Nokia: Profit Down While Aiming at Apple

No one can accuse Nokia (NOK) of being timid. The world's biggest cell phone maker got beaten up in the third quarter, seeing profit fall 30%. But the company says it took a short term punch for long term gain. While competitors were dropping prices to steal market share, Nokia refused to play that game -- instead keeping prices firm but competing on quality and capabilities of its phones. That decision knocked about a percentage point off Nokia's global cell phone market share -- which seems to worry analysts more than Nokia.

At the same time, Nokia seems to be lining up as the first real competitor to Apple (AAPL) in the mobile music business. Nokia's new offering, called Comes With Music, launched in the U.K. The deal: You buy an iPhone-type Nokia handset, and it comes bundled with a one-year subscription to a free music download service. Unlike other subscription services like Rhapsody, with Nokia's you can download as many songs as you want and keep them, even if you let your subscription run out. It's an interesting move but leaves lots of questions about whether consumers will see the benefit. If the service succeeds in the U.K., you can bet Nokia will expand it to other parts of the globe.

Comments

[Kevin_S:]

And there could be "iPod Nano Phone" coming next year (for free with contracts).

2008 Oct 16 07:15 PM

[Uncle Miltie:]

Somehow, the economics of "Comes with Music" need to make sense for this to work for Nokia. And I'm not sure it does.

Assuming that Nokia receives a similar deal to the other on-line distributors, they will have to pay about 75 cents per song back to the music companies. Since downloads are unlimited, they might see a typical user download 250 or more songs a year - similar to the old Napster days. Since the user gets to keep those songs, Nokia will have to pay the entire royalty. That adds a significant cost to their music service that will eat into profits. Their hope then would be that users sign up for a second year of the download service, so they can recoup some of the cost (and of course users would keep downloading more songs which would have to be accounted for again).

I'm not sure how this can result in a profitable venture for Nokia, other than to possibly try to win marketshare. It will be interesting to see how this plays out...

2008 Oct 17 08:27 AM

[mollytjm:]

all these other companies really got caught short by thinking that apple would fail in it's launch of the ipod and then the iphone. that complacency thinking by established tech companies is dangerous to the bottom line but also to reputation.

so now they're scrambling to compete...but that's not innovation, which is where Apple leads. Apple is willing and able to spend a huge amount of cash on R & D and hiring brilliant people. it's paying off and should continue to do so.

2008 Oct 17 10:31 AM

[Doug, Mtn. ...:]

LOL. All of these Apple wanna-bes think that if they only add this piece or that piece of the Apple package, then just maybe they can compete. Apple is all about the TOTAL experience, from hardware to software to UI, and of course, the iTunes Music Store. Simply by setting up a server and calling it their version of iTMS, Nokia thinks they're being better than Apple? This is laughable. No wonder Apple continues to lead (although not *dominate* --- yet) the market --- no cellphone company has all of the tools at its disposal like Apple does. Not a ONE of them!

My prediction: doomed to go down in flames, like all others.

2008 Oct 17 01:52 PM