Nokia's Windows Phone royalties to exceed $1bn per year in future

Summary: After enjoying Microsoft's financial support through the transition to Windows Phone, it's time for Nokia to pay.

Microsoft's $250m quarterly "platform support payments" to Nokia for using Windows Phone has always exceeded Nokia's own royalty payments to Microsoft for the software, but from now on the scales could be tipping the other way. 

The arrangement has been in place since 2011, when Nokia began using Windows Phone as its primary smartphone platform, and is expected to see the pair exchange billions of dollars over its lifetime.  Traditionally, Microsoft has paid more to Nokia than vice versa under the deal, but Nokia has revealed the tables could be turning in its financial results published yesterday.

Historically, Nokia said, it has received more than it pays in "minimum software royalty commitment payments", but it expect for the rest of the lifetime of the deal to no longer be the net beneficiary in the quarterly exchange the pair make. 

"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 states in its Q4 earnings results (pdf). 

Nokia's payments are based on a software royalty structure that includes "minimum annual software royalty commitments", which are paid on a quarterly basis. 

That would suggest that Nokia expects to increase volumes of its Lumia devices, which run Windows Phone, beyond well beyond the 4.4 million Windows Phone Lumias it sold last quarter. Sales of the handsets are already on an upward trajectory - Nokia sold one million Lumias in 2011 (the devices were released in October of that year), and over 14 million in 2012.