(Reuters) (12/18/03)

Edited By Michael Bennett

BENTONVILLE, AR, USA - WAL-MART STORES INC. said on Thursday it will begin testing digital music downloads on its Web site, undercutting many competing services and perhaps sparking a price war in the crowded online music field.

Wal-Mart, which has grown into the world's biggest company by undercutting its competitors in the traditional retail business, will try the same strategy online, offering individual songs for 88 cents each -- compared with most other services that offer songs at 99 cents each.

Wal-Mart will face off against incumbents like Apple Computer Corp.'s iTunes service, Roxio Inc.'s revamped Napster site, Dell Inc. and many others.

Microsoft Corp. and Hewlett-Packard also have said they intend to launch competing services next year.

The online music field has created an Oklahoma land rush of sorts, as music companies crack down on free song-sharing sites like KaZaA and license their catalogs to more and more companies.

Price will be one factor these companies use to differentiate themselves, but by no means will it be the only factor.

Brand names, catalogs, and ease-of-use will all factor into the success stories in online music.

"Not surprisingly, people are more likely to buy online music from companies that charge less," said Jupiter Research analyst David Card.

"But the size of the music catalog, how easy the technology is to use, and how well these services can find customers are all just as important."

Cynthia Lin, a spokeswoman for Wal-Mart, said the site (http://www.walmart.com) would offer 200,000 songs for download initially, and would expand its offerings after the official launch in the spring.

"We plan to offer music content that will be exclusive to walmart.com," she said, but declined to elaborate.

The new service is Wal-Mart's latest attempt to lure more customers to its Web site.

In September, it launched an online contact lens prescription service. It also offers an online DVD rental service that competes with companies such as Netflix Inc.

Wal-Mart plans to gather customer feedback on its music service over the next few months and make any modifications before officially launching the service later in the year.

While it may be the top discount retailer in the brick-and-mortar world, the Wal-Mart brand is not as prominent in the online world, Card said.

"They have not had nearly as much success online, whereas Napster is a very valuable name online," Card said.

"And Apple's iTunes was one of the first to market with this business model."

Meanwhile, Time Warner Inc.'s America Online, the world's largest Internet service, on Thursday started offering direct links to Apple's iTunes through its AOL Music sites as part of a co-marketing agreement announced in October.

Through iTunes, AOL will offer its membership a download service in addition to its MusicNet subscription service and traditional CD sales.

Jupiter's Card noted that AOL's brand name and experience online should not be underestimated.

"Success in online music will depend on who can best reach out and find online customers.

Few cultivate online customer relationships better than AOL," he said.

Evan Harrison, general manager of AOL Music, said he was not concerned that Wal-Mart could undercut them in the download business.

"It's not about price," Harrison said. "Through our exclusive programing at AOL Music, we've already proven we can drive sales.

We've got one of the largest online audiences, including credit card billing information for that audience.

"Apple, for its part, is the No. 1 a la carte digital music shopping site."

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