October 2, 2008 / 3:47 AM / 9 years ago

Nokia to take on Apple in music, touch-screen phones

HELSINKI (Reuters) - The world’s top mobile phone maker Nokia will launch its free music package on Thursday, which analysts see posing a serious threat to Apple’s dominance in the digital music business.

Nokia is expected to unveil more details on its “Comes with Music” package later on Thursday at an analyst and media event in London. The Finnish company will also launch its first touch-screen phone, to rival Apple’s popular iPhone, sources have told Reuters.

Nokia’s “Comes with Music” phone and music service, and similar packages from other hardware vendors, could help the music industry make up for falling CD sales and cut illegal downloads.

The battle for mobile music is increasingly crowded, with Sony Ericsson launching its music package this month in Sweden, while South Korea’s LG Electronics plans a service similar to Nokia‘s.

Nokia’s package will differ from others on the market as users can keep all the music they have downloaded during the 12 month subscription period. There are no charges for tracks downloaded, since the cost is bundled to the phone price.

“‘Comes with Music’ could potentially bring free music to millions of consumers, radically changing the music industry, and offering a significant threat to Apple’s dominance,” Strategy Analytics’ David MacQueen said in a research report.

“In a market where price and selection are so much more important than brand to consumers, Apple cannot count on retaining users when competing with an offering which seems free to the end user,” MacQueen said.

The service is Nokia’s first major push into the services business. Last year the company unveiled a major revamp of its whole organisation, aiming to build a new business from Internet services to combat slowing handset growth.

“‘Comes with Music’ sees Nokia going head to head with new competitors -- most notably seizing the initiative from Apple with an innovative new music proposition,” said CCS Insight analyst Paolo Pescatore.

Michael McGuire, analyst with Gartner, said Apple and Nokia are set to fight for the same market, but with different approaches, as Apple charges per-track-downloads, while Nokia’s offering reminds more of subscription service.

“Are they competing against iTunes at some point for (the consumer‘s) budget dollars? They are absolutely,” McGuire said.

HOPING TO CUT FILE-SHARING

Last month Nokia unveiled the first “Comes with Music” model, a new version of its successful 531O phone, and said the sales of it will start this year.

Nokia is expected to publish pricing details or start of sales on Thursday, but Carphone Warehouse last month said on its Web site the sales would start Oct 17. It later removed the information.

Analysts said the choice of a relatively cheap model was a clear indication Nokia was trying to win over the consumers who often are not paying for the music, but getting it through file-sharing sites on the Internet.

“I think this is the first time the music industry can state they have a proper tool to fight file-sharing,” said Mark Mulligan, analyst at Jupiter Research.

Rampant Internet piracy has rocked the traditional revenue model of the music industry -- tens of billions of illegal files were swapped in 2007, with the ratio of unlicensed tracks downloaded to legal tracks sold at about 20 to 1, according to music industry trade body IFPI.

Recent survey from research firm Strategy Analytics shows there is demand for music packages -- 84 percent of consumers said they would pay for a service like Comes with Music, with 34 percent willing to pay $10 or more per month.

“For the music labels, ‘Comes with Music’ and similar business models could offer a lifeline to an industry experiencing a turbulent time,” Strategy Analytics’ David MacQueen said.

Additional reporting by David Lawsky in San Francisco

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