Original URL: http://www.theregister.co.uk/2007/12/05/nokia_free_music_analysis/

Nokia: Keep the music, pay to burn

Reinventing the bundle?

By Andrew Orlowski

Posted in Media, 5th December 2007 12:43 GMT

Analysis You could be forgiven for thinking that Nokia's music announcement yesterday was yet another subscription service. The phone giant didn't help dispel the notion by omitting some details from the official press material. However, we were able to put more flesh on the bones of the announcement last night. It's beginning to look as if Nokia's move, blessed by the world's biggest and most aggressive record company, represents a radical new direction for the music business.

Essentially, the deal bundles digital music for "free" with a Nokia phone. You can acquire unlimited songs for a year through the Nokia Music Store, then keep the music you've acquired if you don't want to continue the deal. You'll be able to play the songs on a PC (alas, not a Mac or Linux) and your Nokia.

By contrast, most music subscription services on offer today time-bomb the music, so that when you leave the service, it dies. That's fine if you think of it as a sort of "cached" on-demand radio, but not as a way of acquiring a permanent collection; it's proved unacceptable to consumers, who are used to keeping the music they've acquired for life... or until they're burgled, or the house burns down.

In other words, it's a loyalty program for Nokia customers, with music as the bait.

Instead, Nokia conceives of certain usage rights as a value-added extra - including the ability to burn CDs. The thinking is that most people who burn a CD do so for the car, and are prepared to pay. It's a risky strategy, though.

First things first: the music is now "free". At least one corner of the music business appears to have become aware that it's already competing with free unlicensed music - the wild world of Rapidshare, Torrents and blogs - that's ever improving in quality and ubiquity, and that it's unable to stamp out.

As such, the Nokia Music deal compares favourably with the phone carriers' service of choice, Omnifone's Music Station, which offers the "universal jukebox" for a subscription fee, which the network carriers may choose to absorb, or not. With Music Station, your music expires with your subscription.

It also means Universal is blessing a significant rival to its own (as yet unannounced) subscription service, TotalMusic.

One year ago, Universal agreed a controversial $1 per device royalty with Microsoft for its Zune music player. This prompted howls of outrage from anti-copyright campaigners, who claimed it was a tax on music they'd already paid for, and that the tax would distort the market and hamper innovation. Now, the world's most popular consumer electronics device manufacturer (by volume) is voluntarily absorbing the royalties. That's quite a remarkable turnaround.

We pointed out at the time that songwriters and composers might see little of the device royalty at the end of the day - despite Universal's promise to split the pool 50/50. We trust our friends at ASCAP and the MCPS-PRS Alliance will be ensuring that publishing royalties aren't overlooked.

Those gotchas in full

The devil, as ever, is in the details, so here's one that escaped first-day reports.

Intriguingly, Nokia is seeking to make a little extra money from this great music giveaway by charging for usage rights. One of those extras is the "right" to burn music to a CD. No fee has been set for this right yet - we're still a long way from launch in the second half of 2008.

A few years ago, we thought DRM was a format scam: a way for the music business to get us to buy music we already owned in a different format, like the transition from vinyl to CD. Is it now thinking of charging for usage rights we already have?

Probably not.

A source close to the deal was keen to point out, however, that the trend is to inexorably move away from DRM. The market has spoken: take-up of DRM-encumbered music services is sketchy. Amazon has already made a big impact by selling DRM-free music. If Universal and other labels are banking on technologically-enforced restrictions as the basis for new tiered-service business models, then that window will close fairly shortly.

Another drawback is that it's limited to one PC plus one device, and the device is going to be one that Nokia decides is fit for purpose. Today, only three phones support the Nokia Music Store, and only support it to varying degrees, but it's still early days.

Omnifone yesterday put a brave face on the announcement, but it can take comfort from the fact it offers a broader service with greater reach. MusicStation runs on 70 per cent of new mobiles.

"We are delighted to hear Nokia intends to embrace and develop its own version of the unlimited music download model, which we launched back in February 2007," said Omnifone CEO Rob Lewis in a statement. Omnifone also reminded everyone that it offers music from all four major labels, not just from Universal. "There is no doubt carriers will want to ensure... that these services are delivered on the widest range of handsets possible so that data networks are monetised as effectively as possible, and consumers can have as much freedom as possible when choosing a device."

Lewis was reminding carriers that Nokia and UMG are cutting them out of the loop.

Selling an abstraction like freedom is hard though, and Omnifone will be aware that if network operators don't absorb the cost of MusicStation, customers can turn to free, legal licensed music. That, Omnifone seems to be suggesting, is a price they may have to pay in the short-term, in order to gain long-term value.

There's no denying that the Nokia UMG deal sets an important precedent: we expect music to appear free. Now they're prepared to offer it for free. That's not an enviable position for any business to be in, but that's the price that sound recording owners are paying for not facing up to the challenge of digital networks ten years ago.

Interesting times lie ahead. ®