It didn't take long for the digital-music price wars to heat up. Over the weekend, Microsoft (NASDAQ:MSFT) kicked off a new promotion at its fledgling MSN Music store that will give audio junkies five free tracks when they buy the first download at the standard $0.99 price.

This follows last week's announcement by Yahoo! (NASDAQ:YHOO) of an all-you-can-stream service with limited portability for as little as $5 a month. Yahoo!'s service represents a deep discount to similar offerings by RealNetworks (NASDAQ:RNWK) and Napster (NASDAQ:NAPS), while Microsoft's move is undercutting those companies, including Apple (NASDAQ:AAPL), all of which price their downloads between $0.79 and $0.99 a song.

Then again, Microsoft's move is just a temporary promotion. When it offered free select downloads of Grammy-nominated songs back in February, the freebies didn't leave the competition quivering. Still, it's clear that legal downloads are trending cheaper, and the landscape is changing. Yahoo! and Microsoft, two dot-com heavies that probably didn't figure to have bright futures in digital music, now need to be taken seriously.

While consumers won't mind a digital music price war, the providers won't be sitting pretty. How low can they go? Because of the simple nature of online delivery, it's really just a matter of how little the record labels are willing to accept for the intellectual capital of their digital-music libraries.

Napster and RealNetworks closed out the week so battered that they are barely trading for more than the cash on their balance sheets. Really. Napster closed at $3.77 with roughly $3.63 a share in cash. RealNetworks has a longer way to fall before it hits its cash mattress of roughly $2 a share, but at least it is currently profitable. But then, price wars that intensify have a funny way of turning black ink into red ink.

That's why this seemingly promising sector with so much potential may best be watched from a safe distance. The blaring decibels cause less hearing loss that way.

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Longtime Fool contributor Rick Munarriz thinks that $0.99 is way too much for a digital download -- though $0.165 certainly hits the spot. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.