Nokia steps up music download war

Comes With Music, a service designed to make up ground globally on Apple’s iTunes, made its Asia debut in Singapore. The initiative offers users up to four million tracks through an online music store for a year. The songs come free of charge with the purchase of selected handsets - effectively the cost of the music is built into the price of the phone.

The service has the backing of the major global music labels plus Asian independents Ocean Butterflies and Rock Records. It launches into a crowded and fragmented Asian download market. While iTunes is dominant in other parts of the world, it has yet to establish a presence in Asia outside Japan and Australia, leaving the door open for rival services. According to some industry observers, however, Nokia faces a tough challenge, not least because of similar offers from rival vendors, and an exclusive operating model.

“There’s a trend away from DRM [digital rights management], but this system is totally closed - it only works for one PC and a phone,” says Gregory Birge, MD of F5 Digital Consulting in Singapore. “This is not an integrated system, but the initiative is good and something that could be very profitable over time.”

The launch follows Motorola’s MotoMusic, which enjoyed success in China after its 2006 debut but has been slower to gain ground elsewhere in the region - it only launched in Singapore last year. Meanwhile, in January, Sony Ericsson began the Asian roll-out of PlayNow, a content delivery service enabling consumers to download movies, TV series, gaming titles and 23,000 DRM-free music tracks onto their phones. PlayNow kiosks are available at more than 80 Sony Ericsson stores throughout Indonesia, Malaysia and Singapore.

Handset makers have been joined by network operators in rolling out music services. In Singapore alone, SingTel, M1 and StarHub operate music offers, while SmarTone Vodafone and 3 do the same in Hong Kong.

Singapore is a good testing ground for Nokia, given the strength of foreign music in the market. But analysts are quick to point out that greater localisation will be required elsewhere. Birge argues that Nokia would be wise to focus on developing markets with low GDP and high internet penetration such as India, Indonesia and Thailand, seeing a “huge opportunity” to simplify the options for people in countries where the phone is the primary music player.

The pricing structure of the service will make it attractive. “Downloading for a flat fee has very clear advantages,” says one source at a mobile operator. “But a big challenge is, how do you get ahead of those who continue to download illegally? When people can get something free, it’s difficult to convince them to pay later on.”

Despite the popularity of illegal downloading, the digital music market increased by 25 per cent last year to almost US$4 billion. That means any platform that can build market share should become a major revenue stream.

“The Nokia premise of ‘the music is free if you buy the device from me’ has certainly put the challenge out to those music retailers or telcos who are looking to make money from selling songs,” agrees Neil Stewart, who recently left Motorola to become Maxus’ Asia-Pacific CEO.

Jeffrey Seah, CEO for Southeast Asia at Starcom Mediavest, speculates that the trend could prompt operators to cut deals with content owners to bundle music with their own mobile packages, with a view to selling them to mobile manufacturers.

Although Seah suggests that Nokia will encounter difficulties if it is unable to cater to more niche tastes, Birge maintains that the service, which is cheaper than other models on the Asian market, is likely to be highly profitable, since “only a small percentage of people are likely to use it extensively”. But he adds: “The real winner will be the music industry.”