Wal-Mart Stores Inc, the world's largest retailer and the top seller of compact discs, plans to add a pay-per-song download service by year's end, people familiar with the matter said.
The Internet store will be modeled after Apple Computer Inc's iTunes Music Store, which allows customers to download songs for US$0.99 each.
Wal-Mart has been in talks with record companies to license music for its own download service, four people who asked not to be named said.
The Bentonville, Arkansas-based retailer, which currently controls 14 percent of worldwide music sales, is seeking a foothold in online music as downloading, legal or otherwise, cuts CD sales.
Global music sales fell 11 percent to US$12.7 billion in the first half of this year after declining 7 percent last year and 6 percent in 2001, according to the International Federation of the Phonographic Industry.
"Having an alternative makes an awful lot of sense for these retailers who are already losing sales to illegal downloading and facing competition from digital services," said Russ Crupnick, vice president of NPD Group Inc, a market-research firm.
Wal-Mart plans make the download service part of its Web site. Walmart.com chief executive John Fleming wouldn't comment on plans for a music service.
The market for legally downloaded music will be US$35 million this year, a fraction of the US$12 billion in annual music sales, said David Card, an analyst at Jupiter Research, a technology research firm. He estimates online music sales will rise to more than US$100 million next year and approach US$700 million by 2008.
"It's clear, based on the amount of activity, that the level of consumer interest and response has been significant" to downloads, said Dan Hess, vice president of ComScore Networks, which tracks Internet sites.
"Any retailer that depends upon movies and music has to at least evaluate its options," he said.
Wal-Mart, Best Buy Co, the second-largest music retailer, and other discount chains use CDs, DVDs and videogames to draw customers into their stores, where they try to sell more profitable products, such as TVs, stereos and electronics.
They have taken a dominant share of music sales, in part, by using their size to get merchandise from many suppliers at lower prices and passing along part of the savings to consumers.
Wal-Mart sells most CDs for US$10 or less, compared with more than US$15 at specialty music stores. It has a smaller presence in online sales of CDs, with Walmart.com accounting for less than 1 percent of music sales, NPD said.
More than 12.7 million customers on average visited Wal-Mart's Internet site each month in the third quarter, according to ComScore. That made Walmart.com the sixth-busiest US Web shopping site, behind companies including EBay Inc and Amazon Inc.
"They've got the infrastructure there, so if that's a direction they wanted to go to, they could," NPD's Crupnick said. "They have the buying power and the market strength."
Wal-Mart will enter a crowded field of online music providers. Roxio Inc's Napster, RealNetwork Inc's Rhapsody and Musicmatch Inc are among the legal download services that have proliferated as the major record labels try to counter piracy and free file-swapping sites such as Kazaa and Grokster. About 500 million files are downloaded illegally a month, NPD said.
Apple's iTunes has proved the most popular among the legal online stores by removing restrictions on copying songs and making it easier to download music.
Chief executive Steve Jobs persuaded record executives to give up more control over digital music files than they had with other services, most of which required monthly subscriptions and charged extra for the ability to copy music onto a CD.
The iTunes store, originally available only to Macintosh users, was opened to Windows users last month. It features about 400,000 songs from all five major recording companies and 200 independent labels.
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