Original URL: http://www.theregister.co.uk/2008/04/17/nokia_comes_with_music/

Nokia's Comes With Music 'comes without profits'

Has world's biggest paytard left brain in sauna?

By Andrew Orlowski

Posted in Mobile, 17th April 2008 14:06 GMT

Nokia will be handing over its entire handset profit margin - and more - to the record industry for its "Comes With Music" progamme, according to media analysts.

The Hollywood Reporter this week reports that Nokia is paying the world's biggest label, Universal Music Group, $35 per handset to bundle access to the label's catalogue. Punters are allowed to keep music they download.

Music business insiders expressed astonishment to us at Nokia's generosity: it's seven times what some privately estimated the deal was worth. Paid Content puts the payment to UMG at $33.5 per handset for the first 2.5 million units, falling as volumes increase.

But what if Nokia succeeds in replicating the deal with other labels? Then the extent of the programme becomes apparent. One blog, basing its estimate on market share, figures the subsidy would rise to $116 per handset. But that's a lowball figure, we reckon: it excludes publishing royalties, and underestimates the size of the indie sector which is as high as 40pc of the market, particularly with the yoof demographic Nokia wants.

The back of our envelope shows a figure closer to $150 per handset.

Either way, that comfortably wipes out any hope of a profit for Nokia on the CWM. The average selling price of a mobile handset is a shade over $100; Nokia's gross margin around a third of that.

The pride of Finnish business has been undergoing a crisis of confidence in recent years - making it easy pickings for new media consultants. These are typified by WiReD magazine's Chris Anderson, who recently lectured the company on the wisdom of giving stuff away. "Zero" was a "Radical Price", he advised. And "Minus Eighty" sure is a radical profit margin, Chris!

How the music business must wish it met "paytards" like Nokia every day. ®