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Nokia moves to counter Apple-Moto music alliance

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Nokia has chosen to partner with digital music distributor Loudeye to develop a music download platform for mobile phones.

The announcement of the deal, said to be a multi-year agreement, puts Loudeye head to head with Apple in the fight to dominate the next level of the legal music download market.

Last month, Apple teamed up with Motorola and will work to develop a version of its iTunes music software for the latter's handsets. While songs will initially be downloaded from the iTunes Music Store and then beamed over to the phone, straight-to-handset downloads have to be the next step of the roadmap.

Loudeye's deal with Nokia appears to be the same thing, but focusing on that second stage. Since Loudeye is a distributor of digital music rather than a retailer, it will focus on building a platform that other companies can use to sell music, just as its recent UK acquisition, On Demand Distribution (OD2), has done in the PC download arena.

Loudeye will allow mobile networks to offer own-brand music download services without having to build one themselves.

For its part, Nokia doesn't appear interested in entering such a business itself - essentially it sees the deal as a way of building demand for its handsets. With almost all phones bought by mobile networks and sold on to subscribers, Nokia's key customers are not consumers but networks. If it can put them in the way of a service that has real customer appeal and - crucially - encourages users to make use of their data-oriented networks, almost certainly 3G ones, then hopefully they'll buy more handsets from Nokia.

While Nokia's domination of the world handset business is shrinking, it remains by far the biggest player. That, plus the focus on selling through the companies that 'own' the mobile customers - the networks - means that today's deal poses a very significant challenge to Apple and Motorola.

In their favour, they have the expanding mind share that Apple has built around ITMS and the iPod, and Motorola's status as the world's second larges mobile phone maker, though it may soon be overtaken by Samsung.

Apple also has the benefit that its preferred music format, AAC, itself part of the broad MPEG 4 spec., is widely seen as the future for music on mobile phones. While many handsets support MP3 today, handset industry insiders expect that to change next year as vendors adopt music industry-friendly formats that are capable of supporting DRM systems. With MPEG 4 already seen as the future of mobile video, AAC is strongly placed to become a standard for mobile music.

Not that Loudeye will necessarily stick to the Windows Media system it currently uses for PC-oriented downloads, and Symbian-favouring Nokia may well insist that a future phone-based digital music platform use alternative formats, like MPEG 4.

If Apple is serious about being a player in the emerging mobile music market, it needs more deals like the Motorola partnership to counter both Nokia's weight and Loudeye's focus on services that promote the networks themselves rather than a third-party.

However, ITMS may yet prove a strong enough brand that networks will be willing to partner with Apple, believing they'll gain more business offering a 'known' name service than a 'me too' own-brand one. ®

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