Nokia ‘Comes With Music’: Analyst response

Nokia’s ‘Comes With Music’ approach is a classic example of a company underwriting a good deal in order to carve itself a slice of a market already dominated by another, in this case by Apple, the analysts at Informa Telecoms & Media claim.

Nokia this week announced the UK will be the first country in which it will launch the service, which offers Nokia 5310 XpressMusic handset customers free access to over 2.1 million tracks.

“In general, adoption of most mobile music services has so far been slow and disappointing,” Informa Telecoms & Media notes. “Nokia hopes to change this trend and therefore unlike most other music services, “Comes With Music” will allow users to keep and listen to all the downloaded music even after the one year subscription period ends. However, many media reports have raised concerns on the business model and whether Nokia will be able to make any profit from the service.”

According to Mobile Music, 5th Edition, the analysts believe mobile music sales will generate over $12.3 billion in revenues in 2008. At present ringtones and ringback tones are contributing to most of the revenues but music streaming and full track download services will see strong growth in the next five years.

“It seems that ‘Comes With Music’ forms part of a longer term strategy of Nokia. Therefore in the short term, it is prepared to offer what looks like a very generous service, at the expense of its own margins on certain handset models”, said Shailendra Pandey, senior research analyst, and author of the upcoming Mobile Content and Services report.   

“‘Comes With Music’ forms part of Nokia’s strategy to compete with rivals such as Apple and to drive the uptake of its services, including the purchase of music from its Music Store. Nokia believes that after the one year subscription period ends, many of the ‘Comes With Music’ users will continue to spend on music and purchase new tracks and releases from the Nokia music store, or will subscribe to unlimited access to its Music Store”, the analyst added.

The mobile music industry needs to come up with radical new services that can tap into mobile-specific functions and find a business model attractive to users, the analyst warns.

“The successful business models will be the ones that users vote for, not the ones that operators, handset manufacturers and other dominant players in the mobile industry impose on the market.”

Carphone Warehouse today revealed more details of the scheme – users will be responsible for all data charges incurred by downloading tracks over the air to their 5310 handset, meaning that the `free’ music could cost a whole lot of cash in terms of data charges, thanks to the phone only being available on pay-as-you-go tariffs.

This prompted Jupiter Research analyst Mark Mulligan to sound a little less than impressed at the deal on offer to consumers, noting, “So it looks like the mobile industry concept of ‘unlimited’ (i.e. limited to ‘fair-use’) is to be applied… From the small print:”

At the time of launch downloading of the tracks is not restricted unless usage is not considered to be for personal usage or user is using any unsupported applications or connection methods. If average usage for all users reached predefined levels Nokia is allowed to restrict number of downloads for individual users

More importantly, Mulligan notes the deal could work out expensive for consumers – those on pre-pay contracts will have to pay all the data charges they incur when downloading music – sure, the tracks may be free, but you’ll pay through the nose for the bandwidth.

“That should generate some pretty rapid usage of pre-pay credits in the initial weeks as customers fill up their phones,” Mulligan remarks.

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