Learning a lesson from Apple

Wal-Mart's striking admission this week that it would sell non-protected digital MP3 music files for $0.05 to $0.94 strikes at the very heart of the traditional music industry. You know -- the kind that is so scared of new digital music distribution methodologies that it has gone to great lengths to curb customer choice? Just this year, Apple CEO Steve Jobs pleaded with music production giants to allow copy protection-free music to be downloaded from the Apple iTunes music store on the web, a risky proposition that plays out for both sides.

The first side is the music companies -- like Sony BMG, Vivendi Universal and Warner Music. These companies have seen CD sales fall for more than a year now while digital downloads of copy-protected music from Apple's online iTunes have skyrocketed. The second side is the thought that by allowing customers to download music that can be played on any device (not just an iPod, for example), illegal file-sharing networks would decrease in popularity.

I won't get into non-Apple copy-protected music services like Napster, Yahoo! Music and Real's Rhapsody service, which all offer copy-protected music files for sale as well. Apple's CEO seems to have figured it out (he did a long time ago) -- offer the customer a superior product or service, sell them the equipment that allows an easy, complexity-free experience and watch both the product and service become best sellers. This is just what has propelled the iPod and accompanying iTunes into the best player/download service combo the world has ever seen, and it single-handedly put Apple back on the map in terms of brand awareness and consumer popularity.

The next step in music distribution has arrived

Apple saw that consumers wanted more choice, where the consumer would download music from the iTunes store and listen to it on an iPod or any other device that features universal MP3 audio capability (read: almost every digital music player in existence, and millions of cellphones as well). It took more than five years of selling copy-protected music files for Apple to see that consumers wanted to use downloads from its store on other, non-iPod devices.

Enter Wal-Mart this week, which said it would not only beat Apple's price on non-protected digital music files, but would make them available immediately after it announced its availability. Now, granted, Wal-Mart's electronic music file catalog of non-protected music files is not nearly as large as Apple's iTunes electronics music catalog, but it's only just beginning.

While Wal-Mart will continue to sell copy-protected music filed (Windows Media format) for $0.88 each, it will also sell non-protected music files for just $0.06 more at $0.94 each (which is the maximum price). Will customers flock to Wal-Mart's online music store for universally-playable digital music files soon? Well, if the retailer markets this right, they will come in droves. Although Apple's iTunes store provides an excellent and super-easy customer experience when integrated with its iPod player, there are millions of customers who do not own an iPod, but who own another MP3-capable music player and are ripe for the picking here.

Apple knows this, hence a main reason why it bargained for (and got) a non-protected music store offering for its customers. In steps Wal-Mart with a significant price cut on the same offering: non-protected digital music files. Let's see: Apple = $1.29, and Wal-Mart = $0.94. Where are you going for that next purchase for your iRiver or Creative MP3 player? Remember - non-iPod owners have no reason really to choose iTunes since their chosen non-iPod MP3 player won't be integrated into the iTunes software and online store. Is there a reason to choose Wal-Mart for those new universal MP3 downloads then? Price.

Wal-Mart's opportunity in digital music distribution

Not only does the world's largest retailer have an immense opportunity to create loyal customers of its website (a natural extension of its online music store), it has the potential to cross-sell, upsell and suggestive sell tons of accessory merchandise and other items alongside all those non-protected MP3 files at $0.94 a pop.

In other words, Wal-Mart needs to not only begin marketing the profound move it's making in the world of music distribution with an ad blitz of epic proportions, but it needs to cross-merchandise all the relevant merchandise that makes sense as well. It's odd to think that Wal-Mart could be considered "hip" by the teenager set of today, but it has just that chance if it capitalizes on that. Digital music that is not copy protected and is playable virtually anywhere on any device is a paradigm shift for the industry. Wal-Mart, listen up: don't blow this. You have an incredible opportunity here.

Stay tuned next week for another edition of the Wal-Mart Weekly. Until then, have a great weekend!