Wal-Mart Hops Into Digital Music Market

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Wal-Mart Stores has officially launched an online music store it began testing in December, joining an increasingly crowded field of vendors that are selling songs over the Internet.

The Wal-Mart service, called Music Downloads and located in a section of the company's Web site, sells individual songs for 88 cents each from a music catalog that has been expanded by 50 percent since the store went online in testing mode in December. Prices for entire albums vary.

Music Exclusives

Wal-Mart didn't say in a press release Tuesday how many songs its catalog offers, but it touted a number of exclusives, such as the catalog of Curb Records, which includes country music stars Tim McGraw and LeAnn Rimes. Curb Records is making its songs available online for the first time at the Wal-Mart store, an exclusive arrangement scheduled to last two months, Wal-Mart said.

The store also features exclusive songs from artists such as Jessica Simpson, Shakira, Black Eyed Peas, and Shania Twain, Wal-Mart said.

Ready for Competition?

Since December, the music store's download interface and search engine have been enhanced and simplified. Wal-Mart also provides around-the-clock e-mail and phone customer support for its music store shoppers.

However, music downloaded from the store will not play on PCs running the Macintosh or Linux operating systems; it's only compatible with Windows, according to the Wal-Mart Web site. The store downloads songs in WMA format, which precludes them from being played on Apple's IPod portable player, according to the Wal-Mart Web site. Wal-Mart guarantees only that its downloads will play correctly using Microsoft's Windows Media Player 9 software

Wal-Mart joins a market with razor-thin margins that is led by Apple's ITunes Music Store and includes other competitors such as RealNetworks and Roxio's Napster.

Music Market Grows

The market for online digital music sales is still very small. It hit $80 million in the U.S. last year, with projected growth to $1.6 billion in 2008, when the revenue will be about evenly split between subscription and download fees, says David Card, a Jupiter Research analyst.

Online music stores such as the ones operated by Apple and Wal-Mart let people buy songs and albums, but not listen to full songs prior to the sale. A subscription isn't required to buy from their stores. Meanwhile, RealNetworks' Rhapsody is a hybrid service, which for a monthly fee lets people buy songs and also listen to its entire catalog without buying the songs.

"There are probably dozens of companies offering music downloads, fewer offering subscription services, and I seriously doubt that any of them are making any money," Card says.

Currently, companies operate online music stores to support other efforts, such as selling portable music devices, which is the case of Apple, or increasing Web site traffic, which might be the motivation for Wal-Mart, he adds

"Anything Wal-Mart does is interesting because they're so big and have such enormous buying power, but they haven't done a lot online historically," Card says. "With this music store, Wal-Mart probably wants to generate traffic to its Web site and look hip and cool to attract a younger audience."

Due to its enormous clout, Wal-Mart also could conceivably drive prices down by exerting pressure on suppliers of digital music--the record labels--to lower their prices, Card says.

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