Taking movie, music retail brawn online

DSN Retailing Today,  Feb 28, 2005  by Doug Desjardins

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For the past five years, Wal-Mart has been the king of all media, leading retailers in sales of music, videos and video games. And now it's on course to take the lead in entertainment retailing on the Internet.

Not content with bricks-and-mortar supremacy, Wal-Mart has a booming business in sales of digital music and online DVD rentals. The ventures offer digital music downloads for 88 cents per song and DVD rentals online for $12.97 per month.

Wal-Mart's music program--launched last spring in the wake of the success of Apple's iTunes service--operates on walmart.com under the slogan: "Your Music, Your Way." In addition to 88-cent songs, a price that undercut iTunes' rate by 11 cents, it offers album downloads for $12.97 (iTunes' are usually $9.99) and exclusive songs available only on its Web site (recent examples include Toby Keith's "Honkytonk U").

Digital music is still emerging as a major revenue source, but Wal-Mart is poised to cash in on a business that analysts expect to skyrocket in the next few years. Jupiter Research projects that online music sales will increase from $270 million in 2004 to $1.6 billion by 2008.

Wal-Mart's online rental service was also modeled after a pioneering competitor--NetFlix--and also undercut its price. The $12.97 monthly fee for unlimited rentals, two at a time, undercut NetFlix's price of $17.99 for three at a time.

In stores, Wal-Mart continues to build its lead as the top retailer in DVD sales. Though it's hard to gauge how much of the market Wal-Mart controls, most estimates give it between 25% and 30% of total U.S. sales.

That percentage is even higher in some genres, particularly family and kid titles. According to the NPD Group's Video Watch consumer survey, nearly 50% of all copies of the Disney comedy "The Haunted Mansion" were sold at Wal-Mart stores during a one-month period last summer.

And though VHS sales are on a rapid decline, Wal-Mart continues to carry a wide selection of titles while competitors such as Best Buy have dropped the format entirely. Spokeswoman Karen Burk says Wal-Mart will "support VHS as a category as long as customer sales warrant."

In music, Wal-Mart is enjoying a revival in CD sales that began in early 2004. That increase was helped in large part by the crackdown on illegal-file sharing and the lowering of prices by major record labels including Universal.

Wal-Mart continues to maintain its reputation as the low-price leader in music with new promotions like "Pay Their Sales Price," which promises to beat any competitor's advertised price on select new CD releases (the promotion is also used for DVD sales).

Wal-Mart is also at the top of the heap among video game retailers. Industry analyst David Cole of DFC Intelligence estimates that Wal-Mart controls about 20% of the video game business, giving it a comfortable lead over Best Buy and Toys "R" Us.

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