Nokia today introduced its new smartphone, the N8, the first based on the Symbian 3 operating system. It’s got a great 12Mp Carl Zeiss camera, social messaging widgets and Ovi Maps. Symbian 3 allows for user-selected home screens, multi-touch and gesture support and improved UI, graphics and speed through its Broadcom graphics and 680MHz processor. So far, so good. But what we really want to know is, how does it handle video? As we’ve mentioned previously, Nokia has promoted TV out capability on its N series smartphones for several years, and has talked about one day delivering DVD quality video from handsets to TV screens. Previous smartphones have fallen short but it seems as though the N8 may finally be reaching this goal (although we look forward to seeing this demonstrated in person rather than on a conference call). The N8 captures HD video (720p) at 25fps. It supports H.264, MPEG-4, VC-1, H.263, Real Video 10, ON2 VP6 and Flash video file formats. Most importantly it features HDMI for output to digital HDTV displays, therefore potentially taking on the role of “set-top box” to the TV screen. Nokia emphasises the ability to play back user-generated video on the TV, but the phone can clearly potentially also serve as a video player for much HD content, rights issues permitting. To emphasise this point, the N8 will come pre-shipped, depending on region, with appropriate “web TV” applications, such as the BBC’s iPlayer in the UK (although it is not clear if these will support HD rather than just SD). Functionally there is still some way to go. The N8 can push HD video to a 40” LCD over an HDMI cable, but it’s not likely to be a long cable, so to control what’s happening on the big screen the user must keep returning from the sofa to the handset. We mentioned the need for a remote control to Jo Harlow, Nokia’s head of Symbian Devices, who told us it was an interesting idea which she would recommend to her team for consideration. For reference, while we welcome the opportunity to support Nokia’s product development activities, this blog has highlighted this problem previously. Third party vendors will no doubt step into this gap until Nokia brings out its own solution. In any case there is a genuine question as to whether users will accept the mobile phone functioning as a “set-top box” when it is, after all, their main gateway to personal communications and the handheld web. Even if the N8 can play a 2 hour HD movie on the big screen, will owners be happy to let go of it for that length of time as they relax in the armchair? The answer to that problem will have to be wireless HD connectivity, another subject we have covered extensively.We are sure that this is also on the roadmap of Nokia and other handset vendors over the next couple of years. David Mercer Client Reading: Global Audiovisual Market Forecast

I was with Intel executives by chance today, shortly after the first rumours, based on a New York Times story, that Intel, together with Google, Logitech and Sony, are working on a TV set-top box and service. Intel was demonstrating the capabilities of its Atom platform across a range of CE devices. In particular it was showing how its CE4100 processor combined with the MeeGo middleware joint initiative with Nokia could enable more flexible and more advanced IPTV services in the future. Amino, which has sold more than 4 million IPTV set-top boxes worldwide, was on hand to claim that the Intel platform has allowed it to develop new devices much more quickly than traditional processor platforms from ST, TI and Broadcom. And Telecom Italia is set to become the first major telco customer of an Intel-based IPTV platform when it rolls out new boxes in the next few weeks. Intel claims to be in talks with many other telcos, including tier ones, about deploying its solution. Intel made it clear today that its new platform could support Android, as well as many other OSs, while refusing to confirm the rumours of a partnership with Google. Our view is that it would be very surprising if Google did not enter the TV market before very long. It is certainly possible that Intel and Sony could be key partners, although unlikely if these prove to be exclusive deals for any player. Intel for one has made it clear it will be friends with anyone, whether in service provider or retail models. Intel’s roadmap calls for participation at all levels of the TV market, including entry level devices, but initially its strategy is to drive added value at premium price points. It seems that Intel is finally getting grips with the consumer electronics market after many failed attempts over the years. David Mercer Client Reading: Connected CE Devices: Global Market Forecast and Outlook

This morning Sky announced that it is to launch Sky Songs, an online music service offering access to over four million tracks for download and unlimited streaming. Sky Songs will come in two versions:

• Pay £6.49 and download either a £6.49 album or 10 songs, and receive unlimited access to listen to over four million songs online for one month; or
• Pay £7.99 and download either a £7.99 album or 15 songs, and receive unlimited access to listen to over four million songs online for one month.

Thus, Sky Songs is not so much an unlimited music service as a bulk purchasing offer to consumers. Additionally, while 4 million tracks may sound like an impressive music catalogue, it should be compared to the more than 11 million tracks iTunes offer for purchase and the more than 6 million tracks Spotify offers on its service. From a financial point of view, the music market is unlikely to be a top priority for Sky. According to Strategy Analytics’ latest estimate the entire digital music market in the UK (online & mobile) will generate approximately £300 million in retail revenues in 2009 and represent about 24% of the total UK music market (up from £210 million and 16% in 2008). In comparison Sky’s total revenue in its last financial year was £5.3 billion.  Thus, Sky may, to some extent, be excused for launching an uncharacteristically lacklustre service that ads little of value to consumers. We believe that the Sky Songs service is unlikely to become a success for Sky for numerous reasons but among the chief ones are: 

• The download part of the service adds very little value compared to a traditional a-la-carte service such as e.g. iTunes. In fact, it can be argued that it offers less value than iTunes since it locks consumers into paying for a minimum of 10 downloads every month and the music catalogue is only about a third of that of iTunes
• The streaming part of the service does not offer (as far as we understand) the ability to play playlists in an offline mode or the ability to stream to portable devices and again the available catalogue is significantly smaller than that of free streaming services such as e.g. Spotify
• Sky has not opted to bundle Sky Songs with any of its other services and thus aren’t able to leverage its significant user base to any meaningful extent.

Meanwhile, the much hyped music streaming service Spotify announced last week that it has signed a 2 year deal with Swedish incumbent telecom provider Telia “…to work together developing Spotify's music service for computers, mobile phones and eventually TV as well”. We believe that Spotify is looking to sign similar deals in the UK market which would offer consumers unlimited access to a much bigger catalogue of music, with playlists that can be played offline and are portable across multiple device categories.  Thus we believe that Sky Songs is unlikely to become a success for Sky in its current incarnation and other digital music services such as iTunes, Spotify and Nokia Comes-with-Music have little to fear from this newcomer in the UK online music market.

Nokia’s annual development showcase is taking place this week in Stuttgart, conveniently placed, for the 2000+ international visitors, adjacent to Stuttgart airport, which is not nearly as bad as it sounds. After a day of analyst meetings we spent today listening to senior executives outline the company’s future plans and examining its latest device and service offerings. A major highlight was the unveiling of the recently announced Booklet 3G, Nokia’s first foray into non-handheld devices. Actually that’s not quite true, but you have to be an industry veteran of at least 20 years’ standing to remember when Nokia last manufactured PCs, or indeed the myriad of other products it used to be known for. It abandoned most of its traditional businesses as part of its rationalisation response to the Russian economic crisis of the early 1990s, and after it identifed mobile phones as the next technology wave the company has never looked back. Nokia’s explanation for (re)entering the PC space is that convergence is happening and is here to stay. In other words, it sees computing competitors (read Apple, Google) eating into its phone business, as phone handsets take on more and more of the capabilities associated with the PC. The logic is that Nokia can counter these threats by bringing its communications expertise to the PC space. The Booklet 3G is Nokia’s first response. I hope it is not their last. We could waste many hours discussing the finer points of English vocabulary, but this is indeed a “netbook”, at least as far as anyone can point to a clear definition of that word, and that may not be very far. It could also be a “laptop”, which is how John Hwang, who heads this new Nokia business, described it yesterday. Or to be precise, “a high end mini laptop”. So take your pick. It is, without doubt, a computer. From the various videos and demonstrations it seems that Nokia is trying to position the Booklet as a handheld device aimed clearly at portable applications. Promotional videos featured young, attractive (inevitably) people holding their Booklets in one hand while walking along streets, chatting idly with friends and surfing the web in attractive (inevitably) locations like ski resorts and wine bars. Actually I made that up, but you get the picture. For the record, the key features are Windows 7, 1.6GHz Intel Atom Z530 processor, 1GB RAM, 120GB HDD, claimed 12 hours battery life, 10.1” display, HDMI, GPS, accelerometer, Bluetooth, webcam. You may have spotted a couple of items which mark the device out from the usual netbook crowd. With GPS, accelerometer and 3G the Booklet is clearly designed to further strengthen Nokia’s position in the navigation and mobility applications segment. Retail price will be €575 plus tax. Nokia is confident (you can assume the deals are more or less done) that the Booklet will be heavily subsidised by mobile operators in return for the user’s long-term commitment to big fat monthly mobile data fees. The booklet is a nice-looking, well designed and high quality device. The to-ing and fro-ing around its categorisation is not coincidental, since its specification probably comes close to some low end notebooks/laptops. But prices for those start at €300 or less, while top end netbooks struggle to reach Nokia’s price point. As with Nokia’s phone business, it seems that close cooperation with operators will be necessary to ensure that Nokia’s return to the PC business is not a short-lived affair. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

I’m here in Barcelona for my first visit to the Mobile World Congress. I feel a bit like the black sheep on a farm built to rear white sheep, given that my interests are focused on the digital home and media industries, but I’m here to look for evidence that that over-worked cliché, convergence, is a commercial reality. In other words, how soon, if ever, is the mobile phone going to become a platform for home-based multimedia services? And how seriously is the mobile industry considering this opportunity? Nokia has been showing TV-out capability on its Nseries multimedia computers for several years. But the company always seems strangely reluctant to make very much of this function. They’ve also been promising “DVD quality” video from handsets, but it never quite seems to make it to commercial launch. One challenge, if the mobile phone is going to become a competitive media platform, is the issue of user control. I can connect my handset to the big screen with a 2-metre wire, but how do I then control what’s on the big screen? Handset manufacturers need to get to grips with the 10 foot user experience, and that means tackling the issue of remote control devices. Zeemote has been doing some of that work for them, and its Bluetooth remote control/software package is now being bundled as standard with Nokia Nseries phones in the German market. Zeemote is planning to launch standalone remote controls compatible with Nokia Nseries devices later this year, priced at €39. The controllers are intended to make Ngage and other mobile phone games more acceptable on the big TV screen. They are much smaller than the traditional console-style controls, but perfectly acceptable and certainly an improvement on Nokia’s standard handset button controls. Zeemote can’t do anything about the graphics and video quality of phone-based media, so that’s something else we need to see improved, and I’m sure there will be plenty of evidence of progress on that front here at MWC. See also: Digital Experience at CES: Hillcrest Demos Kodak Media Player User Control and Interface Hillcrest sues Nintendo and wants Wii imports stopped Twitter: twitter.com/dmercer15 Complimentary Report: Digital Home Observatory: Pilot Study

Strategy Analytics' latest quarterly mobile phone handset data is released today. In spite of fears of a global recession unit sales were up 14% in Q108 v. the same period last year. Even in a market as large as this (282 million units shipped in 3 months) the rate at which market shares can change is a warning to current leaders not to lose their focus. Motorola's problems are well documented, but to lose nearly 9 percentage points within 12 months is an indication of the malaise within the company. Its share is now 9.7%, having been nearly 22% as recently as 2006, and both LG and Sony Ericsson are within striking distance of Motorola's third position. Samsung has also been a major beneficiary of Motorola's decline, and is now a clear no. 2 behind Nokia. The Finnish giant maintained its 40% share attained in Q407, although its US performance remains an area of concern. Client Reading: Motorola, Sony Ericsson and Apple Lose Global Handset Marketshare in Q1 2008

Nokia brought analysts together today to discuss the introduction of Sony BMG as the second major partner in its Comes With Music (CWM) digital music venture. Together with Universal, which was announced previously, Nokia claims this gives it access to more than 60% of the recorded music catalogue. We expect the other two majors to follow in due course. CWM is clearly an important venture for Nokia as it seeks to expand its services business and support its continued dominance of the handset market. But its significance is potentially even greater for the music industry. CWM represents a radical departure for music majors who have depended for more than a hundred years on a business model based on one-time purchase and permanent “ownership” of individual songs, tracks or compilations (albums). CWM will allow its subscribers to download an unlimited number of music tracks, and those tracks can be kept permanently (“for ever”) by the subscriber for storage on one mobile phone and one PC, whether or not the user still maintains a CWM subscription. The licence (using Windows DRM) can be transferred to a replacement phone and PC as required, although no more than two devices can be supported simultaneously. Nokia’s plan is to seed the market with CWM-enabled devices, which will be sold with one year’s subscription included in the price. Revenue from these CWM subscriptions will be shared with the music companies on a market share basis. Nokia is still determining which options to offer once the year’s subscription is finished. It would obviously prefer customers to buy a new handset, and it implies that it believes many CWM handset buyers would normally replace their devices after a year in any case. What is most significant for Sony BMG, Universal and future CWM partners is that they have accepted the removal of the traditional direct revenue relationship between permanent ownership of the individual music track or album and the end user. CWM subscribers will be able to download any and, in theory, all music ever published, and to keep those tracks for ever, but they won’t directly be funding individual pieces of music by making multiple purchase decisions. This should create quite a different mindset for consumers of recorded music, who now don’t have to worry about extra payments every time they “buy” a new track or album. They should also be able to download with the confidence that their music will always be available in a stored format, although there will doubtless be concerns that the promise of “for ever” will be broken – Sony BMG and Nokia may live to regret this bold assertion. Nevertheless, CWM will surely encourage greater consumption, ie download, of music than in any current digital or physical media model. Whether users actually find the time to listen to all the music they might be tempted to download is another question. Sony BMG’s President of Global Digital Business, Thomas Hesse, said that the CWM concept clearly resonates with consumers and should help turn the mobile phone into the music device of choice for many consumers. It clearly also helps to remove the need to buy music in the traditional way, so I hope that Sony BMG and Universal have done their sums correctly. The implication from Nokia was that if only a single-percentage share of their handset sales were CWM-enabled, this would already provide a revenue share for music companies that exceeds today’s digital music business. Beyond this “basic” revenue stream, Sony BMG’s long-term goal is that CWM will encourage the habit of acquiring new music on the mobile phone, ensuring that its share of subscription revenues continues. Time will tell whether the plan works, but this seems to be one of the more promising ventures in the rapidly evolving world of online music. Client Reading: Online Music: Global Market Forecast

It's the classic business dilemma: where do you go when you're number one? And in the case of Nokia, which has dominated the global mobile phone market for nearly a decade, that challenge has seemed greater than ever. Nokia's market share has never dipped below 30% since 2000, and in a market which has now reached an astonishing 1.12 billion phones sold every year this is an extraordinary achievement. Indeed, so successful has Nokia's strategy been that it has been increasing its share steadily and finally broke through the 40% barrier during Q4 last year. The "Nokia era" of mobile phone dominance has been mirrored by a number of other consumer technology markets in the past. Sony famously dominated the "Walkman" business throughout the 1980s, having created the original design for headset audio by bundling a portable audiocassette player with a pair of lightweight headphones. It's difficult to believe it now, when thumbnail MP3 players carry entire music collections, but that was a cool device just 20 years ago, and if you didn't own a Sony, you made sure to hide the brand. Sony managed to convert some of that loyalty to the CD format, but was gradually losing its grip and eventually missed the boat completely on digital music and today's iPod era. The consumer technology industry is littered with famous old brands that lost their way. RCA was the de facto TV brand leader in the US for years but has long slipped into the sub 5% bracket and is now under Chinese ownership. Japan's JVC created the VHS standard and thrived during the VCR era, but was unable to build on this success and inevitably fell on hard times. So will the same fate eventually befall Nokia? In historic terms, to dominate a market over a period of several years is not so unusual. The longer term challenge is to maintain sufficient flexibility to react to market evolution. Nokia will no doubt continue to lead in "mobile phones" for some time, but it must never take its eye off the wider technology market in case a new competitor comes along with something that may not look like a phone, but which begins to win Nokia's phone customers. The iPhone is the obvious current example of blind side evolution that could eventually change the competitive environment. Nokia must make sure that it comes up with the answer to "what will mobile phones become?", otherwise that 40% share could look very different in a few years' time. Nokia Reaches 40% Share as 332 Million Cellphones Ship Worldwide in Q4 2007

I am sure we all have our own favourite hotspot horror stories. One of my more recent experiences, about which I penned but never published several angry paragraphs, concerned an attempt to use T-Mobile's hotspot service at Chicago's O-Hare airport back in the summer. As usual with T-Mobile, I was required to run round in circles several times before performing double backflips, creating user accounts and trying to retrieve unretrievable and forgotten usernames and passwords before finally giving up and depriving the company of its measly $6, which it no doubt did not miss. I do wonder if the designers of these systems, or indeed the senior managers responsible, ever actually put themselves through the experience they expect their customers to suffer. That time I was using, or failing to use, a laptop PC, which no doubt accounts for 95% of hotspot usage today. But hotspots will also support a growing number of other wireless devices, and I have at one time or another also successfully used Nokia's N95 and N800 tablet at different locations. Nintendo's DS is the obvious mass market example of a WiFi-enabled device that might benefit from wider WiFi availability, but there are many others waiting in the wings. Not least, of course, Apple's iPhone, which by all accounts has woken up the US industry to the fact that people really do want WiFi (ie wireless broadband) capability on handheld devices. One thing is for sure, though: the hotspot experience has to improve, and that's where Devicescape hopes to step in. We met with David Fraser, the CEO, yesterday, and the company seems to be rapidly building a lead in what should become an important market as 2 billion wireless home devices are sold over the next 6 years. Devicescape's database and application essentially stores details of the vast number of WiFi hotspots around the world, as well as the login details of registered users, saving the device owner the hassle of logging in every time he reaches another hotspot. It can also work with home wireless LANs, so that the user's friends and relatives can be registered as approved users. Devicescape claims that their software is already in 10% of hacked iPhones, demonstrating that Apple's enthusiast customers are determined to make WiFi a more pleasurable experience. The company also suggests that cellular operators are beginning to change their attitude towards WiFi, which they may previously have seen as unnecessary or even competitive to cellular, but now recognise (not least because of the iPhone's success) as a way to boost customer satisfaction and revenues. We will see. My first trial today did not go well - standing near Oxford Street in London, my N95 found the BT Openzone well enough, but Devicescape claimed I was not authorised to log in, even though I had registered my account. I will check the details and report back. But in principle there is no doubt Devicescape is trying to solve a genuine problem, and they appear to be getting the more forward-thinking operators on-side, which can only be a good sign.

Nokia makes the headlines today with the introduction of its services and software strategy. The company recently announced a major reorganisation, splitting its devices group from services and software. While the company is introducing new phones today, the key development relates to its new approach to the web. This is epitomised by the introduction of Ovi, a portal that will encompass its music, navigation, games, communities and other internet services. Also newly announced is the Nokia Music Store, which besides offering millions of songs, will integrate music buying and playback across both PC and mobile devices. It may be surprising that Nokia, the world's most successful mobile phone manufacturer, has set itself the challenge of transforming itself at a time when it is once again dominating the industry. The strategy of the last few years, built on different groups of phones carefully targeted at different user segments, appears to have served the company well as it approaches a 40% share of the 1 billion global market. But Nokia appears to be humble enough to recognise that this approach may not be appropriate for the demands of the next era in mobile devices. In particular, the company believes that software and related services will be just as important as the devices themselves as they evolve from standalone phones to what Nokia likes to call "multimedia computers". It sees the advanced internet, media and navigation capabilities of today's N series devices migrating steadily to all handsets over the coming years, putting web functionality into the hands of billions of users around the world. Many at yesterday's press event will have been comparing Nokia's approach to Apple's dominant iPod and much-hyped iPhone devices. The fundamental difference between the two is that Apple's success has been built on a closely controlled, vertical platform, whereas Nokia believes it can create an open solution that invites unrestricted competition to create the best consumer experiences. Nokia would appear to stand a reasonable chance of leveraging its dominance of the handset business into a leading position in internet services, but this is a long-term play, and devices will remain the core of the company's business for some years to come. Over The Top or Round The Back? Exploring The Emerging Multi-Billion Web Video Landscape, Revenue Outlook and Adoption Scenarios Attend Strategy Analytics' Analyst Forum at IBC. Registration is Free.