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Friday, September 29, 2006, 10:00 am PT (01:00 pm ET)

Wal-Mart and Apple talking about being friends

Apple Computer and Wal-Mart are in discussions over an alliance that could allow the retail giant to profit from iTunes movie downloads, says Variety.

According to the report, a deal could take the form of a digital download "coupon" that would allow consumers to buy movies, TV shows or music on iTunes with Apple paying Wal-Mart a percentage of the proceeds.

Apple chief executive Steve Jobs is said to have personally reached out to Wal-Mart CEO H. Lee Scott, "who badly wants to get into the digital film biz."

Apple's new iTunes movie service has been a source of frustration for the retail giant, mainly because Jobs has mandated that movie studios license new movie releases through iTunes for about $3 less than the wholesale price charged to Wal-Mart. So far, only Walt Disney agreed to such terms.

"Studio sources say the rest of the majors are very close to joining Disney in a deal with Apple but are holding off until the end of the key fourth quarter, when half of all DVD sales occur," Variety said.

Wal-Mart, which controls about 40 percent of DVD sales in the US, had previously warned studios about undercutting the price of DVDs in its stores by agreeing to Jobs' terms for iTunes.

The report notes that Wal-Mart's demand "was enough to shatter a planned alliance among Fox, Universal and Lionsgate to join Disney in supplying films to iTunes" earlier this year.

Fox was said to have had a verbal agreement with Apple requiring that it be joined by two others. Meanwhile, its reported that Universal pulled out of the deal first, with the other non-Disney studios following suit.