Liz Schimel, head of Nokia’s music business, answered some questions about the profitability of company’s unlimited, free music downloads service called “Comes With Music” that they plan to offer with a series of new Nokia music phones in the second half of 2008. The company seems confident that they will make profit both from the traditional phone sales and this new service.
The reason that the expected profits from this service are the main point of the interview are various reports suggesting that Nokia will pay as much as $35 per handset to Universal Music Group in order to be able to provide access to their music libraries; possibly even more after the download count exceeds some sort of limit (this information might be unreliable). This would obviously cut into Nokia’s profit margin which was reported as industry-high 23.8% earlier this year. Schimel rebukes these claims, however:
Recent articles that I’ve seen have fundamentally misunderstood the concept behind the Comes With Music model.
The company sees their new service as a way to revitalize the music industry, which is looking to make up for the falling CD sales with alternate business models. A seemingly logical move is the digital downloads, such as iTunes or Walmart; however, the digital music market was worth “only” $2.9 billion in 2007. According to Tero Ojanpera, head of entertainment and communities business at Nokia, Comes With Music has the potential to equal – and even exceed – this current value of business.
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