Universal Music Group is testing the non-DRM waters. The label, which has the largest market share of all the major labels at 26%, unveiled a plan to test selling digital music without digital-rights management on a massive scale.

UMG will begin selling “thousands” of albums and individual tracks without DRM beginning Aug. 21 through January. Participating digital outlets include Rhapsody, the Rhapsody-powered Best Buy store, Wal-Mart, PureTracks, and Trans World, as well as the Amazon.com digital music service once it goes live.

In most cases, the DRM-free tracks will sell for the same cost as their protected counterparts, although in a variety of file sizes depending on the retailer.

The test will also include sales conducted from all participating artist- and label-branded websites. Additionally, UMG will use Google’s AdWords search-based advertising program to drive digital music purchases through a social commerce site called gBox.

Noticeably missing from the test is Apple’s iTunes. According to sources close to the situation, the label wanted to compare DRM-free sales from other outlets against protected sales from iTunes.

But the omission is also yet another move by UMG to level the playing field in the face of iTunes’ continued dominance. The label made waves last month by refusing to enter into any long-term licensing deals with iTunes, limiting it instead to a month-to-month arrangement.

“That was step one,” said a source close to the situation who did not want to be identified. “This is step two. We want to have a robust digital marketplace where there’s healthy competition. We don’t have that now. Apple has a stranglehold on the whole thing, so much so that all the other online retailers are badly disadvantaged because you can’t buy music from their stores and play it on the iPod. We want to open up the market and create a more level playing field. We want to give other retailers a chance to compete.”

UMG says the test is designed to measure various factors such as consumer demand, price sensitivity and piracy effects of selling unprotected files versus those locked by DRM.

One of the most challenging aspects of selling music in digital form is the matter of interoperability. The iPod is the dominant digital music device in the market today, but only music purchased on iTunes is compatible with it. Tracks purchased via competing services can’t be played on the iPod, and as such those services—and the digital download market in general—have suffered.

“The problem isn’t DRM, it’s the lack of interoperability,” the source says. “We have no illusions that DRM can knock out all piracy. It’s a speed bump. The lack of interoperability specifically inhibits the growth of the market overall. This monopoly-like position Apple has—to dictate terms, to set prices, to limit the way we sell our music—no retailer should have that power. It’s not fair and it’s not good for healthy competition.”

EMI Music Group was the first to embrace DRM-free digital sales, eliminating the restriction from its entire catalog. Starting with iTunes, EMI spent the summer rapidly striking deals with various digital outlets to sell DRM-free tracks, at a higher bit-rate, for 30 cents more per track than lower-quality DRM protected files.

While not exactly jumping on the anti-DRM bandwagon, UMG’s test shows the label is at least running closely behind it.

"Universal Music Group is committed to exploring new ways to expand the availability of our artists' music online, while offering consumers the most choice in how and where they purchase and enjoy our music," said UMG chairman and CEO Doug Morris in a statement announcing the move. "This test, which is a continuation of a series of tests that UMG began conducting earlier in the year, will provide valuable insights into the implications of selling our music in an open format."

While UMG may have dabbled with DRM-free tracks in the past in different countries, this test represents a major escalation. UMG sources say those tests proved inconclusive. Instead of dipping its toes in the DRM-free waters with relatively obscure or emerging acts, UMG is committing some of its biggest sellers and front-line releases to the effort in hopes of gathering better data.

This includes such acts as Fall Out Boy, Amy Winehouse, 50-Cent, Black Eyed Peas, Daddy Yankee and Common, whose new release “Finding Forever” currently reigns as the No. 1 album in the country this week.

Up in the air is whether any new music released between now and January will also be part of the trial.

The gBox/AdWords element is perhaps the most interesting aspect of the trial. Fans using Google to conduct Web searches for participating artists will see a link to buy those acts’ music via a sponsored link in the results page. The gBox service is a sort of music widget developed by Navio Systems that lets music fans sell music by their favorite artists on their blogs, websites and other sources, adding a viral nature to the effort.

So what happens in January? It depends on how much data the company can collect by then. If sales trends point to an obvious benefit, UMG may broaden the initiative to its entire catalog. If more study is needed, it will cease the DRM-free sales while it evaluates the data.