provide it with a major new revenue stream.

It has struggled for the past decade to come to terms with the digital era, and has seen CD sales plummet and illegal music file-sharing soar.

Nokia’s “all-you-can-eat” business model, whereby consumers who buy certain handsets can download as much music as they want during a one-year subscription period, is a significant departure. Apple, the leading provider of digital music, uses a pay-per-track model.

Liz Schimel, Nokia’s head of music services and software, says the negotiations with the record companies over Comes With Music have been “fraught”.

In the UK, the first market where Comes With Music-enabled handsets will be sold, Nokia has finalised a revenue sharing agreement with the record labels.

The agreement is based around the premium that Nokia will charge for the handsets. For example, Nokia’s 5310 handset, which normally costs £70 ($123), will sell to consumers for £130 with Comes With Music.

Some of the £60 premium will be distributed among the participating record companies. They include the big four labels – Universal, Warner, Sony BMG and EMI – plus smaller independent record companies.

How much each label gets will be determined according to the download habits of individual consumers. If half their downloads were of tracks by Universal’s artists, 50 per cent of the revenue passed by Nokia to the record companies would go to the label, owned by France’s Vivendi.

Further payments are likely to be made by Nokia to the labels if consumers turn out to be voracious downloaders. However, the extra payments are expected to be capped.

A senior music industry executive said: “We are being killed by piracy and we need to do something creative to get ourselves out of the hole. These sort of deals are one of the ways to claw back the consumers we have lost to piracy over the years.”

Ms Schimel insists Comes With Music will make money for Nokia and the music industry. “It will be profitable for Nokia and our partners,” she says, referring to the labels.

However, Richard Windsor, analyst at Nomura, says Comes With Music will likely be a break even service for Nokia at best.

He says the reason Nokia is putting services on mobiles such as music is because of the commoditisation of handset hardware. He says Comes With Music might enable Nokia to slow the decline in the average selling price of its mobiles.

But having wooed the record labels, Nokia is finding it difficult to get the leading mobile operators on board.

Nokia’s move into mobile services is creating tension in its relationships with the operators, in part because they have their own music download stores for customers.

The big four operators in the UK – Vodafone, 02, Orange and T-Mobile – look unlikely to sell Nokia’s Comes With Music-enabled handsets in their own stores in the run-up to Christmas.

All four operators declined to comment. However, they are all likely to have concerns about Nokia’s business model. The bulk of Nokia’s mobiles are sold in the UK through the operators or retailers such as Carphone Warehouse.

There is also controversy over the premium Nokia would expect operators to pay for Nokia’s Comes With Music enabled handsets.

Mobiles tied to monthly contracts with the operators are often provided free to consumers.

The operators absorb the upfront cost of the handset, and claw the money back through the monthly contracts.

However, Nokia’s revenue model for the Comes With Music-enabled handsets implies the operators will have to absorb more cost.

The operators, it seems, fear Nokia’s “game changer” represents a painful innovation.

Источник: Financial Times

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