As telecommunications service providers and consumer electronics companies increasingly move into the content delivery business, they are bringing some innovative business models along with them. Digital Broadcast takes a look at Nokia's double-pronged strategy.
Handset manufacturer Nokia has launched 11 of its Nokia Music Stores around the world and later this month, the Middle East will become the 12th territory to be covered when a UAE-based portal comes online.
Nokia is currently pushing two music business models, both of which are based on the Nokia Music Store online portal. The most recent model is the new Comes With Music (CWM) package offering unlimited access to the music library for a year.
The second is a more orthodox system, offering the users a pay-per-item download service or monthly subscription streaming service. This has been operational since last year and has expanded globally during that period.
"The UAE is one of the leading regional markets in terms of digital connectivity," says Ayman Chalhoub, business manager for music at Nokia MEA.
"It has one of the highest internet penetration rates in the Arab world and an extensive 3.5G network provided by both operators, so it makes sense to open the Middle East's first Nokia Music store in the UAE."
The UAE has been selected as the first Middle East market to receive the service ahead of other markets such as Saudi Arabia for this very reason, although movement into other GCC countries will follow eventually.
"We will look at other markets as we progress but at the moment we believe the UAE has the right combination of qualities to ensure a successful launch," says Chalhoub.
"Connectivity and availability of technology are the key factors at this time. Internet penetration is a high priority. After all, it is an internet-based service we are talking about."
Users will be able to listen to 30-second clips of any song for free before purchasing individual tracks and albums or listening via a monthly subscription based streaming service. Retail prices were unconfirmed at the time of press.
The site will have the same look and functionality as existing Nokia Music Stores in operation worldwide, with some degree of localisation.
"Music is a local experience and that is why we open each store on a country by country basis. Each country's consumption and usage pattern is different," claims Chalhoub. "We will have content from Rotana and Qanawat as well as the international majors. We want to offer the most diverse portfolio of content available. It will be one of the most diverse music catalogues available in the Middle East and its expansion will be ongoing. The site will ingest thousands of tracks on a daily basis."
As well localising through content from smaller regional labels, the site will also feature editorial content and promotions aimed specifically at the UAE market.
Meanwhile, in the UK, where the first Nokia Music Store opened last year, the company is about to move into the second phase of its business plan following the launch of its much-hyped Comes With Music offering last month. The service offers 'unlimited' music to users who purchase a CWM packaged device. For around US$225 customers get a handset and 12 months unlimited access to the UK Nokia Music Store.
Adam Leach and Mark Little, Ovum
"Nokia CWM devices combine a mobile phone with a year's free unlimited subscription to the CWM store. At the end of the contract, consumers can keep all the downloaded music, continue the service if they upgrade their phone, or buy `la carte from the Nokia Music Store.
"Nokia has been bullish with its launch of CWM. Although its target audience of young music enthusiasts rely on operator-subsidised handsets, don't have credit cards and can't afford OTA downloads without flat-rate data plans, Nokia is not waiting for operator support on the ground.
Perhaps Nokia surmises that it is this very bullishness that will push the operators into supporting a music service in direct competition with their own! Nokia's new music service may eventually be seen by consumers as an exciting revolution that lowers the cost of exploring and discovering a sizeable choice of music, but risks being seen by operators as a disruption to business as usual with their most important handset provider.
CWM phones will be offered at a premium that is shared with the music labels. However, if operators have to absorb or heavily subsidise the phones it will cost them dearly; if not the cost will be dropped in the laps of credit-strapped youngsters.
"Nokia emphasises that CWM has value and is not free, and as such generates income for artists and the music industry. The business model pays out a share of handset sales to labels and artists that is in proportion to that of downloads, plus limited supplementary payments over certain download levels. This protects Nokia's margins from bored teens, but not from the bandwidth charges that a highly successful CWM service could create. That said, Liz Schimel, Nokia's Head of Music, is confident that the CWM service will make a profit for Nokia and the labels."
There has been much debate however, over Nokia's interpretation of 'unlimited' downloads. When the service was announced critics claimed that the music would be limited to a specific handset only and that the licences for the content would expire at the end of 12 months. So is the service as revolutionary as the company claims?
"You get free, unlimited access to the Nokia Music Store for one year and yes you get to keep the music. This would not represent a revolution in the digital music space unless you got to keep the music," says Chalhoub.
As for the specific ownership rights of each track, these are complicated and depend on the particular deal struck with the label that owns the rights to any given track.
"This is not an issue that Nokia is dictating. We will have tracks that give you unlimited synchronisation with a limitless number of devices as often as you like. Others will be different. Either way, before the purchase of any track the consumer will be made aware of the rights that are associated with it," says Chalhoub.
At the end of the 12 month gratis period, users then revert to accessing the Nokia Music Store in the same way as other users.
"Ideally, consumers will want to buy a new CWM-equipped device so they can continue with a fresh, free 12 months of music," admits Chalhoub.
"Music is one of the company's core positions. Nokia is currently the world's number one manufacturer of Mp3 and radio receivers via its handset collection. We are seeing more and more of our customers using our devices as their main or even their sole music player. That equates to a huge amount of media being consumed on our devices so it makes sense for us to adopt this strategy and to complement the consumption by actually carrying the content as well."
So will the UAE be seeing Comes With Music in the future?
"We will definitely be looking at this. For us the music store is just a start, we will consider CWM in 2009 for the markets that already have a Nokia Music Store, including the UAE," reveals Chalhoub.
There has been some resistance from consumers unwilling to use their mobile as their primary Mp3 player with clumsy library software and limited accessory options encouraging many to stick with a dedicated music player. The importance of these software and hardware deficiencies is now being addressed, suggests Chalhoub.
Between flash hard drives and MicroSD cards, mobiles are now offering 16GB of memory, still someway off a typical, dedicated Mp3 player but considerably more than what was possible even just a few years ago. More specifically Nokia, has included a 3.5mm headphone jack as standard on its phones so customers are not limited to manufacturer specific headsets as well as investing time and money in the software.
"You can burn CDs directly from the mobile device. It can rip CDs at the eAAC+ format, which is the most efficient [Mp3] format.
"Nokia Music for the PC was built from the ground up and we wanted to make it as simple as possible," says Chalhoub.
The software also includes a host of advanced features akin to those on more established music library programmes with wishlists and dynamic recommendation features removing many of the shortfalls of earlier handset-based software, including previous Nokia incarnations.
Despite many content providers in the region looking to use ad revenue to entirely - or at least partially - subsidise subscription costs, Chalhoub is confident that CWM will prove successful.
"We believe it is the best business model moving forward. We have built a great model in conjunction with the music industry, which will ensure significant revenues for the artists, the labels and the industry in general," claims Chalhoub.
"Nokia's Comes With Music is a first: you can download all the music you want, and you get to keep it and play it forever. It is a bold and radical innovation. If it takes off, it will be the first time that Nokia has succeeded in selling a service as a primary product, rather than a supplement to a device.
It is aiming to push Comes With Music heavily to the youth market, and it is taking a more aggressive approach to the marketing than has recently been typical. We were particularly impressed by the branding and marketing initiatives at launch, which are a bold step away from the more sober campaigns of the past.
"There is a suspicion that Nokia is launching Comes With Music as a loss-leader to drive device sales. That was recently denied by Liz Schimel, Nokia's Global Head of Music, who said that at $225 for the package, Nokia will be making a margin on the licence element of the price. In any case we believe that Comes With Music is more about Nokia pushing itself into the consumer market with a headline-grabbing service, and thus initiating a rapid spot of brand transformation.
"We expect Comes With Music to do well in the holiday period, but it will need to sustain any early momentum throughout 2009, with new device launches and constant promotion. The key challenge will be communicating it to the mass market. The retail experience is vital in the UK: it can only succeed if [national retail partner] Carphone Warehouse's staffs are well trained and incentivised to sell Comes With Music. Consumers are not accustomed to 'unlimited music' and they will have a lot of questions about what exactly that means."