Closer to free -- Nokia, Universal Music launch new music proposition

RCR Wireless News
AMSTERDAM, The Netherlands—There’s always a first shot at everything; first to the moon, first to summit Mount Everest, first to end homelessness. It may not be as altruistic as the latter, but Universal Music Group International and Nokia Corp. now have the distinction of being the first companies in their respective industries to map out a model for free access to music.

Earlier this month, the world’s largest mobile phone company and the world’s largest music company announced “Comes with Music,” a service that gives Nokia device owners free access to Universal Music’s entire catalog of 2 million tracks. There are plenty of caveats surrounding the deal, as with anything precluded by “free,” but the price consumers pay for their compatible Nokia devices will include the licensing costs associated with access to that music for one year.

“All music to everybody, anywhere, all the time. That’s been the quest for music service for Nokia,” Anssi Vanjoki, executive VP and GM of multimedia for Nokia, said in his opening keynote address at Nokia World. “This is not a streaming service, but all the songs and albums are there for you to own and keep.”

Once the stars are aligned—specifically if a consumer lives in a region where the service is available and owns a compatible device—music lovers will have access to as many tracks as their ears can handle.

Once the 12 months are up, the consumer can purchase a new device and with it comes another license for 12 months of use. Regardless, whatever music the user downloads within that 12-month period is theirs to keep forever, whether it be on a memory card inside their device or a PC, which users will be allowed to transfer their downloads to for further use.

Nokia’s music store is only available in the United Kingdom at the moment, but the Finnish company says it’s planning an aggressive rollout that will bring the service to users across the globe as soon as possible.

“There is no comparable service where the music can be kept by the consumers, even if their subscription lapses,” Universal Music Chairman and CEO Lucian Grainge told a perplexed audience.

“It’s certainly a ground-breaking moment for Universal Music,” he said.

“We believe that mobile is inevitably one of the keys to our future growth,” Grainge said. “Music on the move is what people want. No one stands still anymore.”

Clear proposition

Ted Cohen, chair of the Mobile Entertainment Forum Americas and a veteran in the music industry, believes the deal instantly becomes the leading model for music in mobile. “I think that the ability to get unlimited access to music while you’re on the go is a much better proposition than an a la carte model,” he said in an interview with RCR Wireless News.

“You want what you want at your finger tips and your mobile phone is there 24/7. It’s a great reason to decide on a Nokia device over a Samsung or an LG or a Motorola. So as much become more important on the go, it’s a deal-closer,” he said.

The tracks downloaded from Comes with Music will be locked by digital rights management and won’t allow users to burn tracks to a CD unless an upgrade of some sort is purchased. Nokia and Universal Music have been tight-lipped about the minutiae since the deal was announced, but Cohen says most consumers could care less.

“If you’re getting the music, you know, if it feels like it’s free and there’s some service charges for services outside of access … that transcends access into ownership,” Cohen said.

“One is ephemeral access and the other is tangible ownership,” he said. “If I can access anything I want, I don’t want to own it. I would trade the square footage that’s being taken up by CD cabinets right now (Cohen has a collection of more than 6,000 CDs) for access to all that and more.”

When it comes down to it, music can still be appreciated and the artists, producers, record labels and everyone else in the food chain get paid, he continued.

There will always be albums that hardcore fans are going to want to “own and hold close,” Cohen said, but that doesn’t negate the 20% drop in CD sales that the industry is experiencing year over year.

Recurring revenue stream

“It’s not a devaluation of music, it’s a revaluation,” he said. The entire industry stands to profit much more if it can convince most music fans to pay even as little as to a month for access to music rather than relying on the everdepleting few who still buy CDs. “It’s not the same per user, but it’s never going to be,” he added.

“In a model like Nokia and Universal Music Group have come up with, it’s a recurring revenue scheme,” Cohen said. “The music labels have never had a recurring revenue scheme.”

Back at Nokia World, Rob Wells, senior VP of Universal Music’s digital business, tried to elaborate and fill in some of the blanks on this first-of-its-kind deal.

“Music is probably the most evocative art form,” he began. “It’s very unlikely that there’s anyone on the planet that can actually claim to hate music.”

The problem is “not everybody loves to pay for it,” he continued. “Piracy is the single biggest factor in the decline of music sales over the last 10 years.”

But digital sales are helping to ebb that flow. In 2005, digital music accounted for 3% of overall music business sales, a number that in 2006 jumped to at least 7%. For 2007, forecasts are putting the number closer to 14%, Wells said.

“We’ve made history today,” he said. “I believe definitely the digital music industry will never be the same again.”

He reminded attendees that the label and its artists will continue to get their share. “The building blocks of our industry remain unchanged,” Wells said. “Our revenues will come from the sale of the device.”

This despite the fact that there will be no download limits over the 12-month period. However, Wells pointed out that the 2 million tracks currently available on the service would take at least five years to download and more than four years to listen to in their entirety.

“There is no catch,” Wells said. “The concept of ownership disappears. Consumers will naturally gravitate towards this model and away from the pay-per-track model.”

Ed Averdieck, who runs Nokia’s music business, told RCR Wireless News that the announcement is the latest shift in a years-long strategy undertaken by Nokia.

First it embedded music players in most of its devices, then it enabled consumers to purchase music directly on their device—and now it has closed the loop on what consumers’ really want: Music for close to free.

Because of that, Nokia decidedly went against developing business models that would require consumers to pay for a subscription service after 12 months. It would rather drive users back to the store to purchase a new device.

“We want to create a sustainable business,” Averdieck said. Indeed, it’s arguable that no other service could possibly draw people into buying a new device after 12 months in as compelling a fashion.

“We want this to be as simple as possible,” he said.

“This is a good way of re-engaging them in the music business,” Averdieck said of the millions of young music fans that haven’t purchased an album for years.

Nokia’s Comes with Music service is currently compatible with its N81, N82 and the N95 8GB models. All future N-Series devices coming down the pike will be compatible as well.

Nokia says it’s also in serious discussions with the other major music labels and plans to expand the magnitude of the offering for many years to come.

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