New Wal-Mart MP3 store challenges iTunes with lower prices

  • Brisbane (CA) – Wal-Mart relaunched its MP3 store with more than 3 million DRM-free songs in a much cleaner layout and new store navigation features. As Wal-Mart’s overall music sales are falling behind Apple’s iTunes, the company knows it will not be able to compete in terms of content selection. Conceivably, pricing will be the next battlefield – an area where Apple is vulnerable and possibly the only opportunity for one Wal-Mart to score wins in the near future.

    Following some confusion about the shutdown of its DRM servers, Wal-Mart has launched its brand new MP3 store, which, according to the company, carries more than 3 million songs. The company leaves little doubt that “price” is the value of its store. The Top-10 sells for 74 cents per song, the standard price is 94 cents, which translates into a 5 – 25% cost advantage over iTunes.  

    Additionally, Wal-Mart offers a “free track of the week” and a free MP3 track of the buyer’s choice with every CD purchased in stores or online (begins in November). Standard album pricing is $9.22 online, with some albums being available for as little as $5.64. There are some albums that sell for more than $10 – such as Carrie Underwood’s Carnival Ride ($13.88) or Journey’s Revelation ($10.88).

    iTunes has still an edge in terms of content (8.5 million songs, over 30,000 TV episodes and over 2500 films including 600 in HD), but there is little doubt that rivals will attack iTunes’ dominance where it hurts most – price. Apple recently indicated that it has no interest in giving up a single cent of its profit margin generated from a 99-cent-per song price. Wal-Mart substantially undercuts Apple, possibly enough to make sure  that Apple cannot follow: Of those 99 cents, Apple is rumored to be paying about 70 cents to publishers and 9 cents to artists. It keeps 11 cents to itself to cover its expenses and achieve a profit. Matching Wal-Mart’s 74 cents per song would mean that Apple would have to operate at a loss, at least if those numbers are correct.     

    And Wal-Mart isn’t the only company to put pressure on iTunes. Sony’s sells 15-song packages for $10 per month, which translates into a per-song price of 66 cents – if a user actually purchases 15 songs per month.

    We believe the writing is on the wall. DRM is a non-topic these days and the attention turns to pricing. It remains to be seen if iTunes offers enough convenience and selection to hold on to its generally loyal customer base. However, the pricing pressure is almost certain to increase, especially if Wal-Mart and services such as can gain traction. Playing the pricing card is also the best option for the music industry to strip Apple of some of its influence in this segment and level the playing field with multiple MP3 stores.

    In the end, publishers are interested in protecting their music distribution business and a weaker iTunes and a bunch of other strong stores would guarantee that this will be the case for years to come.