Nokia's unlimited music offer turns market on head

By Georgina Prodhan and Tarmo Virki

FRANKFURT/AMSTERDAM (Reuters) - Nokia's (NOK1V.HE) plan to offer unlimited music downloads challenges the dominant pay-per-track sales model and is likely to upset carriers already worried that Nokia is poaching their customer relationships.

The world's biggest cellphone maker announced a deal on Tuesday with top record label Universal that will give customers buying particular Nokia devices unlimited access to millions of tracks for a year and allow them to keep the music afterwards.

Nokia hopes the deal with Universal Music Group -- a unit of Vivendi (VIV.PA) whose artists include 50 Cent, Sting and Mariah Carey -- will be followed by deals with the three remaining major international labels, to whom it is already talking.

Such unlimited download models could offer a shot in the arm to the music industry, which is struggling to find ways to make up for falling CD sales -- something that pay-per-track online stores like Apple's (AAPL.O) iTunes have so far failed to do.

"Unfortunately it appears that the only way to drive mass market adoption of digital music will be give it away for free, or close to free," Mark Mulligan, analyst at Jupiter Research, wrote in his blog.

"But if the alternative is for people to be downloading for free from illegal networks where the labels get nothing, it's pretty clear which is the preferable option."

Research firm Understanding & Solutions estimates that mobile music represents about 13 percent of global recorded music retail value. The mobile music market should grow to $11 billion by 2011, it says.

Nokia and Universal did not disclose financial terms but Universal's digital operations chief, Rob Wells, told Reuters in an interview: "Unless there was enough money for the world's biggest record company we would not have agreed to the deal."