Inside Wal-Mart's Online Music Store & Digital Rights Management

by , 9:30 AM EST, December 19th, 2003

Analysts viewed Wal-Mart's announcement Thursday of its foray into online music distribution as a potential threat to Apple, but it would appear that for the time being the service compares more so with the likes of BuyMusic.com than the iTunes Music Store.

The sufficiently titled "WalMart.com - Music Downloads" service offers all songs for 88 cents with albums typically priced at $9.44, undercutting competing services in typical Wal-Mart fashion. Apple fans are no stranger to paying a premium, however, and when it comes to online music services, the adage of getting what you pay for suddenly rings true.

Wal-Mart's Music Downloads are served up in Microsoft's WMA format at 128-bits and employs Media Player 9's Digital Rights Management solution, making the service only available to Windows users. Powered by Liquid Digital Media, the Wal-Mart branded music services relies on the cumbersome interface of a Web browser, suffering the same interface shortcomings that BuyMusic.com does. When purchasing a full album, for example, one must manually download each track individually.

Ironically, Wal-Mart has gone to pains to explain that the service does not work with the Mac OS. From the site's "About section:"

Note: Music downloads from Walmart.com will not play on any Apple Macintosh computer.

What Wal-Mart fails to note is that it also does not work with its own Linux-based Lindows PCs.

The integration between the Web and Microsoft's DRM also lends itself to other caveats: first, one must download a song within 90 days of purchasing it or you forfeit access to the song; second, a song must be listened to at least once within 120 days of download or the file will be rendered unplayable. Also, while users are entitled to "back-up" their songs to up to two other computers, they can only actually play them on the original computer that downloaded the music. In fact, if you switch to a new computer and wish to move your purchased music to it, the only solution offered by Wal-Mart is to burn your music to an audio CD and then to play that CD in the new computer.

Burning of tracks is also relatively restricted, at least compared to Apple's terms of use. Songs downloaded from Wal-Mart can be burned a total of 10 times, period. Once a track has reached its limit, Microsoft's DRM kicks in and will prevent the user from burning it anymore. Songs can be transferred an unlimited times to portable players, however.

Wal-Mart's music catalog is currently limited to about 200,000 songs -- half of Apple's -- from the five major record labels as well as some independent labels, although more music will be added in the future. Wal-Mart, whose retail stores account for 20 percent of music sales in the U.S., plans to officially roll out the service early next year.

Lastly, in a slight gaff that only Mac user's would appreciate, Wal-Mart's "Learn More" page features a screenshot of its service taken from a Mac OS 9 Web browser!

Alex Allee and Bryan Chaffin assisted with this article.

The Mac Observer Spin:

Wal-Mart's 88 cent price-point is intriguing, but without that distinguishing feature the service is very much like BuyMusic.com. Of course, if history is any indicator of the future, that means that Wal-Mart doesn't stand to be very successful. As Scott Blum, CEO of BuyMusic.com, himself noted last week, none of the other online music sites are coming even close to 1 million songs per day. "We're not achieving that at all," he told TechNewsWorld in an interview. "I've spoken with my competitors, and we're nowhere near (Apple's) numbers."

Apple is currently hitting 1.5 million downloads per week.

It remains to be seen if Wal-Mart can make money at 88 cents per download, no matter how busy its store might become. It's even possible the company is approaching its download site as a loss-leader to attract visitors to its stagnating Web site. While the music store is separate from the rest of Wal-Mart's retail site, a navigation bar points visitors to the rest of Wal-Mart's offerings.

Steve Jobs has said that Apple doesn't make money with its own market leading iTunes Music Store (iTMS), which charges 99 cents per song. It is believed that Apple pockets approximately 35 cents per song, with the music labels taking the remaining 64 cents. If Wal-Mart was given the same deal, that means it gets but 24 cents per song, most, or all, of which likely goes to Liquid Audio for running the service. Turning a profit with almost 1/3 less money would be a difficult challenge, to be sure.

Still, one can't dismiss so easily the retailer's clout, nor its penchant for selling products at a loss just to dominate a segment. If nothing else, Wal-Mart adds a value twist to the online music battle that's shaping up in 2004.