It has been one year since Nokia announced the launch of its unlimited music download service, Comes With Music, and striking deals with all the parties involved has been a mammoth task.
Music labels are famously protective of their revenue and extremely paranoid of any threat to it. But, by the time the initial announcement took place last year, Nokia had Universal Music on its books as a partner and eventually, one by one, all the major labels followed, agreeing to make their music available on the service.
It was the operators that proved more difficult for Nokia to win over. The manufacturer wanted the Comes With Music devices to be available in every operator store. They would be subsidised by the networks on monthly tariffs with unlimited data that would enable users to download music straight onto the handsets.
The Finnish handset giant is far from this dream scenario. Nokia announced the service two weeks ago with no operator support, and, instead, has entered into an exclusive agreement with Carphone Warehouse to sell the first Comes With Music handset, the Nokia 5130 XpressMusic, on prepay. The service is also available on the Nokia N95, and will be available on the XpressMusic 5800 in January.
The 5130 is a 2G device that doesn’t allow tracks to be downloaded over the air. Instead, customers have to download the music onto their PCs and then sideload the tracks to their handsets, sending a confusing message about it being a music media device.
On a last-minute deal, Nokia managed to persuade 3 to take the flagship 5800 XpressMusic touch-screen device and the N95.
The deal with 3 was struck last week, and because the other operators were opposed to taking the service, 3 is likely to have been in a very good bargaining position for the details in the agreement.
Nokia has promised to pour significant sums of money into marketing the service and, at least until other operators sign up, all the advertising will have a 3 logo.
Threat to operators
Nokia has been very vocal about its strategy of going beyond just being a handset manufacturer by moving into the services arena, but most operators would argue that services is their territory. All the five operators already have a music offering, so it’s hardly surprising that most are unwilling to back Nokia’s Comes With Music service.
Vodafone already offers an unlimited music download service, MusicStation, and O2 recently signed a deal with Napster for a new music store. Comes With Music would inevitably cannibalise the revenue and future growth of these services.
One operator source says: ‘If we took Comes With Music, Nokia would be eating our lunch. Nokia is trying to seize some of the market with this service.’
Another issue with the service the operators are struggling with is finding a way to subsidise the handsets, which would allow them to make profit on
it too. Operators are not willing to watch Nokia and the record labels making a profit from the devices they are subsidising.
It’s not just the competition for mobile music services that operators are worried about. Giving Nokia the opportunity in mobile services would make it a threat to the operators, who are already worried about powerful companies like Apple and Google entering the mobile space.
The Carphone connection
The first handsets to launch with Comes With Music in mid October is the Nokia XpressMusic 5310 and the N95, both available only on prepay at Carphone. Unlike the 5310, the N95 is 3G, which allows for over-the-air downloads, but the data costs will have to be covered by customers, which could confuse users who bought the service believing that downloading music was free of charge.
Carphone has used a lot of imagination and mobile retail expertise in creating the bundle for the service, compensating for the fact that customers cannot download the music tracks straight to their handsets. The service will be sold with a 3 mobile broadband deal, which includes the XpressMusic handset, a contract deal to mobile broadband and a laptop.
Although initially slightly confusing, the package has everything needed to download music free of charge – the Comes With Music package for unlimited downloads and the laptop to download them onto and sideload to the handset.
There is no such thing as free music, as the labels will make sure they get paid. Nokia has put a premium on the Comes With Music handsets, which it will use to pay the labels for the tracks downloaded.
When the 5310 XpressMusic does not come with music, it is sold at the Nokia store for £116, while Tesco, for example, sells it for £81 with a subsidy on prepay. With the Comes With Music on board, the phone will retail for £130 at Carphone, which means that Nokia only makes an additional £14 per handset, from which it has to pay the labels.
Rob Wells, vice president of digital at Universal, says: ‘There has been speculation about the profitability for Nokia, but the people we deal with there are not stupid. There is no way that they would have done this if it didn’t make commercial sense for the company.’
Record labels’ revenues have been declining for the past couple of years as CD sales have fallen and digital music has failed to fill the void. Some labels are hoping that new business models and ways of selling music will help lift the revenues again.
‘We were the first to sign up to Comes With Music, because we believe that these kinds of cross-subsidy deals will earn us significant amounts of money,’ Wells says.
For a while it looked unsure whether Nokia would manage to persuade EMI - the last remaining major label to make its content available on the service. Without the label, some important artists, such as Lily Allen, Robbie Williams and Coldplay would be missing from the service. However, Nokia revealed its EMI deal at the launch event two weeks ago. One source at the label says: ‘We signed the deal quite a bit before the launch [event] on 2 October. We wanted to be sure about getting it right.’
Carphone gets musical
Carphone has been busy building its image and association of its brand with music. Most prominently, the retailer now sponsors The X Factor (right), its sells the iPhone, and now it will be providing Comes With Music, which Nokia is likely to back with a generous advertising budget. Carphone’s retail partner, Best Buy, recently acquired Napster for £121m, indicating that music will be a big part of the company’s strategy in moving forward.