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Nokia takes on Apple with music store

Following in Apple's footsteps, Nokia has announced Ovi, a set of online services for its mobile phones. But in chasing the hot new handset maker, Nokia threatens to alienate carriers.

Yesterday, top cellphone maker Nokia announced Ovi, an umbrella brand for a forthcoming set of online services. Among these services is a new Nokia Music Store, which will offer both over-the-air and PC-based downloads, with two-way sync between device and PC. The service will launch in Europe, featuring a catalog of "millions" of tracks. Individual song downloads will cost 1 Euro and full albums 10 Euros. A subscription, PC-tethered, streaming-only service will also be available for 10 Euros per month. (The whiz-bang Flash site introducing Ovi is here. A press release is here.)

The service leverages Nokia's acquisition of Seattle-based Loudeye last August. Loudeye was founded in 1997 by Martin Tobias, an ex-Microsoftie, and created online music stores for third parties, similar to what MediaNet(formerly MusicNet) does. Microsoft cited Loudeye as an important Windows Media partner, although Loudeye also employed other technologies in its stores.

Nokia and Loudeye originally partnered back in 2004 to create an music platform for wireless carriers. Nokia reasoned that as these stores became more common, it would help Nokia sell more expensive multimedia-capable handsets. But while ringtones have been a reasonably good (if rapidly maturing) business, full-song over-the-air downloads haven't really taken off. For example, according to a Jan. 2007 study by Telephia, while 10.5% of U.S. phone users have a music player on their phone, only 8.5% of those users have actually bought a song over the air.

The relatively lackluster performance of carriers' music stores, combined with Apple's entry into the handset business, appears to have spooked Nokia into creating its own music store. But there's a problem here: Apple's brand is so strong, and demand for its phone was so high, that the company was able to extract some concessions from AT&T. In particular, instead of letting users download songs over the air from an AT&T store, Apple requires iPhone users to transfer songs from their computers using iTunes, just like an iPod. (This may change on Sept. 5, although I suspect any over-the-air downloads would come courtesy of a wireless version of iTunes, not an AT&T store.)

Is Nokia's brand as strong as Apple's? I don't think so. Nokia makes some great handsets, but people don't wait in line for days to buy them. In addition, Apple controls its distribution through its Web site and Apple Stores, while Nokia depends mainly on carriers to resell its handsets.

The upshot? Carriers have a lot more leverage over Nokia than over Apple. European wireless carrier Orange has already threatened to boycott handsets that feature the new Nokia store. The dispute is supposedly over "user experience," but I suspect that Orange would simply prefer to keep any profit from music downloads for itself, rather than collecting only data fees.

Who do you think will win this war of wills, the carriers or Nokia? And could Apple face similar resistance as it tries to expand into other markets?