Nokia announced a $60 million acquisition last week of music streamer Loudeye Corp., a move potentially pitting the world’s largest cell-phone maker against the current king of portable music, Apple Corp.

The Finnish phone manufacturer is paying $60 million to acquire the firm, which provides technology to help cellular providers sell music downloads. With a wide selection of cell phones already in the market, and a majority of those already music capable, the purchase gives Nokia the delivery system it needs to transform itself into a complete digital music provider.

Music is a key experience for Nokia, said Anssi Vanjoki, executive vice president and general manager of Nokia's Multimedia department. Loudeye brings a number of key assets to Nokia, including a substantial content catalogue and a robust service platform that will help us to achieve this objective.

The new service, as yet unnamed, could pose a threat to Apple’s dominance of the multi-billion dollar online music industry it captured with the iPod media player, and the iTunes

By the Numbers

Both manufacturers already have a strong presence in their respective markets. Apple sold roughly 35 million iPod's last year. Meanwhile, Nokia is already the world’s largest maker and seller of digital music phones, having sold 45 million units last year. It forecasts that 80 million units will be sold in 2006.

But with more music players in the hands of customers than anyone else, Nokia aims to complete the package with Loudeye by providing the content that goes into the phones as well. - akin to the way iTunes complements iPods.

The Seattle-based Loudeye focuses on gathering music content from major and independent music labels. The firm already has about 1.6 million titles, with major partners in Europe such as Microsoft.

Based on previous plans, Loudeye had already announced that it would launch a retail a retail platform using Intel technology that would enable consumers to buy music tracks and download them to various devices.

Instead, products and services should be integrated end-to-end under the control of a single application, the same way Apple sells iPod hardware with iTunes providing content. This is the most successful model going forward, and Nokia is trying to make it a reality now – even if it means apple

Expanding the Market

The iPod/iTunes combination has dominated the portable music player market, selling 850 million tracks since 2003. Yet, the industry is still growing quickly. Mobile music sales reached $US 1.1 billion in 2005, a figure three times higher than a year earlier, record industry group IFPI reports.

The quick pace of growth has brought in Sony Ericsson, the world’s fourth largest handset maker, with strong sales of Walkman music-playing handsets. Motorola, the world’s second largest cell phone maker, recently teamed up with Apple to sell ROKR and SLVR brand phones with iTunes software.

Cell phone makers such as Nokia could be expanding the market, according Ed Kershaw, head of music of music at Vodafone. He adds that phone makers could be filling gaps for impulse buyers that record shops and online stores don’t.

Certain artists have music which appeals “very strongly to the mobile customer base,” Ed Kershaw, Head of Music at Vodafone said, but not necessarily to “the 30-something male with a broadband connection downloading from iTunes.

Nokia and Apple could end up competing for the same customers. Speculation abounds that Apple could soon introduce its own cell phone.

Challenge Ahead

While Nokia’s acquisition of Loudeye may give it a complete hardware and software solution comparable to iPod/Itunes, “it must still convince operators to buy their content services,” Schadler wrote in an e-mail on Sunday.

Carriers may not embrace Nokia’s newest offering. The company’s attempt to sell ring-tones and other content directly to customers in 2003 over the Internet did not sit well with cell phone carriers due to probable losses in their own content revenue.

However in a press statement, Loudeye chief executive expressed hope that the company's integration with Nokia would deliver a comprehensive mobile music experience.