Phone sales dominate Nokia’s ‘Comes with Music’ strategy

The worldwide mobile music market will ring up $11 billion in annual revenues by 2011, according to a study released last week by the U.K. firm Understanding & Solutions Ltd. Meanwhile, IDC predicts the global market for wireless devices will exceed $250 billion within that same span.
Guess which of those figures Nokia Corp. had in mind last week when it unveiled its “Comes with Music” program?
In case you missed it-and you’re forgiven if you did, given the time of year-the world’s No. 1 handset maker unveiled what it called a “revolutionary” mobile music initiative in which the company will sell handsets that include unlimited access to 2 million tracks from Universal Music Group for a full year. Nokia said more labels are expected to be included in the service in the future.
The music will be wrapped in Microsoft’s PlaysForSure, an anti-piracy “solution” that is incompatible with iPods and even Microsoft’s own Zune digital music player. After the free year, Nokia consumers can pay to continue the subscription or can drop the service entirely. Either way, users can keep all the tracks they downloaded during the year of free service-which is the “revolutionary” thing about Nokia’s offering.
While the announcement garnered headlines in the mainstream media, bloggers and fanboys blasted “Comes with Music” and the digital-rights management (DRM) restrictions that will envelop it. The service “Comes with Crap,” one pundit opined; another wrote that “Nokia’s free lunch comes with a big fat side order of fail.”
Indeed, an overzealous DRM wrapper may shackle Nokia’s mobile music effort. But the company’s primary objective isn’t to compete with iTunes by hawking music through an online storefront. Instead, Nokia simply wants to sell more devices-because that’s where the money is.
While iTunes dominates the digital music space, Apple’s real success story is the iPod. A recent tear-down analysis from iSuppli found that the 4GB iPod Nano costs less than $60 to make, and producing the 8GB version runs about $83. The devices sell for $140 and $199, respectively.
Those margins dwarf profits from iTunes; estimates vary greatly, but most onlookers believe Apple nets about a dime per song. And while iTunes dominates the digital music landscape-despite using proprietary anti-piracy software, incidentally-iPod users are apparently much more inclined to sideload songs onto the device than download them from iTunes, according to a study released last year by Forrester Research.
To be sure, plenty of other factors could trip up Nokia’s mobile music effort. “Comes with Music” must be available on compelling devices at affordable prices, and the service will never fly without backing of the other major labels. But a free year of unlimited music downloads seems like a savvy way to move handsets.
And for now, at least, the bottom line in mobile music is all about the hardware.