A New Tune for Nokia

Source: Reuters

Can music soothe a savage market?

Nokia hopes so. Battling slipping market share, the Finnish mobile phone maker is aiming for a bigger chunk of the cutthroat mobile device space by making music features a greater part of its product strategy.

A key part of the plan has been the company’s music store, through which mobile users could buy and download songs similarly to Apple’s iTunes Music Store.

Now, Nokia (NYSE: NOK) is adding additional elements to the mix, including a subscription service and phones that offer unlimited downloads for a year.

The company’s “Comes With Music” service, which is planned to roll out globally beginning next month in the U.K., provides a year of unlimited access to the Nokia Music Store catalog. The service is free with the purchase of Nokia’s 5310 XpressMusic device, which debuted back in May.

The move comes as Nokia seeks ways to cope with a weaker-than-expected market. The company reported that it expects its third-quarter share to decline from last quarter — a drop from earlier expectations of flat growth.

The world’s top handset seller blamed increasingly aggressive pricing by competitors and a slower ramp-up of its mid-range devices.

“We expect the product launches and start of shipments to be on track during the remainder of the third quarter and the fourth quarter 2008,” Nokia stated in a release today.

Still, Nokia said that despite the revised outlook, it continues to predict that it will ship 10 percent more mobile devices than the approximately 1.14 billion units it sold in 2007.

One arena in which Nokia and its competitors are wrestling for the hearts of consumers is with mobile phones that go way beyond providing voice capabilities — such as by adding portable music features now ubiquitous, thanks to the success of Apple’s (NASDAQ: AAPL) iPod and iPhone.

Apple itself is widely expected to have new product news up its sleeve, with an event scheduled for next week that’s prompting rumors of new music devices and possibly a subscription model for iTunes.

For Nokia, increasing its own focus on portable music means a change in strategy through Comes With Music, which it’s anticipating will prove more appealing to consumers and less controversial for music labels.

A user can retain all of their downloaded tracks even once their subscription has ended, although the music disappears if they upgrade to a new device.

“Comes With Music is based on a unique business model created in collaboration with the music industry that allows everyone involved to make a profit,” Liz Schimel, global head of music at Nokia, told

Nokia has yet to release pricing or its specific rollout plans for the service, but said it would provide more details at an event in London scheduled for Oct. 2. According to Schimel, the service will be
gradually deployed country by country, at a price point she described as compelling, considering the unlimited access to a year of music.

“While the U.S. is a key market for Nokia and music, we are not in a position to make any Comes With Music announcement on availability at this time,” she added.

In tune with the market?

Yet Comes With Music, which Rubin terms as a “relatively new model”, may have trouble gaining traction in the U.S. In particular, wireless carriers may not buy into the deal since they’re dependent on users’ frequent device upgrades.

“If [Nokia] users want to keep the music, they have to keep the handset,” Ross Rubin, an analyst with NPD Group, told InternetNews.com, adding that this could discourage users from being as quick to buy new phones as often as they do today.

Apple iPhone users can download songs from the vendor’s music store on a pay-per-song or per-album basis. That’s the same approach Verizon Wireless provides through carrying Rhapsody’s online music store, which offers a subscription service as well. However, unlike Comes With Music, Rhapsody’s music tracks are erased once a user’s subscription ends.

“What Nokia is offering is flexibility and allaying the concerns that the music is gone once a subscription expires, but the trade-off is that they are confined to keep using that handset,” Rubin said.

Additionally, he said, copyright-concerned U.S. music labels may get prickly when it comes to allowing users open-ended access to downloaded music.

In any event, Comes With Music marks the latest move to capitalize on mobile music by Nokia, which has a slew of music download-capable phones under its belt. Just a week ago, the company pushed out three additions to its Nseries line of phones, one of which provide integrated access to Nokia’s music store.

And Nokia’s not alone. During its earnings call in mid-summer, Motorola stated it plans to push out 35 new mobile devices by year’s end, many of which will include music features.

The way Schimel sees it, Nokia is already comfortably in the lead, having sold more than 300 million devices with music players.

However, “music is becoming more of a ‘me too’ feature, and the costs associated for the vendor and the wireless carriers are becoming incremental,” Rubin said.

A new NPD Group market study reports that vendor interest in baking music features into their phones have increased dramatically in just the past year. The study states 65 percent of devices sold during the second quarter of this year were music-enabled, compared to 45 percent in the same period last year. Other in-demand device features include QWERTY keyboard and Bluetooth connectivity.

Still, the Finnish giant may simply be looking for any feature that can give it an even greater hold on the smartphone market. According to a Gartner report, Nokia held 45.2 percent of the worldwide smartphone sales in the first quarter of 2008, a 25.3 percent increase from the same period a year earlier.

BlackBerry maker Research in Motion (NASDAQ: RIMM) held 13.4 percent after a 107.3 percent spike in sales from the first quarter of 2007, while Apple’s year-old iPhone controls 5.3 percent — putting it ahead of tenured players such as Sharp, Fujitsu, Motorola and LG.

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