The first casualty of this decade's digital music revolution has been music sales, as consumer switched from CDs to 99 cent singles or free downloads. But some industry executives see a chance to reverse the trend and sell music in significantly larger bundles -- more songs, in fact, than the average consumer buys in a year. That's the home-run swing promised by initiatives such as Nokia's Comes with Music, which signed up its third major record company today, Warner Music Group. Universal Music Group, an early advocate of this kind of thing, and Sony BMG were already on board, with EMI still in licensing talks.
The Comes with Music proposition is simple: buy a specially designated Nokia phone, get an unlimited number of seemingly free song downloads for one year. That's seemingly free, not actually free, because the price of the phone will include a hidden sum that Nokia will split with the labels and music publishers.
In an interview this morning, Liz Schimel, global head of music for Nokia, gave few hints about the size of that hidden sum. "Pricing gets set in the marketplace by many factors," she said. As for the business model, Schimel said, "This is not about just doing some kind of promotion for device sales. It is about building a long-term sustainable services business." In other words, the premium charged for Comes with Music will be large enough to cover the anticipated costs and provide a profit margin for Nokia. "We have created a structure based on revenue sharing between us and the labels that we think is a very fair and positive business model for both Nokia and for the labels," Schimel said.
The risk for labels is that only heavy music consumers will leap on offers such as Nokia's, resulting in a further loss of revenue. That possibility loomed large in the minds of some industry executives, yet the doubts began to dispel as market researchers found strong support among consumers for premium priced bundles of devices and music. In fact, surveys found that the bundles made the devices more appealing. Now, some executives argue that the bundles could help extract more money out of light-spending music consumers -- a 180-degree shift away from the industry's initial fears. That's why they're looking to sell music not just with phones, but also with an assortment of devices and services.
Nevertheless, Nokia's approach still hedges its bet by making the
"free" downloads less appealing than 99-cent tracks or songs encased in
plastic. The downloads will be wrapped in Microsoft's widely used DRM (no, not the one that's on the Zune),
preventing them from being burned onto CD. They can be synchronized between
your mobile phone and your PC (which can download tracks from Nokia, too), and they'll continue to play after
the year of free downloading is over. But unless you pay a renewal fee (price TBD), you'll lose them as soon as
you trade in that phone or buy a replacement PC. In short, this is a
subscription service with an (obscured) up-front fee instead of monthly
charges. And it sells access to songs, really, not the songs
As noted yesterday in my post about Rhapsody,
subscription music services haven't gotten much love outside the
offices of the labels themselves. Many music fans simply can't accept
the idea of paying month after month for tracks they can't keep, even
though they don't have any misgivings about "renting" TV programming
through cable or online gaming through World of Warcraft.
Services like Comes with Music may seem different enough to overcome
that resistance. But Comes with Music's reliance on DRM will be a
pretty strong signal to the public that the offer is less than meets
Of course, the value offered by the service will depend on the premium charged. Schimel declined to say which phones will be included, how much they will cost, what date the service will be available or which markets it will be rolled out in. Instead, she said the company was "absolutely looking at devices in a broader range" than just the high-end N series phone, possibly even such phones as the 5310, which T-Mobile sells for just under $50 to new customers. She added that Comes with Music would arrive by the end of the year, and would launch only in markets where Nokia has opened an online music store (11 territories so far, all in Europe and Asia).