Whether or not the claim held any water when it was made is already a moot point.  Nokia’s Comes With Music service is now available across the Middle East, which means that it’s operational in 27 markets, compared to the potential 20 that Omnifone can reach. On top of this  the a-la-carte Ovi Music service is now available in 33 markets and is completely DRM-free. For comparison, iTunes music store is currently available in 23 countries.

It’s easy to be disparaging about Comes With Music, the service that bundles unlimited downloads into the cost of a handset, not least because the figures have been less impressive than music industry execs had expected; while Nokia itself confesses that the service has been disappointing in some key markets.  But all credit to the Finns as they continue to forge ahead with the strategy, finding international niches more successful than the initial UK outing.

We rounded up the key trends from the year for our final Music Ally Report of 2009, and the article is republished below in full. If you’re interested in our service in 2010, with its daily bulletin and fortnightly analytical report, click here for a free trial.

The ups and downs of streaming music

There’s no doubt that consumers like streaming music when it’s done well, as illustrated by the success of Spotify and Pandora this year. And it seems equally certain that streaming has a significant role to play in the future of the music industry. That role, however, will be alongside other revenue streams, rather than being the downloads killer it’s sometimes painted as being by the media.

However, as 2009 draws to a close, there is still huge debate around the economics of streaming music, with ad revenues nowhere close to paying for the licensing costs, and artists and labels still grousing about their royalty cheques while fearful about cannibalisation of music sales. ‘Freemium’ has replaced ‘ad-supported’ as the business model of choice; but even that has yet to prove itself as a truly sustainable option.

Bright spots were provided by SoundExchange’s webcaster settlement in the US, and PRS for Music’s JOL replacement in the UK, with both drawing warm words from streaming firms. But as we move into 2010, this area still provokes more questions than answers. Will a tweaked Spotify make it big in the US? What will Apple’s acquisition of Lala mean for iTunes? Can MySpace Music make the numbers work despite the continuing slide of its parent social network? It’s all to play for.

iPhone applications for everyone

The vast majority of the 100,000+ iPhone apps released so far have sunk without trace. Yet that bald fact hasn’t stopped the music industry from jumping onto the App Store bandwagon. In fact, the flow of new music apps increased in pace as the year went on.
On the services side, the iPhone at least proved that there is strong demand for mobile music – albeit of the streaming kind.

By late November, Pandora had more than 13m iPhone, Android, BlackBerry and Palm users, with half of all new signups coming from these mobile apps. Meanwhile Spotify drove a sharp increase in its Premium subscribers by launching its iPhone, Android and Symbian apps – complete with its offline cacheing.

However, 2009 also saw an explosion in artist-focused iPhone apps – and it was primarily on the iPhone, rather than rival smartphones. Many were creative, playful and innovative, although few managed to rack up the tens of thousands of daily downloads that Auto-Tuned app I Am T-Pain did. By the end of the year, iPhone users had been invited to remix Underworld, David Bowie and Soulja Boy; sing karaoke with Mariah Carey and Lady GaGa; and tap falling blobs to the strains of Metallica, Coldplay and the Dave Matthews Band.

This year saw hype and experimentation, but we sense 2010 will see labels and artists focusing more on ensuring their apps provide a return on investment – and even perhaps looking beyond the iPhone to Android, Symbian, BlackBerry and beyond.

Pirates on trial (and up for sale)

February this year was all about The Pirate Bay trial in Sweden, which saw three of the P2P site’s co-founders (plus its main financial backer) face the music (well, the music industry’s lawyers) in court. Predictably, the guilty verdict wasn’t the end of the story,
with a pending appeal and accusations of bias against the judge in the original trial.

The defendants were characteristically bullish despite having prison sentences hanging over them. The months since have seen pressure being applied by other means – for example through The Pirate Bay’s web hosting firm, and then in a separate civil case in the Netherlands. Give or take the odd outage, the site has remained online, though.

Hopes that the site might go legit via a sale to Swedish games firm Global Gaming Factory X were dashed during a surreal July when every day seemed to bring new revelations or pratfalls about the company and its loquacious boss Hans Pandeya. The sale wasn’t to be, although The Pirate Bay is continuing to attract interest from potential suitors.

Its troubles, as well as the recent court ruling forcing Mininova to scrub its site of links to copyrighted content, showed that while stamping out online piracy is a hiding to nothing, 2009 was more uncomfortable for the poster boys of the pirate world than they would have anticipated.

Governments strike back against piracy

While the BPI and IFPI chased The Pirate Bay, governments around the world were mulling legislation to tackle online piracy at a consumer level. The process tended to be tortuous, to say the least.

The French government saw its Creation & Internet bill slapped down several times before it eventually became law, New Zealand axed its planned legislation following furious protests from consumer groups and ISPs, and stakeholders in the UK spent the year facing off over the government’s Digital Britain report – and the subsequent consultation period leading to the Digital Economy bill.

What the year showed was that the music industry and ISPs remain sharply divided when it comes to the finer details of tackling piracy, especially when it involves actions that may cause a stink among consumers. The UK government vacillated between the two, with ministers initially ruling out a three-strikes tactic, then veering towards ‘technical measures’ such as slowing down or capping broadband connections, before finally settling on temporary internet suspensions.

It remains unclear whether the bill will even become law before the next UK general election, with its potential change of government. Expect more sniping at January’s MidemNet between the two sides than was seen earlier this year.

Comes With Customer Confusion

At the start of 2009, there was still plenty of optimism around Nokia’s Comes With Music (CMW) service, as the handset firm prepared for new territory launches and sexier handsets than the pay-as-you-go model it launched with in the UK.

It’s a different story now, with widespread and public acknowledgement even within Nokia that its bundled music service has failed to catch fire with consumers. Music Ally’s revelation in October that only 107,000 people globally had signed up merely confirmed the industry’s expectations.

Problems with CWM included confusing marketing – consumers didn’t understand or didn’t trust Nokia’s promotional campaigns – as well as lukewarm operator support in key markets. On top of this is a mismatch between the length of a CWM subscription (12 months) and the 18-24 month contracts being pushed by the operators.

By the end of the year, Spotify was emerging as a significant rival, especially as it started to strike deals with operators to bundle its mobile app and a Premium subscription with Android and Symbian handsets. Even so, Nokia is nothing if not resilient: we sense there is at least one more big push in store for CWM in early 2010 before the company changes tack or gives up the ghost (or before Apple nails something similar for its iPhone).

The seamier side of digital music

Less-than-transparent contracts and deals? In the music industry? Surely not! But yes, one of the periodically recurring trends this year were accusations that somebody, somewhere was getting screwed in the digital arena. Usually artists.

So, the Featured Artists’ Coalition launched in a blaze of publicity, and before its attention was diverted by the file-sharing debate, it was making noise about how exactly artists would be fairly remunerated from upfront access deals struck by labels for services like Comes With Music.

Meanwhile, some artists were equally unimpressed with the economics of streaming music, complaining about tiny royalty cheques from the likes of Spotify – while Bob Dylan removed his back catalogue from ALL streaming services. Most recently, a former member of WMG act Too Much Joy embarrassed the label by revealing a pitiful digital royalties statement – and the convoluted process required to even get it.

Eminem’s former production company sued Universal Music Group (UMG) for a larger slice of digital royalties and lost, while his publisher sued Apple over unauthorised distribution of tracks, and settled out of court. Meanwhile, the long-mooted Allman Brothers lawsuit against Sony Music over digital royalties rumbles on.

Music games hit mixed notes

The industry excitement around music games in 2008 waned slightly in 2009, as sales fell from the genre’s peak. Even so, September provided plenty of fun with the launch of The Beatles: Rock Band and Guitar Hero 5, with the Fab Four winning the sales battle – at least initially. DJ Hero, however, delivered underwhelming early sales.

The successes of the blockbuster games led to a host of other vintage acts talking optimistically about the prospects for their own branded games in 2010. Meanwhile, iPhone developer Tapulous continued to strike deals for artist-branded games on that platform, while franchises like Rock Band made the jump to iPhone and handheld – offering downloadable content in both cases.

However, the row rumbled on between Warner Music Group and game publishers like Activision, though. Last month, WMG boss Edgar Bronfman Jr said that the label’s stance remains the same: “Where we’re not being recompensed anything close to what would be fair for artists and services, we see no reasons to license,” he said.

Google versus the music industry

For a company whose corporate motto is ‘Do No Evil’, Google managed to rub plenty of music industry people up the wrong way in 2009. YouTube was the prime offender, with premium music videos removed from the site’s UK and German versions due to licensing disputes with PRS for Music and GEMA.

PRS in particular painted Google as a 600lb gorilla prepared to steamroller rightsholders and use music to fuel its multi-billion dollar business. The real issue, of course, was the fact that music videos weren’t making money for Google. Estimates varied about how much money YouTube was losing, but nobody thought it was profitable.

Google and PRS eventually settled their differences, just in time for the company to join battle with another industry: newspaper and magazine publishers. And in fact, as the year wore on, Google was involved with several positive partnerships with the music biz. It launched an ad-supported download service in China, helped UMG get its Vevo video portal up and running, and unveiled music features for its main search engine to drive traffic to legal download stores.

ISPs try their hands at music services

It’s already a truism that legislation-led crackdowns on piracy must be complemented by the rollout of more appealing legal music services. While ISPs were kicking back against the stick element when they thought it would be expensive, unworkable and/or intrusive, several were keen to grasp the carrots side of the equation. Even if they found it was trickier than they expected.

So, the big non-launch of the year (so far) has been Virgin Media in the UK, which partnered with UMG in June for the announcement of an “unlimited music download subscription service”, which would allow the ISP’s customers to stream and download as many tracks as they wanted from UMG’s catalogue, with the downloads being DRM-free MP3s.

It was genuinely groundbreaking – so groundbreaking, in fact, that months later Virgin was still trying to nail deals with the other major labels amid reports that they had been spooked by the potential cannibalisation of existing sales. At the time of writing, the service has yet to launch, even if Virgin recently confirmed a deal with tech firm Detica to keep to its promise of measuring piracy on its network.

And another 10 things…

Ad downloads doom: As streaming rocketed, so ad-supported downloads died a death. Well, SpiralFrog croaked and Qtrax made more empty promises. Can new player Guvera do better in 2010 and make the model work?

Beatles (not) for sale: The Beatles didn’t go digital in 2009, other than on limited-edition USB apples. However, BlueBeat provided mirth with its attempt to sell “psycho-acoustic” versions of the Fab Four back catalogue.

Out of the Euro-pan… At the start of 2009, pan-European licensing was a mess. At the end of the year it’s… a mess! But the year did see plenty of talk from politicians and industry stakeholders about cleaning it up.

Monetising viral videos: ITV made nothing from millions of plays of Susan Boyle clips this summer, but a viral wedding video gave R&B star Chris Brown a huge chart boost, thanks to his label claiming it on YouTube.

MySpace on the slide: Facebook reigned supreme in the social networking space this year, with MySpace losing traffic and executives at a rapid pace. New CEO Owen Van Natta promised a music-led comeback in 2010.

Webcasts get interactive: Music webcasts got a whole lot more interesting this year thanks to companies like Ustream, which wrapped social interactivity around live streams of gigs. Even YouTube went gig-crazy with U2.

Just the (pricey) ticket: Consumer distaste with secondary ticketing scams peaked this year, especially after Ticketmaster was caught sending Springsteen fans to its secondary site before normal-priced tickets had sold out.

All of a Twitter: Everyone had a Twitter account this year, with some artists using it better than others. Security scares were a problem, though, with Britney Spears and Kanye West suffering high-profile hacks.

Jobs’ worth: What would the music biz look like without Apple CEO Steve Jobs? We almost found out this year, but a liver transplant saw him back at work by Autumn. Next stop: an iTablet launch?

Good luck, square eyes: Despite YouTube’s monetisation issues, there were plenty of music video portals launching. Vevo, sure, but MySpace Music also got in on the act, as well as the VidZone service for the PS3 console.

If you’ve got this far, cheers! And a free trial of our research service can be had by clicking here.

It provides more evidence for the notion – accepted by Nokia – that its music service may get more traction in emerging markets where there is less competition from legal services. Figures revealed by Music Ally earlier this year showed that there were 10,809 active CWM users in Brazil in July.

With no update, it’s hard to gauge how many songs the average user there is downloading though.

The company is giving away ten 5800 handsets with bundled CWM subscriptions between 22nd and 31st October, with three partners – Rock Sound magazine, London Elektricity and Family Music. Each day, one of the partners will tweet a riddle, with the answer being a band name and track title. The first person to reply to that tweet with the correct answer gets the phone.

The odds are certainly good of bagging a phone: three people entered today’s first round…

That’s according to figures sent out by the company to record labels and distributors. In the UK specifically, Nokia had just shy of 33,000 active CWM users in July, up from 23,000 in April.

The full list of markets breaks down as follows (sorted by launch dates):

CWM ACTIVE VOUCHERS– JULY 2009
UK – 32,728  (launch date: Oct 08)
Singapore – 19,318  (Feb 09)
Australia – 23,003  (Mar 09)
Brazil – 10,809  (Apr 09)
Sweden – 1,101  (Apr 09)
Italy – 691  (Apr 09)
Mexico – 16,344  (May 09)
Germany – 2,673  (May 09)
Switzerland – 560  (Jun 09)

The figures don’t look good for Nokia, considering the investment it has made in Comes With Music. However, check the comparison between Brazil and Italy, or Mexico and Germany. There is evidence that CWM is doing better in emerging markets than in developed Western countries where there is more competition.

We put the figures to Nokia, and a spokesperson provided us with this response:

“Comes With Music has been a live service for 12 months in the UK and over the last 8 months, has also gone live in 11 other countries. This is a very fast rollout for a service of its kind, especially when you consider the music is a mix of global and local content for each location. In terms of innovation, Comes With Music is a significant shift for both consumers and the industry alike.

“Nokia will continue to bring new services to market and we will continue to add further countries and partners to our Comes With Music rollout. We look forward to being able to share more details on this over the coming weeks. With regard to the statistics presented in your article, as per our longstanding policy we do not comment on industry speculation or rumours.”

We’ve got more analysis of the figures and what they mean – both for Nokia and the wider mobile music market – in this week’s Music Ally Report. For a free trial subscription, which will let you read that piece immediately, click here.

“As a big thank you, we have some great news. We’re going to give you more. We are giving you another 90 days of musical freedom at no cost at all: your membership, due to end on 15/10/2009 will be extended until 13/01/2010.”

Which is pretty generous, but does raise the thought that Nokia hasn’t quite locked down the terms for its proposed renewal subscriptions for the service. Earlier this month, Nokia’s EVP of services Niklas Savander told Music Ally that “we have an agreement with labels on the subscription model, for a renewal on a monthly basis”.

Presumably it’ll kick in by mid-January… The full text of the email follows. We’re assuming all the UK customers who signed up at launch are getting this email – if you have or haven’t, post a comment to let us know.

Dear [username]

How time flies! It will soon be a full year since you signed up for our ground breaking Comes With Music service. We hope you have enjoyed the freedom of unlimited music downloads during your first year with us.

As a big thank you, we have some great news. We’re going to give you more. We are giving you another 90 days of musical freedom at no cost at all: your membership, due to end on 15/10/2009 will be extended until 13/01/2010.

You don’t need to do a thing (except carry on downloading and listening to even more of your favourite music). It’s our gift to you. We will also be in touch with some really cool new Comes With Music devices soon. So watch this space – and enjoy!

Thank you

The Comes With Music Team

Which is true, although in a keynote at MidemNet this year, Nokia’s entertainment boss Tero Ojanpera did say that “We are looking at the US also in 2009″. We know, we liveblogged it.

It’s not necessarily a contradiction though. Here’s Schimel again: “We prefer to announce launches at the point when they’re quite imminent. We pick the moment when we have all the optimised conditions, but it’s not a question of a delay.” So, Nokia WAS looking at 2009 for a possible US launch, but has since decided that conditions there are not yet optimal.

Which begs the question, of course, of what those conditions would be. Our hunch: a big operator deal.

Nokia always made it clear that users would keep all the music they’d downloaded, but fudged the issue of how they would continue to download new tracks without buying a new Comes With Music device.

Not any more. “We now have a solution to what happens after the first 12 months,” Nokia’s EVP of Services Niklas Savander told Music Ally this morning, at the company’s Nokia World conference in Stuttgart.

“We have an agreement with labels on the subscription model, for a renewal on a monthly basis. We have had a lot of feedback from operators on the need to transition when people reach the end of the 12 months, so this is going to make a big difference with the carriers.”

The obvious follow-up question: How much will it cost a month to continue with a Comes With Music subscription? Nokia isn’t putting a figure to it for now, but here’s the thing: it will be set by the company’s operator partners, not by Nokia.

Or, more accurately, operators will be able to subsidise the cost if they wish, or even roll it into the customer’s monthly data tariff. “The UK is the first place we will see that in October with Orange,” Savander told us.

“It will be interesting to see how operators price it. I know what the set price is for a month, but you know how much money operators are pumping into subsidies in general: do you believe it’s a marketing tool for customer retention, versus a business opportunity?”

More thoughts from Savander on Nokia’s music activities:

On Comes With Music’s sluggish start in the UK: “The biggest single point of learning was how much effort and co-operation is needed at the point of sale for this solution. It takes 15 seconds to sell a phone in Carphone Warehouse, but it takes over a minute to sell a solution like Comes With Music. So it’s about what we need to do for consumers to walk in and be receptive to that minute-long pitch rather than the 15-second pitch. We underestimated the go-to-market effort that was needed together with us, operators and retail.”

On cynical Brits: “It was surprising that the value proposition for Comes With Music was so hard to believe in. It’s a sign of how cynical the Western world has become! People thought we were going to somehow charge them for it later – in a lot of consumer groups we ran, the most common answer was ‘what’s the catch?’ This is also to do with point of sale, but also how we communicated, and how practical and pragmatic we need to be with the examples.”

On pitching CWM to young users: “I spent a day in Sweden selling Comes With Music in a retail shop. And the youth are struggling with the concept that you have to pay for music, even though they have realised it’s illegal. It’s a real issue to the music industry, and it’s where we hav a role to play in risk-taking to see if we can turn this trend. It almost paradoxically becomes a question of whether you think 60 Euros is a reasonable price for not breaking the law?”

On Spotify and app approvals: “We have to let the consumer choose. If somebody doesn’t like Nokia Music Store and wants Spotify, they have to be able to put that on their phone. It’s one of the deep philosophical differences between us and some of our competitors. If someone doesn’t like Ovi Maps and wants Google Maps, they must be able to install that on their phone. Limiting consumers’ access to services will always catch you in the end.”

On taking Comes With Music to emerging markets: “We are very strong as a brand in those markets – in India, we are the most respected of all brands, so if we do a music service, it will have instantaneous credibility. But also, in many of those markets, you have slightly smaller operators who maybe have more of an open multiple partnerships strategy. If you think of some of the big Western operators, with whom we also have a collaboration, they have a much stronger central strategy on how to co-operate, which tends to slow things down a little bit.”

Its article suggests that the lukewarm response to CWM elsewhere in the world may be responsible, as Nokia regroups to get the product right. “Nokia is learning as they go along,” analyst Paolo Pescatore tells Forbes. “It’s a case of fixing it over time. For the US, they need to make sure the pieces are together before they launch any service.”

The danger is that rival services – from Spotify’s app to any Apple move into the unlimited music space – could beat Nokia to the punch there.