Goliath Says Uncle Before David Throws Stone

Discussion
May 20, 2005
George Anderson

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
in this?


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

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10 Comments on "Goliath Says Uncle Before David Throws Stone"


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David Livingston
Guest
15 years 9 months ago

Yesterday when I received notice that I should switch my Wal-Mart DVD account to Netflix I thought it was a hoax email from Netflix trying to trick me into switching. Seems it is true. I don’t think Wal-Mart ever was able to market this service correctly and they certainly were not price competitive. I only found out about Wal-Mart’s DVD rentals by accident after seeing it on their website. Seems most of the competitors basically had the same service and price. I think if Wal-Mart had done some national advertising on television and lowered their fees 20%, then perhaps they would have had a better response to their program. Wal-Mart is probably making a good business decision. I don’t know how much Wal-Mart is going to shake down Netflix to do this deal but I have a hunch Wal-Mart will be the winner.

Art Williams
Guest
Art Williams
15 years 9 months ago

This is such a small part of Wal-Mart’s business that it isn’t even worth talking about to them. It was just a good, non-emotional business decision that demonstrates again why they are so successful. And I agree that DVD rentals will most likely not exist in a few years, so why waste a lot of time and energy in this category?

Carol Spieckerman
Guest
15 years 9 months ago

Someone on the panel yesterday blamed Wal-Mart’s woes on their seeming inability to form alliances, and preference instead for squishing any and all competition like a bug (paraphrase). Though I’m not anti-Wal-Mart by any means, that did strike a chord. Perhaps the Netflix deal speaks to Wal-Mart considering new solutions, ones that will not only allow them to quickly move on rather than get mired in every niggling fight … but will have the (unintended) side benefit of keeping competitive balance.

Mark Burr
Guest
15 years 9 months ago

This is a great move for WM and Netflix equally. WM gets all the advantages without the investment. Netflix gets the traffic and exposure to the customers of the world’s largest retailer. I would also think, though I have no stats to back it up, that the average WM consumer would lag behind the technology trend and will likely be renting for years to come. In the meantime, WM has a partner that will take care of leveraging resources to provide for the future mechanics of delivering entertainment.

A good business decision and equally beneficial.

Mark H. Goldstein
Guest
Mark H. Goldstein
15 years 9 months ago

I ran Kmart’s Bluelight.com site and this is simply another dose of reality for traditional retailers.

Biggest lesson learned: stick to your knitting.

Leverage your stores and primarily use the web to enhance the store buying experience. Don’t chase focused startups thinking you will out-execute them because you are bigger and can more cost-effectively reach incremental customers. The Internet doesn’t honor that type of thinking.

Rochelle Newman-Carrasco
Guest
Rochelle Newman-Carrasco
15 years 9 months ago

As a Netflix loyalist, I have to say that the Wal-Mart decision was an excellent one for their customers. And, isn’t that what it’s all about. I have heard Wal-Mart could never deliver on their DVD program effectively, but Netflix has it down to a science. A big win for Netflix. A big win for Wal-Mart customers…which should translate into a win for Wal-Mart. The whole idea of core competencies is at play and this should be a message to others who are trying to be all things to all people and doing most of them badly.

Bernice Hurst
Guest
15 years 9 months ago

Scanner has put it very well, I think. There is much to be gained for Wal-Mart in that they needn’t be distracted by something that really isn’t their best bet. There is also much to be gained by Netflix in having Wal-Mart’s endorsement. And I agree that the typical Wal-Mart customer, whoever he or she may be, is more likely to stick with DVD rentals for longer than more affluent and technologically inspired customers who prefer the sort of portable, individual, entertainment systems we discussed earlier this week.

Carol Spieckerman
Guest
15 years 9 months ago

May I try to put to rest the assumption that people who shop at Wal-Mart are not technologically savvy? A bit condescending, really. In multiple focus groups that I have conducted and watched with Wal-Mart shoppers, they consistently cite internet searches as a key resource for product information and they are usually quite well-versed in the latest technology.

Wal-Mart shoppers are a diverse group of cross-shoppers that increasingly can’t be classified that easily. I shop at Wal-Mart, Nordstrom, Target, Best Buy, Neiman Marcus, on the internet …

Al McClain
Guest
Al McClain
15 years 9 months ago

While this seems to be a win-win or at least a “no lose” for both parties, I think this is really only for the short term. Five years from know, I’d bet we’ll all have access to whatever movies we want via our PDA’s or in-home devices, and that content will be available via very high-speed wireless. If 10,000 tunes can fit on an iPod now, in contrast to 10-15 songs on the previous format – CD’s, isn’t that where this is all headed? Maybe Netflix will be the leader in the downloadable space, but it could just as well be Amazon, Apple, Microsoft, or…..Wal-Mart.

Ed Dennis
Guest
Ed Dennis
15 years 9 months ago
Remember Wal-Mart’s experiment with used cars?! It wasn’t a flop and neither is their foray into DVD rentals. Most don’t give Wal-Mart credit for being a learning organization. They are constantly sticking their toes into the water in different areas in order to learn. My guess is that they came to the conclusion that within 18 months the DVD rental business would move to a combination of timed use download and timed use purchase. They opted to exit and have someone else carry off their inventory of DVD’s. I think we will soon see a kiosk that will allow anyone to buy a DVD for $2.99 that will be usable only once or twice and will have to be viewed within 14 days. The kiosk will offer over 1000 selections and will allow the order of special subjects via the internet for pick up via special code at a kiosk location. The same could be ordered for download to a Tivo type hard drive, iPod or computer. This combination will make “the mail” low tech… Read more »
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