Our take...
Q2 2008 saw Sony Ericsson handset sales drop by half a million units, resulting in a decrease of 327m Euros in tax free profits compared to the same period in 2007. As a manufacturer of high end handsets such as the Walkman range which specialise in playing music, the company is now under further pressure, losing market share to Apple's iPhone. It is therefore looking for ways to increase revenues. Releasing the updated PlayNow Arena with DRM free tracks and integration with TrackID, a music identification service, should encourage uptake of the music service. In June 2008, Sony Ericsson reported 2,335,000 tracks identified through TrackID in ten days, with a click through rate of 11 per cent to purchase music indicating that such identification services can help to promote music purchase. However, Sony Ericsson has reported little room for profit from mobile music services once labels, operators and taxes have been paid.

Screen Digest does not believe that the handset manufacturer intends to make significant revenues from its content, such as Nokia with Ovi, hence will likely prove less contentious with operators. Rather it is looking to provide services to complement its handsets, in much the same way as Apple's iTunes with the iPhone, and improve floundering sales. As such the handset manufacturer is playing it relatively safe, enhancing products that the company and its customers are already familiar with to further handset sales. However, it is unlikely to increase revenues dramatically. In light of the decline in sales of mid to high end range handsets, there are several other alternatives which Sony Ericsson may look at in order to compensate for its loss of revenues: 1) target emerging markets with a new range of low-end handsets, 2) increase its range of mobile broadband devices, 3) take advantage of Nokia's often complex relationship with operators by strengthening its own.


In terms of PC-based side of the proposition, it is of note that PlayNow Arena will be the first Nordic store (and one of very few Western European stores) to offer DRM-free content from three major labels. In the US the trend towards DRM-free was rather firmly established by the end of January 2008 when Amazon MP3 store finalized deals with all four Majors. In Europe until recently DRM-free catalogues of the majority of outlets were limited to EMI and independent labels; however the DRM-free trend is gaining ground with a number of MP3 distribution deals signed in the UK in the past months and the PlayNow Arena announcement. Labels' support for the new service is also in line with their strategy of licensing DRM-free catalogues to iTune's competitors in order to dent Apple's dominance of the paid online music market. Universal Music, the only Major absent from the Sony Ericsson music service, has so far been pursuing the strategy of distributing DRM-free content in Europe through its own outlets, such as UK niche propositions Lost Tunes and The Music From soundtrack store, and the pan-European Deutsche-Gramaphone online store retailing DRM-free classical music. Importantly, absence of DRM does not guarantee service uptake and serves only to remove barriers to purchase, which is especially important to services not aligned with any particular device. With Sony Ericsson aiming to use PlayNow arena as a promotional tool for its handsets, the size of the catalogue is likely to be of more importance than file format – and in this sense iTunes' 8m track catalogue (DRM-wrapped tracks are available from all four Majors) is a more attractive proposition that PlayNow Arena's 1m tracks.