More music for download as Nokia opens online store

The Straits Times

April 29, 2008

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By Alfred Siew

CELLPHONE maker Nokia opened possibly the largest online music store here on Tuesday, serving up a catalogue that includes songs from both global acts like U2 and local singer Hady Mirza.

Hint of an oligopoly where the industry is dominated by a small number of sellers (oligopolists). Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. The decisions of one firm influence, and are influenced by the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other market participants.

The latest sign that the CD is on the way out, the store lets users download songs to their PC at home or to cellphones over the air.

Change in Taste and Preference: Fall in demand of CDs, rise in demand of MP3s

With a catalogue containing 'millions of songs', it will compete with existing stores from Soundbuzz and StarHub, for years the main sources for online music here.

Companies are probably making supernormal or normal profit, for the industry to attract cellphone giant Nokia.

Internal Economies of Scale: Risk Bearing – Diversification into provision of online music possible due to large size of Nokia

Nokia's songs sell for $2 each - comparable with offerings from Soundbuzz and StarHub - and albums go for about $16.

Highly positive elastic cross elasticity of demand between songs sold online by Nokia, Soundbuzz and Starhub.

Songs sold are almost identical and therefore close substitutes because they are produced by the same recording company, though they may differ slightly in quality (bitrate) and licensing mechanisms (Digital Rights Management to restrict copying of songs or playback on some devices)

Users can also use a streaming service that lets them play the entire collection online without downloading the tracks. This costs $16 a month.

Service differentiation by Nokia to decrease the substitutability of service. Users may prefer to subscribe to such a streaming service since most homes are connected by broadband anyway so it will give rise to significant cost savings as compared to per song / album download

Unique service which may give rise to monopoly power

Nokia Singapore general manager Grant McBeath said it opened a store here, despite the small market, because users are tech-savvy.

Expectations of demand to rise in the future due to population being tech-savvy and the increased awareness of intellectual property theft.

The Singapore store is the second to open in the region, after Australia.

Its aim is to replicate the success of Apple's iTunes store, which has sold four billion songs in five years. iTunes is available in more than 20 countries but not Singapore.

Perfect opportunity to enter Singapore market using Apple’s business model since Apple has yet to open iTunes locally.

The growth of such stores has been fuelled by digital downloads of songs, which users can transfer directly to an MP3 player or cut into a CD.

Reasons for growth of such stores

1. · Rise in demand of MP3s
2. · Rise in ownership of MP3 players
3. · Rise in number of homes with broadband connections
4. · Low cost of CD-R discs

In the United States, iTunes has started to outsell major CD retailers like WalMart from the first two months of this year.

Musicians, too, are turning to digital downloads, to stay in step with a new generation of fans bred on the instant gratification offered by the Internet and cellphones.

Madonna, whose first albums were out on cassettes and vinyl records in the 1980s, started selling songs on her latest album Hard Candy via cellphones before the CD hit stores this week.

Nokia's Mr McBeath said its songs will help sell more of its phones, many of which come with music functions like those on MP3 players.

Negative cross elasticity of demand between songs and Nokia music phones. Increase in price of songs will lead to decrease in demand of Nokia music phones.

By controlling the online songs industry as well, Nokia has a better chance at increasing total revenue from Nokia music phones since it can now decide the price of songs.

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