Nokia Corp. isn’t the only player looking to offer devices that come with music.
The Finnish manufacturer raised eyebrows late last year when it teamed with Universal Music Group International to unveil Comes With Music, an ambitious program that will package unlimited full-track downloads for a year with specific Nokia phones. Music lovers will be able to download to their hearts’ content, keeping the tunes with them after 12 months regardless of whether they buy a new phone, switch services or simply opt to stop downloading.
Nokia’s planned offering mirrors MusicStation Max, a “pre-licensed mobile music” service unveiled earlier this year by Omnifone. The London-based outfit outlined an unlimited version of its subscription service already available through Vodafone U.K and a few other carriers, touting a deal to embed the offering on phones from LG Electronics Co. Ltd.
And phone makers aren’t the only players looking to move product by packaging music with the hardware: Apple Inc. is rumored to be eyeing the model, considering either a premium of up to $100 for unlimited access or a monthly subscription fee of less than $10 a month.
Success wanting
The trend marks the latest strategy by two industries desperate to gain traction where they have largely spun their wheels. The music industry, of course, continues to look to mobile to offset collapsing CD sales and rampant online file-sharing. And wireless players have failed to gain an audience by trying to duplicate Apple’s pay-per-song iTunes model.
“Considered together these two subsidized subscription offerings (Comes With Music and MusicStation Max) represent an important shift in strategy in the digital music market and have strong long-term potential,” JupiterResearch analyst Mark Mulligan noted earlier this year. “To date mobile music has had modest success, often offering an inferior experience to PC-based services. Indeed their relative failure can be traced to their status often as mobile imitations of iTunes Music Store.”
Biz model unclear
But while the consumer appeal of all-you-can download devices is obvious, the economic viability of such a model is questionable. Nokia has inked two major-label partners for its service – Sony BMG signed on last month – but is rumored to have agreed to pay the wholesale per-unit rate for downloads over a certain ceiling as well as a per-handset royalty, leading onlookers to derisively call the offering “Comes Without Profits.” (Nokia executives have declined to discuss financial details, but have said they expect to profit from the service.) And the company hopes to come to terms with the two other big labels before launch, slated for later this year.
So can any company make a business offering all-you-can-download music phones at a price point that won’t fall on deaf ears?
“The short answer is yes, it’s feasible,” said JupiterResearch analyst Neil Strother. “But the devil is in the details. You’ve got a lot of moving parts and partners who could either screw it up or could say, ‘Let’s try to spur adoption. Maybe our per-unit or per-user or per-whatever is going to be potentially lower than what we have currently, but there could be a bigger pile of money for everybody.'”
Details could derail
Indeed, many of those details – almost all of which have yet to be ironed out – will be critical in determining the success or failure of Comes With Music and MusicStation Max. A service that doesn’t have the backing of at least two major labels is likely doomed to fail, and DRM-weary consumers are unlikely to pay a handset premium for any service that won’t allow them at least some flexibility in how they listen to the music.
But perhaps the biggest question surrounding the forthcoming bundled offerings is whether users will shell out for music once their time at the all-you-can-eat buffet is up. Nokia and Omnifone could try to migrate users from expired unlimited plans to pay-per-month subscription offerings, but some users will surely balk at paying for what just a few days ago was “free.” And asking music lovers to buy expensive new phones every year or so will be a challenge – particularly in the United States, where phones – not services – are subsidized.
Welcome mat
Which is why it’s interesting to compare Nokia’s marketing lingo with that of the music industry when it comes to Comes With Music. The manufacturer is hoping to use music to spur phone sales, with Nokia executive Anssi Vanioki stressing last year that “all the songs and albums are there for you to own and keep.” That model follows the strategy of Apple, which continues to produce impressive margins with its line of iPods and iPhones, while its iTunes storefront generates just pennies per transaction, according to analysts.
But the music industry views unlimited offerings as kind of a welcome mat for consumers, ushering them into the world of mobile music – where they can be monetized after their unlimited passes have expired.
“The first part of Comes With Music is a sampling service,” insisted Sean Rosenberg, director of mobile marketing for the RCA Music Group, a division of Sony BMG. “Once these trial periods come to a close, people are going to know whether or not this is something of value to them. . It’s about getting music, getting these services, into a giant, massive audience.”
Challenges remain
And that hurdle may be the deciding factor in the viability of Comes With Music and MusicStation Max. Apple’s effort to offer iPods with unlimited downloads have hit a snag, according to news reports, because the company has offered only about $20 per device to the music labels – roughly one-fourth of what Nokia is rumored to be paying. Getting consumers to open their wallets after the unlimited window closes may be the only way to bridge that gap.
“If these services turn into something that becomes valuable,” Rosenberg continued, “this is something that will appeal to many, many mobile users. But it’s not a platform that’s limited to mobile phones. There are many sockets this could be successful with, from a PC with broadband access to MP3 players, which are more and more going to have Wi-Fi or network accessibility.”
