Nokia (NOK) will join the scores of consumer electronics companies which have lost billions of dollars on the Hollywood walk of fame.

It is not enough that Nokia has 40% of the global handset market. It want to build a software and content business to feed those phones. It is the kind of horizontal diversification that Harvard Business School professors advise against.

The temptation is not unlike that encountered by Ulysses off the coast of the Sirens. What may be unbearably attractive can also be bad for the health.

The largest media companies have little reason set distribution deals with only one company. Even Apple (AAPL), which rules the market because of its iTune and iPod products, competes with Amazon (AMZN) and a host of other services which allow customers to download movies and music. Of course, many people simply pirate the content, which does not add to the financial appeal of the business model.

It is easy to see Nokia’s logic. Its price per handset is dropping. The fast-growing market are in China and India. Consumers in those regions are not good targets for $300 products.

The New York Times writes that "Nokia wants to transform itself into a next-generation entertainment company." Unfortunately, so does every other consumer electronics companies in the world, along with half of the websites on the internet.

Nokia will waste a few hundred million dollars and then go back to the phone business. In the meantime, meeting Pamela Anderson will be fun.

Douglas A. McIntyre

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