I know my Foolish colleague and friend Rick Munarriz took some flak earlier this week for insinuating that Wal-Mart (NYSE:WMT) might threaten Apple's (NASDAQ:AAPL) iTunes with music offerings free of cumbersome digital rights management (DRM). Like Rick, I agree that Apple may be on the verge of facing its greatest challenges for music sales right now, but unlike Rick, I'd wager that Wal-Mart is probably the least likely to take a bite out of Apple.
First of all, pardon me, but this whole thing gives me a major case of deja vu. In December 2003, Wal-Mart made headlines by, yes, offering a lower-cost alternative to iTunes, and Wal-Mart's online music store hasn't crippled iTunes so far. Wal-Mart is an utterly mammoth retailer, so it makes sense that market research firm NPD Group said it was the No. 1 music retailer overall in the first quarter of this year. iTunes clocked in at No. 3, a major achievement, but when it comes to digital music storefronts, tech website Ars Technica said in June that the NPD data show that Wal-Mart's online music market share is "negligible" after all these years (and cheaper prices).
In addition to selling music without the DRM that companies use to protect copyrighted material, Wal-Mart also apparently won't offer any albums that include parental advisories, unless the labels provide sanitized versions. True, much of the musical fare Wal-Mart tends to peddle probably doesn't strike many people as high art, but somehow I doubt hard-core music fans are willing to pay for bleepity-bleeped music, DRM or no. (It's arguable that any kind of censorship is the top of the slippery slope that leads to thinking it might be better to put clothes -- Metro 7, anyone? -- on the Venus de Milo.)
Given such policies, the idea of committed audiophiles getting much, if any, of their music from Wal-Mart seems far-fetched to this music snob -- call me crazy, but I'd say there's a principle there.
As you might guess, I think Wal-Mart is lacking in the "cool" department. My Foolish colleague Katrina Chan recently noticed that Wal-Mart's attempt to use Facebook to its back-to-school advantage ended up backfiring pretty heavily. If you think that doesn't relate, don't forget college kids are huge music consumers.
The fact that I'm downplaying Wal-Mart's power here doesn't mean I'm defending iTunes too terribly much. Although it does have first-mover advantage in digital music sales and the cool factor Wal-Mart lacks. I suspect Apple may run into problems with its premium pricing for DRM-free tracks. As much as Apple may think it can make everybody happy, including the recording industry, by charging more for DRM-free music, I have a sneaking suspicion that many customers might see it as Apple selling them out for profit, both for itself and for the music industry.
Plus, there are indications plenty of competitors plan to get in on this area. Rick mentioned Amazon.com (NASDAQ:AMZN) getting into the fray, but let's not forget Yahoo! (NASDAQ:YHOO) has made noise about a DRM-free music offering coming soon. And of course there are always emerging sites, such as News Corp.'s (NYSE:NWS) MySpace, which allows artists to do business directly with fans.
Thus far, EMI and Vivendi's (NYSE:V) Universal are the only major labels playing along with Wal-Mart, and the industry's historical reluctance limits how much DRM-free music any of these companies can offer for the time being. (And Rick is absolutely right that DRM-free success should wake up the other recording industry majors, who have been asleep at the wheel for a long time.) Apple certainly may need to watch its back, I suspect Wal-Mart's not going to be the one stabbing it.
Wal-Mart is a Motley Fool Inside Value pick. Amazon.com and Yahoo! are Motley Fool Stock Advisor recommendations. Try a free 30-day trial of either newsletter to get plugged into the latest selections that are helping both newsletters beat the S&P 500.
Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy that sings in the shower.
