Nokia comes to music

On December 4, 2007, at the annual Nokia World Conference, Nokia rolled out its “Comes with Music” initiative – the highlight of the today’s write-up.

These words in effect hold the very gist of the programme - Nokia's devices will come included with an unlimited annual subscription for online music downloads. As of today, the company has signed up only one label of the Big 4, although, the largest one - Universal Music – and all other major players of the market are currently being negotiated. Also, the foremost trump of Comes With Music is that unlike all other music-minded services employing subscription plans, all tunes you download via Nokia's service are never going to vanish even if the user cancels his subscription for whatever reasons, in other words, you get your music for free and for good.

The press-release on this event doesn’t brim with facts– several paragraphs filled with cliches, however other online resources have supplied us with more detailed bits of information.

Downloaded music can be played back both on the device it was uploaded on in the first place and on a PC. What is more, the very process of downloading a tune can take place on a mobile terminal or PC, what is important is that you will need to enter a special PIN code, which is likely to ship with handsets. As for PC, the user will be enabled to download and play music after registering at Comes with Music.

All tracks will come in WMA with Windows Media DRM protection, which is great news for Microsoft, which has even renamed its PlaysForSure programme, so that now it goes by the name of “Certified for Vista”. Perhaps, they expect to have some extra advertising for the new OS on every box packing a Nokia's music-heavy phone?

Most of the tracks will utilize the bitrate of 192 kb/s, although select songs will be offered in 128 kb/s.

While your subscription is still active, you will be able to re-subscribe with another Nokia’s device for up to three times, meaning that every account allows for three phone swaps.

The service is free during the first year, and then you are offered either to prolong your subscription for a fee or go for a new handset with new twelve months of free subscription.

Nokia’s music service is in fact an internet catalogue accessible from cellular networks, as well as WiFi.

No word on exactly what models will support the programme, but obviously the pool will include those handsets offering their users to purchase music from Nokia Music Store: N95, N81 in its 8Gb and standard iterations.

At first the service will be available only in Europe.

The announcement kicked up some big fuss, the reason being that the offer brought by Nokia sounds too sweet: free of charge and yet unlimited music over the first year, plus the user’s right to keep it for good. The programme is scheduled to kick off in the middle of 2008, although there are still many white spots as far as details are concerned, and some of them are quite vital.

From what’s already clear-cut, “Comes With Music” is in integral part of Nokia’s new strategy, where the company should stop being just a phone maker and morph into a provider of complete solutions, including online services in the first place. The latter are gathered by Nokia under an umbrella brand, widely known as Ovi, launched in August, 2007.

Nokia Comes With Music was not the first music-centric initiative of the Finnish manufacturer in 2007 - when August was coming to close, they debuted their first music service - Nokia Music Store.

Late in October they opened the first Music Store for UK residents, and their choice was by no means a random pick, for this is Europe's largest market, and on top of that it currently holds the third place globally, with only the US and Japan topping it.

We think it will be pretty interesting to face off these two Nokia’s music-minded offerings that were so close in terms of their release dates:

It doesn’t take a rocket scientist to see the big difference between these two programmes, and it is pretty apparent that with the debut of Comes With Music, Nokia’s Music Store practically loses all meaning. What could possibly drive Nokia towards killing its brand-new store that has consumed so much money, invested into its ad campaign and development?

Probably, the reasons for that lie in the cold welcome Nokia’s Music Store received from the market and analysts. Effectively, Nokia's store was rightfully called a copy-cat of already existing portals, including iTunes Store and hundreds of others.

It’s an open secret that you can't gain much by churning out replicas of the services that are abundant on the market these days, and Nokia had to come to the same conclusion. This way, Comes With Music is more likely to be the result of Nokia learning its lesson and hours of brainstorming on how to crack the music market with a spot-on offering. They needed a “killer” that would have to do away with the company's very own Music store as well, but these causalities were well justified given what was at stake.

Probably it would be better to deduce the reasons for the arrival of Comes With Music and its possible implications for the market in the light of its being not only a part of Nokia’s strategy, but also another height of a full-scale war for the music market that has been going on for ten years straight. And that’s the point when we need to take a better look at another of our story - Universal Music.

Suzanne Vega’s tender voice that was first heard in 1994-1995 compressed with the MPEG2 Layer3 algorithm was sort of the shots in Sarajevo for the music industry, although they passed completely unnoticed. Starting from 1992, the sales of audio CDs were on a crazy and unparalleled upsurge, putting all record labels under a shower of gold – who would ever believe that somewhere far away in European labs there was a technology that would soon end this era? And even if there were people who knew that, top managers of record labels weren’t among them for sure, for shortsightedness had always been one of their a common traits.

Thinking of how rapidly MP3 stormed into the world, you get to feel sorry for these dinosaurs of the industry, who had to face something they didn't expect at all. First free applications for encoding of songs into MP3 and listening to them on PC, MP3’s foray into the Web, Winamp, world’s first MP3-players, defeat in the court case “RIAA against Diamond MM, Napster, iPod” - this avalanche of events fell on their heads in only five years’ time!

Before that moment, for decades new technologies had been politely knocking on the door of the music industry, asking for permission to enter, and having received the blessing of the big bosses, were kept on a tight leash thereafter. That's how vinyl disks, cassettes and CDs materialized on the market, but MP3 was a wholly different story, as this format literally smashed its way into the industry.

At first, the record labels were stupefied, then they tried to ban the format, and only when they finally came to realize that there was no going back, no way to pull the genie back into the bottle, they started pondering over what they were going to do.

That was what Steve Jobs found when he first appeared on the market in 2003 – a frightened and perplexed industry. But, he came to them as a savior on a white steed: “You don’t know how to survive and operate in the new reality? You don't need to, as I will think for you! All you need to do is give me the access to your music catalogues, and I will do the rest on my own". We can't say that the sound-recording industry was happy to accept this offer - maybe these people know little about technologies, but as far as business goes, they have seen it all.

It was Universal Music who gave in first, giving the CEO of Apple the green light for the domination of his company on the legal market of digital sales for years to come.

By 2007, Apple had 22% of all music in the US – and that includes everything, from CDs to ringtones.

It was only a matter of time for Apple to reach the point when it would be too strong and someone would actually have to challenge it, and when iTunes Store would turn into the iPod of the music market

Only then did the big bosses of the music industry fully realize, as slow as they are, what monster they had forged with their own hands. However, if Jobs thought the record labels would readily hand him full control over their music, he couldn't be more wrong. As shortsighted as they are, the movers and shakers of the industry do realize that when you lose control you lose money. In 2007, the sound-recording companies made first gentle, yet persistent attempts to get off the hook, with Universal Music, the label, that had stirred up all this trouble in first place, in the first rows.

Stopping iTunes wasn’t an easy walk, and it was largely thanks to the fact that some time ago the record-labels did every last thing they could to fasten the noose around their necks. “We need a bulletproof DRM!” – that’s what they asked Jobs to do back in 2003. “Of course, how could it be any different?” – said Jobs and… tacked the iTunes Store sales to the iPods for good. “DRM should be BULLETPROOF” – insisted the record-labels. “No problem” – agreed Jobs and made his DRM technology closed. The picture we see today is quite something – 22% of the US music market and roughly 7% of the global market are literally locked up by Apple, clearly, all these record labels with their unprotected CD have a long way to go.

Now the music industry had only two options to choose from.

First – to “strike slavery with freedom”. The labels were desperate enough to try this seemingly unthinkable way - first EMI and then Universal experimented with selling DRM-less music.

In the long run, it could allow them to defeat iTunes all together - the empire of Apple was bound to waver had they pushed it from all ends, including Google, Amazon and others. What is more, it also exempted them from having to struggle against Apple’s foundation - the iPod, as they could easily play DRM-free music as well. Turning Apple’s greatest weapon against it was a tempting opportunity; but imagine the gnashing of the bosses' teeth that came out from their offices when they had to give their priceless music, completely defenseless at that, to dirty Internet users so they could profane it however they pleased.

But there was another way to go – appeal not to the user’s sense of freedom, but to his greed of an ordinary consumer.

So they needed to outbid Apple in this field and do that by quite a margin. After all, the record labels have the right to sell their music to whomever and how they want, and they had to use that.

The result of the second approach came in the form of Universal’s “Total Music” campaign, prepared jointly with Warner and Sony. In this case “Total Music” is like total war or scorched-earth policy, so as to leave nothing to Apple.

The foundation behind this campaign is subscription. And it would seem there was nothing new to it – online services had been offering subscription-based services for years without any particular success, while Apple even snooted it.

So, what’s the catch? The idea of Universal lies in hiding the real subscription price in other fees, like what Internet providers or cellular operators do.

That's why the service seems to be free of charge, meaning that the user doesn't pay for downloading music, and the subscription’s price is zero. Freeroll!

Just think of it – you buy Apple’s iPod Nano 8 Gb and stuff it with music from iTunes at 99 cents per track. Or you get yourself a CD, where every song costs pretty much the same money and rip it onto the player. Ultimately, your 8Gb of music will set you back at least 1,500 USD.

And with Total Music you pay NOTHING. Well, you do pay some coins actually, but you don't really see it, and thus the illusion of a free dinner sticks to your eyes.

Now tell me, how many people will actually refuse to have 1500 USD worth of music for free, reasoning this with their disapproval of DRM, slogans along the lines of "information should be free of charge" and similar nonsense?

Perhaps you have already noticed how similar Total Music and Nokia Comes with Music are. Nokia itself decidedly denies the fact that its programme is a part of Universal’s initiative, despite the fact that this behemoth of a record-label is its only partner so far.

But the truth is, Nokia is right – Comes with Music is not Total Music. It is the next step of its development.

The campaign of Universal has been tweaked in two major ways. First it is a big step towards the user, meaning that his music will no longer self-delete itself once the subscription expires. For years before Comes with Music, it was very typical of all subscription-based services, but now it's gone. The other aspect, the one that has to outweigh the company's unparalleled generosity, is that all music is linked to Nokia-branded handsets.

Now we have a better idea what Nokia's sudden restyling of its music policy in December was all about. Total Music was announced in November, which signified pretty much the following: Universal was waiting for volunteers to finally bring Apple down with its Total Music, allowing all participants not only to outdo Apple price-wise, but also kill A la carte sales, the thing that constitutes the basis of iTunes Store, once and for all.

And Nokia was the first company to take up this call, but it was not going to do someone else’s job risking its own head at that. It doesn’t matter whether Nokia came with a number of reservations that turned Total Music into Comes with Music Nokia on its own or jointly with Universal. What truly matters is that the initiative of Universal has morphed into Nokia’s weapon that it’s going to use to foray into the much-desired market of web-services.

What made the US record label meet Nokia halfway so willingly? Because, in effect, they swap their “golden handcuffs” (a spot-on name they gave to iTunes Store) for another pair? Basically, the same thing that forced them to listen to Jobs back in 2003 – shortsightedness, lack of strategic mind and being overly focused on momentary benefits.

Today Nokia is more than 40% of the world phone market, which is way more than Apple’s share on the MP3-market.

Moreover, Nokia is on the cutting edge of multimedia. The future of the portable audio market lies within multimedia-ready mobile terminals, that’s the thing nobody can deny. So who, if not Nokia, has the best chance to beat back Apple?

The temptation to give a “big guy” a really “big gun”, so that he could give Jobs, who cuts 29 cents off every track he sells, a good lesson was too great to resist. What they are going to do in case Nokia morphs into the new Apple – well, that’s one thing Universal isn't too much worried about, at least for now.

So, there are two paths that have led to Nokia Comes with Music – one of them was Universal’s, where it ended up the loser in the struggle for the music market, it lost to piracy, Apple, but among all other things, it lost to itself. The other road was walked by Nokia in hopes to turn from a phone maker into a manufacturer specializing in portable multimedia computers and then into an online company. Its path, on the contrary, consisted of countless victories over direct rivals, adjacent markets, own conservatism and obsolete thinking. Now these two roads have met in one place – what’s going to follow if these two come together?

Nokia starts things off with a good market for its business – Western Europe. Total music sales there are roughly the same as in North America, however the market’s complicated structure and regional differences inevitably bring higher operational costs. But, on the upside, neither iTunes nor iPod are doing well there and the share of mobile music-centric services in the total sales is bigger than in the US. So if no bloopers will come on Nokia’s side, Comes With Music should get up to the top places in European charts pretty quickly.

The main intrigue, however, is whether the Finnish maker will be able to stand up to Apple in the US, where Nokia's brand is relatively weak, whereas Apple is incredibly powerful. Moreover, there is still no word on whether Comes with Music will be launched stateside or not.

And if it will debut in the US, Nokia will be looking at a full-scale information warfare. Don’t forget that most respectful resources dealing with hi-tech (both offline and online) are related to the US in one way or another, and are known for their extreme loyalty to Apple. What is more, they have already begun harassing Nokia's initiative, this time around it is DRM support they are aiming at. For instance, Apple Inc, that has been distributing DRM-protected music for five years, has never been persecuted for this in such a big way.

Nokia’s service got called crippled, flawed right from the word go, and on top of that its name was twisted into “Nokia Comes with DRM”. Every time they mention it in some write-up, they do their best to use the most condescending tone, like “Nokia tried to sell its “revolution”, but we know it is no good - it has DRM!”

Curiously, in similar claims, “DRM” is used as an absolute scary word with no analysis why it hurts Nokia’s offering so much. And it makes some sense – had they actually provided the audience with real facts, these revelations would have got knocked over like skittles.

First of all, the service’s very name implies that music comes included with a mobile device. You get free music with a phone, so, no phone – no music, it is as simple as it gets. Not happy about being unable to listen to your tunes with a dedicated music player? But if you own a portable music player, why would you need a MUSIC-SAVVY handset from Nokia? You want to listen to your tracks on PC? You will have this option! Home stereo or car audio system? Go for it. Want to share your music with friends? Tell them to buy a Nokia-branded phone and they will have exactly the same tunes as you have, absolutely free of charge.

Serious specialists don’t get hooked by the anti-DRM craze that has unfolded out there and rather agree that for an offering like this, DRM is a pretty much tolerable tradeoff. On top of that, the average Joe is more likely to overlook the DRM issue, unless, of course, the press will blow it out of proportion, like they did it for genetically modified food.

Nokia and Universal appeal to the strongest instinct of every consumer - greed, and they are dead-on, using slogans with words like “Free of charge”, so they should be able to do away with those vaporous DRM issues.

That said, Nokia probably has the entire Europe under its belt already, and its success in Asia, except for Japan and Korea, doesn’t seem far-fetched either. The phone maker will also try to foray into other market all over the world. But the real question is North America.

Now, there are several possible scenarios for this market.

El classico, and the most probable on. “US vs Rest of the world”, like we have seen in many other fields. The world loves Nokia, the US is on Motorola’s side. The world is fond of Canon, whereas the US chooses Kodak. No-name Chinese players have flooded the entire globe, and the US sticks to the iPod. Not to mention American football, baseball and system of measures. There is a good likelihood that the “free world” will go for Nokia-branded solutions that Come with Music, while Americans will keep their iPhones/iPods and iTunes Store. The share of the US market will be decreasing over time thanks to the growth of Brazilian, Russian, Indian and Chinese markets, and Nokia will feel quite content with two thirds of the world market in its hands.

Then, the best possible scenario for Nokia. The Finnish maker will beat Apple on the latter’s home field. The stateside market with its enormous potential is very tempting for Nokia and its web-services, which is indicated by the company’s latest acquisition of Navteq. Let’s imagine Nokia’s aggressive campaign on the US market, supported by the record labels, as well as helpless Apple that can’t find a way to fight back and loses the market to Comes with Music. In this case, Americans will be pushed into a niche, while their music industry will be able to survive only thanks to very few hardcore fans. By the way, Apple found itself in pretty much the same situation back in the 90s with its PC business. Nokia's domination will unfold on a global scale and the sound recording companies will once again go face to face with the monster they have brought up. Given their shortsightedness, one can easily believe this is possible.

And finally, if the worst comes to the worst for Nokia, some time around the middle of 2008 they will let slip some details about the service that will deliver a knock-out blow to its appeal, so then Comes with Music will become another “i-something killer”. Big companies have been making a lot of big mistakes lately, so this scenario definitely shouldn’t be ruled out as another possibility.

Also, mind the fact that in order to keep the record labels in good mood, the company has to show results, revenue and show them as soon as possible. Nokia claims 80 million devices with support for Comes with Music will be sold in 2008. The scheme employed in Total Music said about yearly payment of 90 USD to the record-labels, so based on these figures, we get more than 7 billion USD in 2008, which is miles more than iTunes generates and also around 20% of the today’s music market. But they have to reach these numbers first, right?

And there is a ton of moot points about the initiative. For example, the billing scheme seems very obscure. Since the service can work via WiFi, it bypasses cellular operators. That’s how the standard scheme that has stood the test of time becomes useless, meaning that they need to open extra accounts, pay extra bills etc. On the other hand, we all remember that the initiative gives the user a free year full of music, and probably Nokia’s ultimate goal is to make everyone get new phones every year rather than re-subscribe with their old handsets.

Also, it is still unclear whether we will be able to keep all downloaded tracks on PC. This issue has much to do with the ability to transfer songs from old phones to new devices. This way, if the user will have to upload all this music all over again after getting a new handset, the service will be quite awkward to use.

We also still don’t know what all tracks are bound to - the user's handset, which makes carrying them over to a new device impossible, or a unique license that can be transferred from one phone to another. They claim the ability to switch devices under one subscription, but whether all your tunes will remain intact in this case - we have no idea.

Among other things that are yet to be decided, is the storage issue – no word on where we will be allowed to store music downloaded from Comes with Music (memory card or only handset's bundled memory).

We would also like to know more about connectivity, specifically, what about docking stations with speakers, mini audio systems, home theaters, car stereo etc. Whether we will have the ability to play music this way, what accessories will be at our disposal – proprietary units, solutions produced jointly with other makers?

Another important question – which models will boast support for the service and whether low- and mid-range offerings will be allowed. 80 million units with Comes with Music, that will be sold in Europe during 2008 – well, I doubt all these will be N95-grade High-End powerhouses.

What ways will they use to expand the music experience of Comes with Music users? Allowing them to plunge into millions of tracks is not enough, obviously, they need to offer something to spark a craze around the service. For this to happen, Nokia will need to become a music-minded company, just like Apple did back in the day. And they have already made first steps in this direction by arming some of their music-savvy phones with support for online radio.

Will the user be able to download any track he heard during an online broadcast? Does Come with Music catalogue allow that? How transparent its interface is, anyway? Does it give the user an impression that all tracks are within rich of a forefinger? Nokia is yet to answer this pile of questions as well.

And, more importantly, we are curious to see if all other record-labels will follow the lead of Universal. The fact is, Total Music was co-developed with Warner and Sony, but will the latter really want to sponsor Sony Ericsson’s rival? Will EMI, which is quite strong in Europe, join its forces with the initiative? Will Nokia manage to sign up independent studios? Apple had five years to fill up its catalogues with thousands of songs, but Nokia has to move to catch up, and move quickly.

Another intrigue – what about other phone makers? Will Universal offer something similar to Motorola, Samsung, Sony-Ericsson? Effectively, Comes with Music doesn’t strike iTunes alone, the above manufacturers will also take the hit, and it will be an especially hard one for Sony Ericsson.

With all that cloak of mystery surrounding this project, one thing is for sure - Nokia is deadly serious about increasing its presence on the music market and unlike the competition, it has some tricks up its sleeve to back up these ambitions with. Comes with Music is the first truly revolutionary offering we have seen since 2003, and a potential graver for the A la carte scheme, that can change the rules of the game in the industry. All Nokia has to do is properly implement this initially groundbreaking concept.

Alexander Dembovsky ([email protected])
Translated by Oleg Kononosov ([email protected])

Published - 17 January 2008

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