Nokia phones to come with Warner music

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 themselves.

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 the eye.

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).