Nokia’s Warning Sounds Bad for the Music Business

Published on November 14, 2008
by Peter Kafka

Mobile giant Nokia’s dire warning today–its fourth-quarter sales will be below expectations, and it sees the overall industry contracting in 2009–didn’t just scare investors in mobile/wireless stocks. It also discouraged beaten-down executives in the music industry, who have been hoping that the mobile business will help them crawl out of a very deep hole.

That seemed plausible a few years ago, when consumers embraced the ringtone trend and shelled out $2.50 to buy a couple seconds of music for their phones. But trend is the operative word here–ringtone sales have been flattening for some time. And hopes that consumers would use their phones to buy music over the air via iTunes-like stores haven’t panned out, either.

New plan: Tether music sales directly to the sale of mobile phones, via bundling plans like Nokia’s “Comes With Music.” That program, which just launched in the U.K. last month, makes an interesting proposition: Buy a $229 Nokia handset, and you can download as much music as you want from the big labels–Warner Music Group (WMG); Sony (SNE); Vivendi’s Universal Music Group and EMI Music Group–for a year.

If that works, it’s a double win for the business: It gets consumers to actually pay for digital music and it gets them to pay via an outlet that’s not Apple’s iTunes, which is a big deal for an industry trying to reduce its dependence on Steve Jobs and company.

But it only works if people are actually buying new phones, period. And Nokia (NOK) is now saying that looks a whole lot less likely for the foreseeable future.

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