Apple Kills Another One

After eight years of quietly selling music downloads, Wal-Mart (NYSE: WMT  ) is calling it quits. The world's largest retailer has advised distribution and licensing partners that it will close its MP3 store on Aug. 28, according to Digital Music News.

This is a surprising move on many different levels.

  • Wal-Mart recently integrated its Vudu video-streaming service with walmart.com, so it would seem odd that it's throwing more promotional muscle behind one form of a la carte streaming while nixing another.
  • Amazon.com (Nasdaq: AMZN  ) has been successfully creative with its music streams. Whether it's selling Lady Gaga's new CD as a download for just $0.99 or using digital purchases to expand its fledgling cloud-based streaming platform, Amazon is proving that you can stand out in a world where Apple's (Nasdaq: AAPL  ) iTunes rules.
  • Best Buy (NYSE: BBY  ) has had a few rough quarters, yet it continues to sell online tracks. Does Wal-Mart really want to let Best Buy be the only bricks-and-mortar chain directly selling digital downloads?
  • Amazon is now selling movies, music, books, and software online. If Wal-Mart truly wants to compete with Amazon, it can't afford to fall behind.
  • Digital music is apparently popular, judging by the initial excitement over Pandora Media's (NYSE: P  ) IPO and Spotify's stateside launch.

Wal-Mart's MP3 page is still not advising shoppers of its pending closure, so there may be time for the discounter to change its mind.

Wal-Mart tried to set itself apart from Apple and Amazon by selling music at a slight discount to the larger e-tailers. Offering songs at $0.64, $0.94, and $1.24 price points should have been a draw to young penny-pinching listeners. However, whether it's that the Wal-Mart brand just wasn't cool enough for music tracks or that folks are just more glued to the iTunes interface than they would care to admit, the department-store chain just wasn't able to compete on price alone.

Music fans are finicky. No surprise there. Wal-Mart hangs it up just as the digital-music scene is getting good? Now that is a big surprise.

Where do you buy your digital music -- if you even buy digital music? Share your thoughts in the comments box below.

The Motley Fool owns shares of Best Buy, Wal-Mart Stores, and Apple. Motley Fool newsletter services have recommended buying shares of Best Buy, Apple, Wal-Mart Stores, and Amazon.com, creating a bull call spread position in Apple, and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has purchased more tunes through Amazon than iTunes over the past year, given Amazon's healthy promotions. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2011, at 8:34 PM, Uruzone wrote:

    This actually doesn't surprise me one bit. Amazon is successful at competing in the digital download arena because it was built from the ground up as an eCommerce company. Apple's iTunes defined the market, so its ongoing success is also no surprise.

    But Wal-Mart was way, way off its core competency here. To the point: they couldn't exploit cheap Chinese labor to create the music people want to buy.

  • Report this Comment On August 10, 2011, at 8:39 PM, Bujutsu wrote:

    I buy all of my music through iTunes. It is just so convenient!

  • Report this Comment On August 10, 2011, at 10:18 PM, gslusher wrote:

    Amazon is also successful in part because it is willing to lose money on digital downloads. Amazon almost surely has to pay publishers the same amount as Apple. If Amazon charges less, it means that their margin is much less, perhaps even negative. (Remember that Apple has said many times that the iTunes Store basically breaks even.) Amazon tried doing this with Kindle books: they sold for $9.99, even though Amazon often had to pay the publishers more than that. Today, Amazon uses the same "agency" model as Apple, where the publisher effectively sets the price and Amazon gets a percentage. (Thus, Amazon now makes a LOT more on Kindle book sales. Amazon stockholders should be thankful.)

    Initially, Amazon sold Kindle books at a loss to promote sales of the device. Today, it's shifted to the other way around, as the Kindle's price has dropped dramatically and the books are now mostly more expensive.

    On the other hand, as Steve Jobs said at the D8 conference last year, the agency model allows consumers to put direct pressure on the publishers about the price: Amazon's initial model insulated the publishers from price pressure.

  • Report this Comment On August 10, 2011, at 10:24 PM, Popnfresh100 wrote:

    And yet they are still selling CDs... maybe Prince is right about the internet being completely over

  • Report this Comment On August 11, 2011, at 9:32 AM, swh114 wrote:

    I do like iTunes/iPod a lot, but I have decided to cease paying for new iTunes music. How many people don't know that iTunes is a proprietary format that can never be played by a non-apple device. The idea that I pay to own the digital rights to a song, but I don't have the freedom to use as I wish is infuriating and arrogant (or genius) of Apple.

    Imagine buying a CD published by Sony Records and only being able to play it in a Sony CD player.

    Absurd and Ridiculous!!!

  • Report this Comment On August 11, 2011, at 11:28 AM, dsbrady wrote:

    "How many people don't know that iTunes is a proprietary format that can never be played by a non-apple device"

    That's just not true any more. For several years now, all iTunes songs have been DRM-free, which means you are free to play them on non-Apple devices. They just need to support the AAC format (which most devices do).

    http://www.macworld.com/article/138000/2009/01/drm_faq.html

    and

    http://support.apple.com/kb/ht1711 (if you want something more "official")

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