UPDATE: Nokia Jumps Into Online Music, Adds New Phones

LONDON -(Dow Jones)- Nokia, the world's largest phone maker by sales, Wednesday launched a new online music store and gaming service, and three new music phones, in a bid to rival Apple's iPhone in the build up to the lucrative Christmas trading period.

Nokia said it would launch its Nokia Media Store in Europe this autumn - the same time Apple is expected to launch its iPhone device in the region - and has struck deals with four major music labels: Universal Music Group, EMI Group, Sony Music Group and Warner Music Group.

Nokia, which last year bought music portal Loudeye for $60 million to create the core of the Nokia Music Store, said it will sell single music tracks for EUR1.00 and albums for EUR10. In addition, consumers can pay for a PC-based music streaming service for EUR10 a month.

Chief Executive Olli-Pekka Kallasvuo told reporters at a news event in London that the announcement - alongside the launch of its new Ovi multimedia user interface, four new phone models and an upgraded N-Gage gaming platform - would help reposition Nokia as an "Internet driven experience" company, generating additional revenues from music downloads, gaming and Internet browsing.

Kallasvuo said he expects the multimedia phone market to grow by 50% to 120 million units this year from 80 million in 2006.

Nokia shares closed on the Helsinki stock exchange in Finland up EUR1.03, or 4.6%, at EUR23.31, making it the highest riser on the Eurostoxx 50 Index.

The handset maker, which sells more phones than its three nearest competitors combined, also said it plans to launch three new music phones in the European market by October, and an upgrade of its flagship N95 multimedia device that comes with 8 gigabytes of storage. The new N95 will also feature a 5 megapixel camera, 3G connectivity and a 2.8-inch screen. Its 8GB of storage now matches that of the iPhone, which runs on the slower Edge data network and has a 2 megapixel camera.

The wholly new N81 device, also with 8GB of memory, or the capacity to store 6,000 music tracks, will have a 3G phone and wireless connectivity, and will be configured to access Nokia's Music Store and N-Gage Internet games services. The N81 is expected to retail for EUR360, before subsidies.

Two more mass-market phones, the Nokia 5310 and 5610 XpressMusic devices, will also be launched in the fourth-quarter, with the capacity to store 3,000 songs.

"We believe these will be hit products for Christmas," said Kai Oistamo, Nokia's Executive Vice President for Mobile Phones.

Nokia also said it would relaunch its N-Gage mobile gaming service, after striking deals with major computer games makers, including EA Games, Vivendi and Gameloft. Nokia's first N-Gage launch early this decade was discontinued after only three million devices shipped.

However, Nokia said that it had learned from its previous launch, and this time would be launching a number of devices containing N-Gage software and preloaded games, alongside music and Internet browsing, rather than dedicated games console handsets.

Carolina Milanesi, research director at analyst firm Gartner, said that Nokia's launch of an online music portal, plus gaming, Internet and mapping software services, set it apart from rivals such as Sony Ericsson, Samsung Electronics and Motorola.

"Out of all the vendors they have really pushed the boat out on the services side," she said.

CCS Insight analyst Ben Wood said that Nokia still remains largely a hardware business, with the majority of its revenues coming from handset shipments. However, Wood said that additional consumer services, such as computer games could make Nokia devices "stickier" meaning that customers will be less willing to switch to a rival device maker.

Wood added that the Nokia Music Store would be most welcomed by the music industry, as it poses a credible alternative to Apple's iTunes music portal.

"There are around 200 to 250 legitimate music stores online but Apple controls about 75% of sales. The music industry is going to embrace this because it will encourage competition," he said.

"What Nokia is also trying to do is introduce the concept of digital music downloads to people that haven't even heard of iTunes, in places such as India and Sub-Sahara Africa, where there are huge populations but where they don't have a computer," said Wood.

Facing increasing price competition, Finland's Nokia has been trying to refocus its business over the previous year to capitalize on the growth of Internet and entertainment services, such as music downloading, Web browsing, mapping and advertising.

In June, Nokia restructured its business, creating a unit to focus more on services and software. It has also made a series of acquisitions to reposition itself as a multimedia device and entertainment company. In addition to Loudeye, last month it acquired online photo and video-sharing firm Twango Inc for an undisclosed fee.

-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; dan.thomas@dowjones.com

(Magnus Hansson in Stockholm contributed to this article).

(END) Dow Jones Newswires

Posted to the site on 29th August 2007