Goliath Says Uncle Before David Throws Stone
By George Anderson
Before tobacco advertising was banned on television, there used to be a commercial touting a brand where the consumers of a certain cigarette would rather “fight than switch” to another product.
The same sentiment can usually be applied to Wal-Mart. The largest retailer in the world hasn’t gotten to that lofty position by surrendering every time competition got stiff or some group objected to how it went about its business.
But, perhaps Wal-Mart is learning some new tactics. With its announcement yesterday that it is getting out of the online DVD rental business and moving its online subscribers (estimated to be under 100,000) to the Netflix service, Wal-Mart has indicated it would rather cooperate than fight.
For its cooperation, Wal-Mart will get banner ads on the Netflix Web site touting it as the place to buy DVDs. Wal-Mart will co-promote the Netflix DVD rental business on Wal-Mart.com.
The co-founder and chief executive of David Inc., er Netflix, was understandably pleased that his company won’t have to worry about fighting Wal-Mart anymore. Reed Hastings called Wal-Mart’s decision “a great endorsement” for the Netflix service. “This agreement bolsters both Netflix’s leadership in DVD movie rentals and Wal-Mart’s strong movie sales business, while providing customers even more choices and convenience. Both companies will continue to expand their respective leads in providing the best in movie entertainment to millions of online customers.”
John Fleming, Wal-Mart’s executive vice president and chief marketing officer sees the deal as a win for both companies and consumers, as well. “We’ve experienced tremendous growth in our online movie sales, and are committed to enhancing our focus in this business at Walmart.com. We’re equally excited to team with Netflix, the pioneer of online movie rentals, which not only distinguishes both of our core online competencies, but offers a complementary solution of value, service, and convenience to customers.”
Dennis McAlpine of McAlpine Associates said Netflix has reason to be happy with the Wal-Mart deal but that it shouldn’t be popping champagne corks just yet because it “doesn’t mean Netflix will win the game.”
The Associated Press reports that the leading chain of movie and video game rental stores, Blockbuster, plans to spend $120 million to build its online rental business this year. The retailer is looking to grow from its current base of subscribers (750,000) to 2 million by year’s end.
Netflix claims to have over 3 million current subscribers and is looking to add another million this year.
Moderator’s Comment: What does the Wal-Mart and Netflix deal mean for the DVD rental and sales business? Who do you see as the biggest winner and loser
Of course, David Andelman doesn’t really think it matters who wins or loses in this deal. As he writes on the Forbes Web site, “Ten years from now, DVD
rentals (and probably DVDs themselves) will be as dead as the Betamax.” –
George Anderson – Moderator
- Walmart.com and Netflix Announce New Promotional Agreement – Netflix/Wal-Mart Stores
- Netflix taking over Wal-Mart’s online DVD rentals – The Associated Press/San
- A Hole In The Netflix – Forbes.com