CWM - Nokia music busines model

Qualms with music - Cross-subsidised subscriptions offer a promising new model—if the sums add up

IT IS a gift that keeps on giving—for a year, at least. Starting in Britain this month, buyers of some handsets made by Nokia will be able to download as much digital music as they like. The handsets, starting with a model costing £130 ($230), are bundled with a year’s free online-music subscription, called “Comes With Music” (CWM), launched on October 2nd. You can download music, and listen to it, on both the handset and your PC. Once the subscription expires at the end of the year, you can still listen to the tracks.

Nokia’s new handsets are sure to appear under many Christmas trees this year. The offer of unlimited downloads will appeal to teenagers; and parents will not have to worry about their children getting caught downloading music illegally, or spending a fortune at online music-stores. But CWM and similar subscription services are also being touted as a potentially life-saving gift to the ailing music industry. That is because they cleverly reconcile the demands of teenagers, who think music should be free, with those of record companies, which want to make money.

The world’s biggest handset-maker has pulled this off by acting as a go-between: it licenses music from the four major labels and some independent record firms at a discount, tags some of the cost onto the device’s purchasing price and absorbs the rest itself. Such a deal is made possible by a convergence of interests. Sales of digital music are growing, but not fast enough to offset falling sales of CDs, partly because of internet piracy (see chart). Record companies are realising that their efforts to get young music fans to pay up are not working. Many are unwilling, or unable, to pay for downloads, and legal action results in bad publicity. So something new is needed. Nokia, for its part, wants to move beyond hardware, and considers music a way to kick-start Ovi, its new initiative to offer a range of mobile-internet services.

Both camps also have a common interest in reining in Apple, the computer-maker that dominates digital music with its iTunes download service and iPod music-players. At the moment, record labels have to accept Apple’s terms. A strong rival service from Nokia could strengthen their negotiating hand. As for Nokia, it hopes to catch up with iTunes and defend its core market against Apple’s iPhone handset.

CWM is the most prominent example of a wider trend. Other companies have also started to combine their offerings with similar “all you can eat” music subscriptions. TDC, a Danish telecoms operator, has bundled such a service with its broadband connections. Orange, a European mobile operator, has launched Musique Max, which combines unlimited music downloads with a mobile-broadband service for €12 ($17) a month. And Sony Ericsson, another handset-maker, is planning to launch an unlimited music service called “PlayNow plus”, which will be offered to consumers via mobile operators.