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  #1  
Old 17-04-2008, 08:46 AM
slitchfield slitchfield is offline
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Comes With Music? Why not 'Comes With Everyting Else'?

Krisse delves into the economics and logistics of Nokia's upcoming Comes With Music system, explaining how it's possible in today's climate and then goes on to ask why other types of digitally protected content couldn't also be bundled in? Games? Applications? Videos? Thankfully, a line is drawn before we get to 'Comes With An Indian Takeaway'...

Read on in the full article.

  #2  
Old 17-04-2008, 03:39 PM
svdwal svdwal is offline
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And where's the money?

The problem with the 'Comes With xyz' for each 'xyz' is that the creators of all those 'xyz' need to be payed too. This payment has to come out of the sales price of a handset.

According to this article in El Reg (http://www.theregister.co.uk/2008/04...es_with_music/), Nokia pays Universal Music Group USD 35 per handset, and the article then continues to the conclusion that Nokia's entiere profit on a handset is taken by the music industry as licensing fees.

I cannot see this 'Comes with Music' as making any kind of economic sense for Nokia, if these figures are correct.

Now add all the other 'Comes with' to a handset. Where's the money coming from to pay the creators of those products?

  #3  
Old 17-04-2008, 04:56 PM
krisse krisse is offline
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Quote:
The problem with the 'Comes With xyz' for each 'xyz' is that the creators of all those 'xyz' need to be payed too. This payment has to come out of the sales price of a handset.
Yes of course, that's what I said at the very beginning of the article when I explained how the scheme works.

That's hardly a "problem", it's how most products work, they include the cost of their materials in the retail price.


Quote:
I cannot see this 'Comes with Music' as making any kind of economic sense for Nokia, if these figures are correct.
...which implies the figures are incorrect. I have great difficulty believing that Nokia only makes US$35 profit on a high end music handset like the N81, they retail for about $400 to $500 in most countries. It's also possible that Nokia will simply tag on the "Comes With Music" fee onto whatever the handset normally costs, in which case it won't affect profits at all.

El Reg isn't the most reliable of sites when it comes to phone stories, they did an article about S60 once which said it was just a type of web browser. They've also got something of a reputation for bashing Nokia at every opportunity, no idea why.

But even if this particular implementation doesn't work, the idea itself does have great merit, and I think we'll be seeing lots of companies trying it out. Apple is rumoured to be interested, for example. If Nokia doesn't succeed with this, I'm pretty sure someone else will, and this will change the way we pay for content.

The article was meant to be a general exploration of how content industries could alter the way they receive compensation for their work.

At the moment content providers have two realistic choices:

1) Hope people don't pirate stuff and watch as content gradually becomes completely free due to piracy becoming more and more mainstream

OR

2) Let people access all content legally for a set period, as long as they pay a flat fee up front (which is what Comes With Music does)

Piracy now is just SO easy and convenient it's ridiculous. Many sites have embedded copyrighted video and music which doesn't even require a download, you just visit the URL in your browser and it loads and plays automatically.


Quote:
Now add all the other 'Comes with' to a handset. Where's the money coming from to pay the creators of those products?
Yes, I already did an entire section about that in the article towards the end of the article.

It would probably be impossible to add all the costs to a single device, which is why I suggested some kind of subscription system. In theory the content providers don't actually need to go through a hardware maker at all, they could offer their content direct to a range of devices in exchange for a fee paid directly to them.

The article isn't meant to be specifically about Nokia or phones, but about the whole idea of paying a set fee up front and then receiving unlimited legal access to content. As a business model, it might be a good way to reduce the money lost to piracy.
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Last edited by krisse; 17-04-2008 at 06:03 PM.

  #4  
Old 17-04-2008, 08:19 PM
svdwal svdwal is offline
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Quote:
Originally Posted by krisse View Post
Yes of course, that's what I said at the very beginning of the article when I explained how the scheme works.

That's hardly a "problem", it's how most products work, they include the cost of their materials in the retail price.
It becomes a problem when the materials cost more than the retail price of the product.

Quote:
...which implies the figures are incorrect. I have great difficulty believing that Nokia only makes US$35 profit on a high end music handset like the N81, they retail for about $400 to $500 in most countries. It's also possible that Nokia will simply tag on the "Comes With Music" fee onto whatever the handset normally costs, in which case it won't affect profits at all.
I was a bit too brief. The El Reg article extrapolates the USD 35 for the agreement with UMG to three of four of such deals. This results in a total licensing cost around USD 100. USD 100 is widely quoted as the profit on a high-end handset. These figures are very similar.

I would expect Nokia to price the handsets at the highest level the market will bear, maximising their total income. The licensing costs are treated as any other cost for producing the handset.

Quote:
El Reg isn't the most reliable of sites when it comes to phone stories, they did an article about S60 once which said it was just a type of web browser. They've also got something of a reputation for bashing Nokia at every opportunity, no idea why.
In this case, the figures come from another source http://www.paidcontent.org/entry/419...mes-with-music.

Quote:
But even if this particular implementation doesn't work, the idea itself does have great merit, and I think we'll be seeing lots of companies trying it out. Apple is rumoured to be interested, for example. If Nokia doesn't succeed with this, I'm pretty sure someone else will, and this will change the way we pay for content.
The problems that I see with a "fixed-price-all-you-can-eat" scheme is that it is good for people buying more a year than the subscription fee, and it is good for people not selling a lot. It is bad for people buying less than the subscription fee, and for people selling lots. This makes it more likely that only the big buyers will take out a subscription, reducing the amount of money made, and that the big sellers wont do subscription based content selling.

The difference between digital "all-you-can-eat" schemes and the real one is that it is for almost everybody very hard to eat an unlimited amount of food. It is trivial to download an enormous amount of songs. And I expect that the similarity between the two will be that in both schemes you can only buy cheaply produced junk.

Quote:
The article was meant to be a general exploration of how content industries could alter the way they receive compensation for their work.

At the moment content providers have two realistic choices:

1) Hope people don't pirate stuff and watch as content gradually becomes completely free due to piracy becoming more and more mainstream

OR

2) Let people access all content legally for a set period, as long as they pay a flat fee up front (which is what Comes With Music does)

Piracy now is just SO easy and convenient it's ridiculous. Many sites have embedded copyrighted video and music which doesn't even require a download, you just visit the URL in your browser and it loads and plays automatically.
Why should I pay for a subscription if I can get the same stuff for free?

Quote:
Yes, I already did an entire section about that in the article towards the end of the article.

It would probably be impossible to add all the costs to a single device, which is why I suggested some kind of subscription system. In theory the content providers don't actually need to go through a hardware maker at all, they could offer their content direct to a range of devices in exchange for a fee paid directly to them.

The article isn't meant to be specifically about Nokia or phones, but about the whole idea of paying a set fee up front and then receiving unlimited legal access to content. As a business model, it might be a good way to reduce the money lost to piracy.
Ok, but I don't see that happening. If you don't want to pay for a song, you don't want to pay for a subscription either.

  #5  
Old 17-04-2008, 09:46 PM
shoobe01 shoobe01 is offline
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"everything" is mis-spelled in the title

  #6  
Old 17-04-2008, 10:26 PM
krisse krisse is offline
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Quote:
It becomes a problem when the materials cost more than the retail price of the product.
We don't know the retail price yet. Nokia might raise the retail price to allow for the included music, which means it wouldn't affect the profit margin.

$100 on a $500 phone is 20% extra, which people may accept as a good deal in exchange for a year's unlimited music downloads.

If Sony or Nintendo or Microsoft sell a games console which includes a bundle of five or six games, they sell it at a significantly higher price than a console on its own, and people accept that. It seems logical to assume that people would also accept paying extra for a console if they could download unlimited numbers of games.

This is such a new product that we just don't know what the consumer will accept as a fair price. You can't compare it to previous deals because there has never been a deal like this before.


Quote:
In this case, the figures come from another source
The site publishing the figures calls them "unconfirmed rumors", and none of the sources are named, so it's still not what I'd call reliable. Interesting, but not reliable.


Quote:
This makes it more likely that only the big buyers will take out a subscription, reducing the amount of money made
The figures for fees that you mentioned were $35 per year and $100 per year.

$35 per year on music is about the cost of one full-price CD in Europe. One CD per year is not a "big buyer".

$100 per year on music is about the cost of three or four full-price CDs, still not a "big buyer".

Even if it was $200 a year, that would still be less than one full-price CD a month, still not a "big buyer".

I don't see how these levels of fees could possibly shut anyone out of the scheme, unless they're people who don't buy music at all, in which case they're irrelevant anyway.


Quote:
Why should I pay for a subscription if I can get the same stuff for free? Ok, but I don't see that happening. If you don't want to pay for a song, you don't want to pay for a subscription either.
I'm not saying this is a magic bullet that will eliminate all piracy. What I'm saying is that this is a much much better way to fight piracy than DRM or legal threats.


Here's the choice people face at the moment:

1) Pay about $20 to $30 per album, so most people can only afford to buy a very limited amount of music

2) Pay nothing for an unlimited amount of music through piracy

The difference is huge. In money terms, you'd have to spend millions of dollars a year on albums in order to match the choice offered by piracy. If you want unlimited music there is no choice, you HAVE to go by the illegal route.


Here's the choice people would face with subscription schemes (let's assume your $100 figure is correct):

1) Pay about $100 per year for an unlimited amount of legal music

2) Pay nothing for an unlimited amount of music through piracy

The difference is tiny. In money terms it's just $100 a year to legally match piracy, or $8 a month. That's much, much easier to sell to consumers than the current position, and if it can be sold then it makes piracy irrelevant.

At those kinds of prices practically anyone could afford to go the legal route if they wanted to.


There's also the convenience of doing things legally. The legal route would be easier to use as it would be operating completely in the open, probably with dedicated technical support. If the service was tightly integrated into various devices, even the most pirate-friendly people might be tempted into trying it out, simply because it would be so handy to use.

And if music subscription services became a standard feature offered by service providers, people may not even realise they're paying such a fee. All they'd see is a music button on their device which lets them access all the music they want, the cost of which would be included in their monthly service charge.
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Last edited by krisse; 17-04-2008 at 10:30 PM.

  #7  
Old 18-04-2008, 07:53 AM
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malerocks malerocks is offline
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Great comments Krisse. All valid points.

Lets see how successful this is

  #8  
Old 18-04-2008, 09:25 AM
svdwal svdwal is offline
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Quote:
Originally Posted by krisse View Post
We don't know the retail price yet. Nokia might raise the retail price to allow for the included music, which means it wouldn't affect the profit margin.

$100 on a $500 phone is 20% extra, which people may accept as a good deal in exchange for a year's unlimited music downloads.

If Sony or Nintendo or Microsoft sell a games console which includes a bundle of five or six games, they sell it at a significantly higher price than a console on its own, and people accept that. It seems logical to assume that people would also accept paying extra for a console if they could download unlimited numbers of games.

This is such a new product that we just don't know what the consumer will accept as a fair price. You can't compare it to previous deals because there has never been a deal like this before.
Unfortunately the effects will be hard to judge for people outside Nokia, because Nokia isn't keen on publishing exact sales figures.

Quote:
The site publishing the figures calls them "unconfirmed rumors", and none of the sources are named, so it's still not what I'd call reliable. Interesting, but not reliable.
Yes. But without hard facts from Nokia what else can we do?

Quote:
The figures for fees that you mentioned were $35 per year and $100 per year.

$35 per year on music is about the cost of one full-price CD in Europe. One CD per year is not a "big buyer".

$100 per year on music is about the cost of three or four full-price CDs, still not a "big buyer".

Even if it was $200 a year, that would still be less than one full-price CD a month, still not a "big buyer".

I don't see how these levels of fees could possibly shut anyone out of the scheme, unless they're people who don't buy music at all, in which case they're irrelevant anyway.
Let's play a bit with these figures then. One million buyers of the music phone results in USD 100 million in licensing fees. If all of these people would have bought 6 CD's for the total price of USD 200, the licensees would have made USD 200 million. That's a lot of money not being made.

Now lets assume each music phone buyer will only by 2 CD's at a total cost of USD 70. That's 70 million in total and and extra profit of USD 30 million for the music industry, compared to selling CD's.

People can draw their own conclusions, I think.

Quote:
I'm not saying this is a magic bullet that will eliminate all piracy. What I'm saying is that this is a much much better way to fight piracy than DRM or legal threats.


Here's the choice people face at the moment:

1) Pay about $20 to $30 per album, so most people can only afford to buy a very limited amount of music

2) Pay nothing for an unlimited amount of music through piracy

The difference is huge. In money terms, you'd have to spend millions of dollars a year on albums in order to match the choice offered by piracy. If you want unlimited music there is no choice, you HAVE to go by the illegal route.
Not in The Netherlands, and possibly in other countries. Downloading music (and some other digitals works) for private use is not illegal for us ;-).

Quote:
Here's the choice people would face with subscription schemes (let's assume your $100 figure is correct):

1) Pay about $100 per year for an unlimited amount of legal music

2) Pay nothing for an unlimited amount of music through piracy

The difference is tiny. In money terms it's just $100 a year to legally match piracy, or $8 a month. That's much, much easier to sell to consumers than the current position, and if it can be sold then it makes piracy irrelevant.

At those kinds of prices practically anyone could afford to go the legal route if they wanted to.


There's also the convenience of doing things legally. The legal route would be easier to use as it would be operating completely in the open, probably with dedicated technical support. If the service was tightly integrated into various devices, even the most pirate-friendly people might be tempted into trying it out, simply because it would be so handy to use.

And if music subscription services became a standard feature offered by service providers, people may not even realise they're paying such a fee. All they'd see is a music button on their device which lets them access all the music they want, the cost of which would be included in their monthly service charge.
The problem is, as the simple calculation above shows, that a too-low subscription fee will result in a massive reduction in revenue for the music industry, because their paying customers are paying much less. I doubt if the extra revenue from the converted ex-pirates will compensate.

There's also the problem of distributing the revenue's among the artists. A reasonable way of distributing the revenue's is by song or album download numbers. Let's say each music phone owner downloads 10 albums. One artist is so popular he's downloaded by all one million music phone owners. The USD 100 has to be divided by 10 to get a per-album price, and the artist gets 10%, which is a dollar per sold album. So the popular artist makes one million.

Do the maths if all people download 20 albums. The same artist will only make half a million.

Now do the maths if the artist's album is not part of this deal. The artist is so popular all music phone buyers would still buy the CD at USD 30 (these people aren't pirates after all so they buy the CD). This means that the artist will make (at 10%) 3 million dollar. Even if half of the music phone owners would buy the CD the artist would still make 500.000 more by selling CD's.

Rethorical question, etc.

Last edited by svdwal; 18-04-2008 at 09:27 AM. Reason: clarification.
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  #9  
Old 18-04-2008, 02:00 PM
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Games

I am really trying to get my head around this "gaming on the phone" concept and I just can't see it. I pretty much take the articles here at face value and appreciate the service that Steve, Krisse, Rafe, and the others provide but are they really that excited about games and see them as viable or worth having on a phone? I just can't not see it no matter how hard I try. Video's I can see but to try and play a game, let alone get excited enough to report about it with enthusiasm is beyond me. But this is just my opinion.

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