Nokia is due to launch its innovative "Comes With Music" service this year, which will let owners of selected smartphones legally download as much music as they want and keep it forever. It sounds like commercial suicide, but it actually does make economic sense for both the music industry and the consumer, and this article explains why. We also ask whether such a scheme could be expanded to cover video, games and applications as well.

We're about to get "Comes With Music"... why not videos, games and apps too?

Last December, Nokia announced a pioneering new service called "Comes With Music". The basic idea is very simple: you buy a Nokia phone labelled with the "Comes With Music" brand, and you can use it to legally download as much music as you want for a year, and keep the downloaded music forever.

As Nokia's chief executive Olli-Pekka Kallasvuo put it, the people testing the system thought it was almost too good to be true, but it was true. In the press conference afterwards, some journalists were extremely sceptical about how anyone could possibly make money under such an arrangement.

In fact, "Comes With Music" does make a lot of sense economically, and may provide the music industry with its best way yet of fighting piracy because it makes piracy completely irrelevant. If you can legally download as much music as you want for a year, and keep it forever, why would you bother pirating at all during that year?

How "Comes With Music" makes economic sense

When piracy is discussed, the pro-piracy and anti-piracy lobbies usually go to unrealistic extremes. The anti-piracy lobby often counts every pirated album as a lost sale, and comes up with a ludicrously huge estimate for how much money the music industry has lost. The pro-piracy lobby counters by claiming that no pirated albums are lost sales because people wouldn't have bought most of them anyway (but their stupidity is failing to make the crucial distinction between "most" and "all").

The truth is of course probably somewhere in the middle: the majority of pirated music isn't lost sales BUT a small percentage may well be. It's perfectly plausible that someone doesn't buy an album because they've already downloaded a pirated copy. That's a lost sale.

Realistically, what the music industry stands to lose from piracy is the average amount we would have spent on legally buying music.

For example, if the average person spends 100 euros a year on music, then the most that could be lost to music piracy in a year is 100 euros per person. Any music pirated beyond this average spend is not lost sales because the person probably wouldn't have spent that much on music. BUT, music pirated under this average value may well be lost sales.

This might sound a bit complicated, but it leads to one exciting truth: if the music industry can get us to spend a certain amount per year on music, piracy becomes irrelevant.

And that's where "Comes With Music" comes in.

We've got our year's money, so you can do what you like now

A scheme such as "Comes With Music" lets the music industry get their yearly profits from the consumer up front. The consumer buys a "Comes With Music" phone, and a certain portion of the phone's price goes straight to the music industry. That means that the music industry have done their job, they've collected their fee, and they no longer need to worry about making a profit from that person for the next twelve months.

Once the music industry has a year's worth of profit from that person, they might as well let that person download as much music as they want, because none of it will be lost sales. In other words, it gives us the benefits of piracy but without the downside of lost sales. As Del Boy might say, everyone's a winner, luvvly jubbly!

Of course it's not quite that simple, there will be lots of arguments about how much this annual fee should be, and arguments over how to share the annual fee between artists, but in general this seems like a very good idea. It's very likely that other companies will follow Nokia's lead in introducing this kind of service, and it could well become the standard way of buying music in the 21st Century, completely replacing traditional retail.

It needn't just be confined to phones either. The same business model could be used on music players, games consoles, PCs and all kinds of gadgets that have multimedia capabilities and an internet connection. Manufacturers, ISPs and phone networks might all negotiate similar deals.

But why stop at music? What about films? How about "Comes With Movies"?

The reason "Comes With Music" is now possible is because the distribution costs of music have fallen to zero. It costs virtually nothing to send an album from one side of the world to the other in digital form, and it can be done within a few minutes. This brings up the possibility that the same scheme could be applied to many other things that are sold as digital downloads.

Videos are probably the most obvious example, the film industry is very similar in structure to the music industry, and it seems plausible that we may see a "Comes With Movies" service being offered by someone in the next few years, especially if "Comes With Music" and its clones are successful.

This may take a bit longer than music to happen though, partly due to the much larger size of video files compared to audio files. The costs of distributing high definition films aren't as close to zero as the costs of distributing music tracks. (Eventually though, this difference will become insignificant.)

And games? Will we see a "Comes With Games"?

Games are another popular form of entertainment which can be sold as digital downloads, and the games industry is also dominated by a few large multinational companies, very much like the music and film industries. If a "Comes With Games" deal could be done with the major publishers, that would allow most popular titles to be downloaded on an "all you can eat" basis.

However, there's a serious obstacle to such a deal: some of the major games publishers including Nintendo and Sony are also manufacturers of games console hardware, and they will be very reluctant to share a gaming platform with each other.

Another major problem is that unlike films or music, games are written for particular hardware platforms. You can play music files or video files on virtually any computing device, but most games will only work on a very small number of devices, perhaps only one kind of device.

A way round this problem might be for the hardware platform holders (on consoles that's currently Nintendo, Sony and Microsoft) to each set up their own "Comes With Games" service, with the consoles themselves costing a lot of money up front but the games downloads would cost nothing at all. However, pirated console games are generally more difficult to obtain and use than pirated music and video, so there's not as much pressure on the games industry to respond to piracy.

PC games are another matter entirely though, as it's much easier to download and install pirated PC software. If games publishers ever do come up with some kind of "all you can eat" deal, it seems likely it will begin as a "Comes With PC Games" service.

Turning back to Nokia for a second, perhaps we might one day see a "Comes With Games" service for N-Gage-compatible phones?

And "Comes With Applications"?

This is where things get interesting, because computer applications are starting to become web-based. That means that they're practically impossible to pirate because they'd be online services rather than an offline product.

If applications all move onto the web as subscription services, or services supported by advertising, then that would pretty much end application piracy, and remove any need for a "Comes With Apps" service. Under those circumstances it's extremely unlikely that any kind of "all you can eat" deal would emerge for applications.

It's worth noting that this may eventually happen to games too, as web-based platforms such as Flash become increasingly sophisticated. Some classic games such as Lemmings are already playable as online services, albeit unofficially.

But wait... hang on... what if you want music, video and games all on one device?

If we do see "Comes With Movies" and "Comes With Games" services emerging, the idea of including a service's cost in the price of the device may need a rethink.

If we assume a year's unlimited music costs 100 euros, that might reasonably be added onto the price of a device. But if we also assume a year's unlimited video would cost 100 euros then you'd have to add 200 euros if someone wants both, and if games were also 100 euros that would be an additional cost of 300 euros. At that price level, all being paid up front, a lot of people might start reconsidering piracy.

An alternative to this would be some kind of monthly subscription. 300 euros over the course of a year would be 25 euros a month, which would be pretty reasonable considering you'd be getting unlimited music, films and games.

(NB: Just to reiterate, the 100 euros figure per service is completely made up, we have no idea what these services would really cost! However, the price of "Comes With Music" will probably be something on the same sort of scale as 100 euros plus the cost of the phone.)

So, will this actually happen?

"Comes With Music" will definitely happen, Nokia's already announced it and done a deal with Universal Music to provide the content. The music download technology is in place, you can already download music straight onto your Nokia smartphone. If "Comes With Music" is a success then we will almost certainly see it copied by many other companies, and it could gradually replace the conventional retail music model.

If "Comes With Music" and its clones become popular, then the next obvious candidate for a similar treatment would be video. However, as noted above, it may take a while longer. Most people don't yet have fast enough connections to download large amounts of high definition video, and the costs associated with video distribution are still much higher than for audio distribution.

Similar schemes for games and apps seem much less likely to happen, though if music and video go down this path successfully then someone's bound to try it with software sooner or later, especially games.

Alas, it seems unlikely that anyone will ever provide a "Comes With Indian Takeaway" service.