After Wal-Mart tried and failed to take on Netflix with a streaming video rental system it launched three years ago with HP . Now, its acquisition of Vudu aims to take that competition to the next level.
Wal-Mart used to dominate the business of selling DVDs, discounting the discs to drive traffic into stores. But now that the DVD business is suffering a long, slow decline and consumer dollars are shifting towards Video-on-Demand, Wal-Mart wants to get into that business as well.
Never heard of Vudu?
The company has a library of about 8,000 high-def movie titles, which it rents for around $4, or sells for more, through enabled HD TVs as well as Blu-Ray players (It also offers a $499 set-top box). Vudu's library is less than Netflix's streaming options, but still respectable -- far more than the 2,700 titles Blockbuster's MovieLink offers online. Wal-Mart has the power with its suppliers to demand that they embed Vudu technology into the Televisions and DVD players it sells. Depending on how Wal-mart wields that power, it could pose a threat, even to Netflix's larger library.
RBC Capital Markets analyst David Bank points out that this acquisition is a confirmation that the decline of the DVD market isn't slowing any time soon. Wal-Mart wouldn't have done it if they didn't expect DVD sales to continue to fall of a cliff.
Still, Wal-Mart will continue to play a powerful role in Hollywood as the mega retailer negotiates DVD and digital distribution rights together. The studios are still quite reliant on Wal-Mart, despite declines in DVD sales, and now Wal-Mart will represent a chunk of growing digital revenues as well. But expect it to be years before digital revenues can come close to compensating for declines in DVD sales.