Wal-Mart Hopes Third Time a Charm in Movie Rentals
Back in 2005, Wal-Mart Stores decided its venture to rent
movies online wasn’t going where it wanted so it made a deal to move its 100,000
or so subscribers to Netflix, which, in turn, sent its subscribers back to
Walmart.com if they were looking to buy DVDs.
In 2007, the retailer took another
shot at the movie rental business using a download service with Hewlett-Packard.
That test was finished inside of a year of getting its start.
Now, Wal-Mart
is hoping the third time’s a charm with the acquisition of Vudu, which uses
digital technology inside set top boxes and blu ray players to allow downloads
for either purchase or rental. Vudu has licensing deals with almost all the
major studios as well as independents, giving customers access to roughly 16,000
titles. The company charges $19.99 to own recently released films and $3.99
to rent.
“The real winner here is the customer,” Eduardo
Castro-Wright, vice chairman for Wal-Mart, said in a press release. “Combining
Vudu’s unique digital technology and service with Wal-Mart’s retail expertise
and scale will provide customers with unprecedented access to home entertainment
options as they migrate to a digital environment.”
“We are excited about the opportunity
to take our company’s vision to the next level,” said Edward Lichty, Vudu executive
vice president. “Vudu’s services and Apps platform will give Walmart a powerful
new vehicle to offer customers the content they want in a way that expands
the frontier of quality, value and convenience.”
Vudu apps allow consumers to
receive hundreds of streaming applications and services to their TVs
and Blu-ray players that are connected to the internet. The company has partnered
with companies including Facebook, Flickr, Twitter, The
New York Times and The Associated Press on the service.
Discussion Questions: Will Wal-Mart Stores’
purchase of Vudu make it a force in the movie rental business? Will it
speed the move away from physical DVD rentals to online downloads?
Walmart already recognized the power of e-retailing by taking on Amazon more aggressively in the past two years. Now they see a clear future in digital delivery of entertainment as an alternative to rentals or even sales of DVDs and even video games. However, Netflix has a big head-start in this field and has positioned itself (through its marketing, not just its online capability) as the brand to beat.
Apple clearly has a horse in this race, too, with the growth of digital delivery to its iPhones and iPads. But–bottom line–this is an important move for Walmart if it wants a serious foothold in the category.
Ask yourselves this question: When you think high-tech, digital delivery of content, which names come to mind? Who would you trust?
Best Buy
Amazon
Barnes & Noble
Apple
Microsoft
Borders
At what point does Walmart come to mind? Never! They are a great destination for hard goods and soft goods, but I simply don’t think that they will ever be top of mind when it comes to digital delivery of content.
Three strikes and they’re out!
Forgive my ignorance as I have never heard of Vudu, but I have to ask how successful is this company now? Can anyone rent or purchase from them, or do I need a special player or set top box? Do I buy this hardware or is it free? And when I buy a movie, do I get a hard copy of it or just a soft copy?
Maybe it would just be easier of I went to Walmart and purchased a movie for $19.95 myself. Better yet, I could just download the movie for free from one of the hundreds of file sharing sites that exist.
I think Netflix is the horse to beat in this race. I’ve been waiting myself for the Roku to have an adequate selection of HD movies. And no one should count Comcast out, with its on-demand movie selection.
There’s no question that physical media is becoming obsolete as a publishing vehicle. Who wants to go to the store when gratification can be instant?
Can Walmart become a force? Sure. Its customers are more “wired” now than they were several years ago…broadband is getting quite inexpensive, and Walmart is selling low cost computers to its customer base, so every year its chances get better.
Will Walmart “blow away” the competition? I don’t think so. At least not for another several years. There are too many other options.
It’s challenging to predict, much less figure out where to invest, in a technology that is changing as rapidly as home video. On one level, however, there is an analog (pardon the pun) in what the e-readers have done to the book business. Kindle ended my trips to Barnes & Noble just as VUDU killed my interest in buying or renting DVDs. The catch is the suppliers of content. Just as MacMillan balked at $9.99 books, the movie studios are going to push back against the end of DVD sales, which are a significant profit center for them.
That aside, Wal Mart has made a very sound move in adding this distribution channel to its portfolio. VUDU wins as well. Wal Mart’s capital base should ensure a strong competitive position against ROKU/Netflix.
There’s a lot to be said for persistence, just not in this case. It’s not that Wal-Mart can’t make this “work” on some level–it’s that the time, capital and resources could be better directed. They’ll always be an also-ran here. Time to look at another track.
Of course it will! Walmart focuses on giving shoppers what they want and will respond to. Castro Wright is right.
I would say that ultimately, the goal would be to go 100 percent downloadable content. Think of the overhead savings and the margin on each rental or purchase. It’s huge! Unfortunately, very few have been able to make it work. Walmart’s way is to buy a player with potential when they can’t make something work themselves.
I just checked out the VUDU site and it looks pretty good. HDX sounds interesting. I guess we will see VUDU boxes at Walmart in the very near future which should pump up the subscriber base substantially. I can see unlimited cross promotion possibilities with this.
It used to be that every play that a retailer made was a play to win. These days, they increasingly play in order to participate (though any move Walmart makes tends to get portrayed as aggressive regardless). I would put the Vudu acquisition in the “participate” category…and Walmart would be sitting on the sidelines without it!
A strategic alliance is one thing, an acquisition is something entirely different. What Vudu ultimately represents to Walmart is three things: 1. A more attractive business model for profiting from the sale and rental of movie DVDs (less inventory, more simple to manage depreciation impacts than physical DVDs or collections) 2. Greater influence in the HDTV product development process (could serve as a point of differentiation for HDTVs or Vudu-related accessories sold at Walmart versus other resellers; and 3. An ability for consumers to order goods/services from Walmart directly from their TVs (today, it’s movies–tomorrow it could be other Walmart hardline or softline goods or specialized programming exclusively for Walmart). Vudu may enable a “Walmart Channel” in the future.
Walmart is correct in seeing the obvious trend. They are also correct in offering this service to their consumers. However, it will be a long time–if ever–before they get to dominate or even have substantial share in this space.
The key is demographic. Walmart shoppers for CE are generally much lower income than those of Netflix, or Best Buy or Amazon, and this also translates to the speed of their technology adoption and amount they spend. One wonders why they needed to buy this service when in fact they could partner with others much like Best Buy has done. Of course, companies like Walmart like to own and control but it appears to be too far ahead of the curve on this one. While I am sure the acquisition was “cheap” (this is a start up with quite limited subscribers or revenues) this move means the end of expansion for Vudu.
Why will Best Buy continue to offer or promote this service when they have so many alternatives? The answer is they will not and Walmart will end up the sole promoter of this system. Like their earlier attempts this shows their desire to attract and retain higher income shoppers but their tires are still slipping on this. What can be said again is that this is a good place to play, but perhaps not this way.
Vudu certainly has some influential fans. New York Times columnist David Pogue delivered raves in a recent column:
http://tinyurl.com/yh74yda. “Vudu is a feature, not a box,” he explains.
But streaming movies with Vudu requires very high Internet bandwidth to deliver a satisfactory hi-def experience. This limitation makes be suspect that Walmart may not rapidly acquire a massive user base with this foray.
If it was serious about being the Walmart of movie distribution, some have suggested, it would have acquired Netflix–a more expensive proposition, but with a much larger installed base and brand awareness. Compared with that alternative, buying Vudu seems like a dabble, not a commitment.
I have two words for Walmart “Red Box.”
They cost $1 and people stand in line to rent them. Also, movies on demand already exist if you want to spend $3.99, and actually, I think some are only $2.99 and you can get them for 2-5 days.
If I were Walmart, I’d stick to what is growing and put a few “Red Boxes” out front. I see lines in front of them every time I go to the store. It also drives additional traffic into stores with people buying popcorn, etc. for the movies.
This is a great idea by Wal-Mart. However, it needs to tone down the cost in order to gain true traction with their key teams. The numbers of their audience that will pay $19.99 for a movie will be limited. $9.99 for a movie makes better sense, and fits in the framework of the average Wal-Mart customer, while allowing for Wal-Mart to flex its low-price purchase (and retailing) muscle. Offering online options at very aggressive prices will move Wal-Mart into an innovative retailer, rather than just a low-price leader.
Someone has to look at the business model here! $3.99 for an electronic rental? For less than twice that you can get all you can eat from NetFlix or you can rent from Red Box for 1/4 the advertised $3.99 rate. I don’t have a problem with the technology or the delivery system. You do have to have a separate VuDu receiver (either stand alone or integrated into a blue ray or HDTV) to receive movies.
Walmart must be buying technology because the business proposition isn’t going to produce “Walmart style” revenue for a number of years. I have to think that Eduardo Castro-Wright sees something here that I am missing (would be easy).
Not a great idea from Wal-Mart since this technology is not widely used and probably won’t be in the near future. The vast majority of consumers (including Wal-Mart’s core demographic) cannot download a movie to their TV, and watching movies on your computer (even if you have a large monitor) is generally less appealing than than the comfort of your living room couch and even larger TV.