Nokia builds WP8 momentum, but will increase its costs

After a first, somewhat experimental generation of Lumia smartphones, Nokia now has to prove itself with the current range, and it is redoubling its efforts. Its most recent results showed signs of progress, but also many holes, particularly in elusive US demand. However, the firm seems more certain of its strengths than it did a year ago and is focusing on imaging, mobile content and its applauded navigation platform to make Windows Phone - in its vanilla form highly resistible to users - compelling.

Mobile World Congress next month is likely to see the PureView camera technology, which won prizes at the show last year, but was launched in a Symbian phone, coming to Lumia. There will also be further enhancements to Nokia Here, the cloud-based version of its Navteq offering. In these respects Nokia has definite market edge, but it is also trying to challenge Apple in more difficult waters, even by expanding its music service to go up against iTunes.

This week, it announces Nokia Music+, a premium, paid-for addition to its new free streaming service, Mix Radio, for Lumia. Music+ offers unlimited skips and downloads and higher quality streams, enabling downloads at eight times the current quality, said the firm. Other features include lyrics and a web app for home use.

"Nokia Music is great for discovering new music, and we've found that there's a core of users that want even more of it," said Nokia's VP of entertainment, Jyrki Rosenberg, in a company blog post. "This is how Nokia Music+ came about." The service is expected to roll out next month priced at around $3.99 a month. However, iTunes is a tough nut to crack, and Nokia's record with music services has not been good. It pioneered the unlimited, flat rate subscription model five years ago with MusicStore and Ovi Music Unlimited, but gained limited uptake.

That was partly because of the dwindling power of its then-platform, Symbian, and of course it now has the same challenge of launching devices and services on a minority OS. And Windows Phone will start to cost it a lot more money in future. As its quarterly figures showed, it makes $250m in 'platform support payments' from Microsoft, for using the OS. But growth in its Lumia sales will bring one downside - its royalties to the Windows giant will start to outweight those payments.

In its results filing, Nokia revealed that the net balance of the arrangement, in place since it adopted Windows Phone in 2011, could swing against it soon. It said it had, so far, received more fees from Microsoft than it paid in return, but expects that, for the rest of the lifetime of the deal, no longer to be the net winner. "To date the amount of platform support payments received by Nokia has exceeded the amount of minimum royalty commitment payments to Microsoft. Thus for the remainder of the life of the agreement the total amount of the minimum software royalty commitment payments are expected to exceed the total amount of the platform support payments," Nokia said.

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