GO
Loading...

What Wal-Mart's Vudu Acquisition Means

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.

Twins | Getty Images

One point that should give cable and satellite TV providers pause: Vudu gives users access to movies and TV shows without having to pay for cable or satellite TV service. You can watch many movies the same day they're released on DVD, and plenty of TV shows. This seems like bad news for the video-on-demand services that Comcast , Time Warner Cable and DirecTV are pushing. If people are willing to skip the pricey cable package, this is a decent (if limited) option.

This may be a dramatic move on Wal-Mart's part, but it'll be a long time before it generates a significant chunk of revenue for the retail giant. And with the pullback of consumer spending putting some constraints on the sale of new HD TVs and Blu-Ray players, it'll be a while before mass numbers of Vudu-enabled devices are in consumers' homes.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.