A "beta" version of the online video store, set to debut Tuesday, will sell digital versions of about 3,000 films and television episodes from all the major studios and some TV networks, including FOX Broadcasting. Wal-Mart will not initially offer content from ABC, CBS or NBC, although the company said it hopes to add shows from those networks.
The nation's largest retailer is using its buying power to beat the prices charged by other download services in many cases, offering films from $12.88 to $19.88 and individual TV episodes for $1.96 — 4 cents less than Apple Inc.'s iTunes store.
Apple charges less for some films sold on iTunes — $12.99 when pre-ordered and during the first week of sale, or $14.99 afterward. But it only carries films from two studios, The Walt Disney Co. and Viacom Inc.'s Paramount Studios.
Most studios have resisted signing deals with iTunes in part because of Apple's desire to sell movies at one price. Studios prefer variable pricing such as Wal-Mart is offering.
Apple's pricing has also caused scuffles between studios and major retailers, including Wal-Mart and Target Corp. The retailers don't want studios to sell digital copies of films cheaper than the wholesale price of physical DVDs.
Wal-Mart's online store will sell older titles starting at $7.50, compared with the $9.99 charged by iTunes.
Wal-Mart also used its significant clout to launch its online store with films from all major studios. The Bentonville, Ark., retailer accounts for about 40 percent of DVD sales, and studios have been careful not to anger their largest customer.
Given Wal-Mart's importance, the studios readily agreed to sell films on the retailer's new site, analysts said.
The biggest impact of Wal-Mart's entry into the digital download business may be that it now frees studios to cut deals with other online services.
"It gets the ball rolling finally," said Tom Adams of Adams Media Research. "Now the studios are free to pursue it as aggressively as they can without worries about what Wal-Mart is going to think."
Amazon Inc. launched its "Unbox" video rental and download store last year without films from Disney.
Other online download and rental sites include Movielink, which is owned by five studios, and CinemaNow.
Unlike some offerings, Wal-Mart will not rent films online. The films can be played on a PC or transferred to Microsoft Windows Media-compatible portable digital players. The movies will not play on Apple computers or the popular iPod.
Movies bought from the Wal-Mart store also can't be burned onto a DVD, although the company said it hopes to offer the option by the end of the year.
Wal-Mart says it doesn't expect digital sales to cannibalize its retail DVD business for many years.
"Customers have a growing interest in downloading video content, but complementary and supplemental to buying content on DVD," Kevin Swint, Wal-Mart's divisional manager for digital media, told The Associated Press.
"With the health of the DVD business and coming high-definition formats, that business will remain quite strong for quite a long time."
Internet downloading is expected to generate about $4 billion in annual revenue in five years, compared with an estimated $27 billion from DVD rentals and sales, according to Adams Media Research.
Whether Wal-Mart can translate its success on the ground to the digital domain remains to be seen.
Wal-Mart abandoned its efforts to build an online DVD rental service in 2005 to compete with the well-established Netflix Inc.
The retailer also faces the same challenge that confounds other online video sellers — the fact that films cannot be easily transferred from a computer to a larger TV screen.
"The real problem is people want to watch these movies on their television set," said principal analyst Josh Bernoff of Cambridge, Mass.-based Forrester Research. "There already is an effective way to do that, which is to buy a DVD."