Nokia defends free music scheme

 

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By Reuters

Posted on 1 May 2008 at 15:40

Nokia has defended its decision to offer unlimited music downloads to phone buyers, arguing that it will not come at the expense of profits.

Reports have suggested Nokia is paying $35 to Universal for each sold handset, and an extra fee for each downloaded song after the first 35, potentially eroding its close to 40% gross margins in mobile phone operations.

However, the company refuted allegations that it was gearing itself up for financial disappointment: "We expect to make money both from our traditional device sales, as well as from the Comes With Music service," says Liz Schimel, head of Nokia's music business. "I can assure you that we are looking out for everyone's interests in creating these new business models, including our own."

Nokia has so far signed Universal and Sony BMG to its Comes with Music scheme, which differs from other packages on the market by allowing users to keep all the music they have downloaded.

"This new model is innovative and creates a positive situation for all stakeholders, but it does require a different way of thinking for our content partners," Schimel says, though she declined to go into details. "Recent articles that I've seen have fundamentally misunderstood the concept behind the Comes With Music model."

"Comes With Music has the potential to equal and even exceed the current value of the [digital music] business," Tero Ojanpera, head of entertainment and communities business at Nokia, told a news conference last week when unveiling Sony BMG deal.

"If we sell a single percentage of our total sales as Comes With Music bundles, the revenue for the music industry would be almost the same."

Apple dominance

Record labels are looking to Nokia to challenge the dominance of Apple's iTunes, as they have struggled to negotiate on a level footing when it comes to issues such as pricing.

"Comes with Music is one of the most exiting things out there in the digital music," says Mark Mulligan, research director at Jupiter Research. "Apple is facing market perception of iTunes looking like yesterday's service. Basically, iTunes looks pretty much the same it looked four or five years ago."