UPDATE 1-Nokia extends music contracts in Britain

Wed Sep 23, 2009 5:49pm EDT

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* First UK customers get free extension of music package

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* Service has failed to gain traction on key UK market (Adds analyst comment, background, details)

By Tarmo Virki, European technology correspondent

HELSINKI, Sept 23 (Reuters) - Nokia (NOK1V.HE) has decided to extend contracts for free for the first customers of its "Comes with Music" service in Britain, where the offering has gained little traction.

"We're going to give you more. We are giving you another 90 days of musical freedom at no cost at all," Nokia said in an email sent to the first customers.

A Nokia spokesman declined to comment on details of the extension.

The music-download service, Nokia's challenge to Apple's (AAPL.O) iTunes, has been a key part of the phone maker's push into services, and the extension left analysts questioning who will pay labels for the downloads.

"Comes With Music" offers unlimited music from major music labels and a number of independents, and the music can be kept after the contract has expired. The individual tracks can be downloaded to a phone and a single computer and are free, though the cost of the music is reflected in the price of the phone or subscription itself.

At launch it was strongly supported by major music labels.

Nokia had said previously that consumers could extend their 12 month music packages on a monthly-basis through mobile operators. But the first subscribers in Britain were prepaid clients to the 12 month music package, and were not linked to particular operators.

Analysts said Nokia's latest move also reflects the company's uncertainty about how to renew subscriptions for customers who do not have an operator package and who do not want to buy a new phone with the service.

"They need prepay because that is where their potential customers are," said Gartner analyst Carolina Milanesi.

Nokia, the world's largest phone phone maker, unveiled its music-bundle "Comes with Music" last October in Britain -- seen as the acid test market for new mobile services in Europe -- but it has gained little traction. [ID:nN15314787]

"Nokia's 'Comes with Music' had a troubled birth and it is having a troubled first birthday," said Shaun Collins, chief executive of UK-based consultancy CCS Insight.

The launch was overshadowed by a lack of consumer or operator interest, and Nokia introduced the service on a relatively old and unattractive phone model.

Earlier this month, Forbes reported Nokia has delayed to next year the launch of its music service in the United States, the world's largest music market. [ID:nLV442197]

It has launched the service so far in some 10 countries.

"All in all "Comes with Music" has failed to be the differentiator Nokia hoped for. Consumers have alternatives," said Gartner's Milanesi. (Editing by Steve Orlofsky and Carol Bishopric)

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