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Who Will Replace Wal-Mart?

30 Oct, 2006 By: Stephanie Prange

The Weinstein Co. founders Bob and Harvey Weinstein hosted a Manhattan party Oct. 23 for Lee Scott, CEO of Wal-Mart, the Hollywood studios' single-biggest DVD customer. It was a nod to a retailer that — perhaps more than any other — helped and continues to help make the studios truckloads of money in DVD sellthrough.

But will it always be so? Can mass merchants remain the undisputed home entertainment studio darling?

Wal-Mart's near 40% share of the DVD sales market has them reportedly using it as a club over studios in case they think about giving the digital download market any preferential treatment. Fellow mass merchant Target sent a letter to the studios insisting that, should download services get better pricing than DVD, it just might “re-evaluate” its support of discs in its stores.

The hubris and bullying sounds so familiar. It wasn't so long ago that I sat through interviews with Blockbuster execs who insisted that it was the No. 1 rental chain that really held sway in the video market. This DVD-buying business was just a flash in the pan, they insisted. Once everyone had tired of buying discs, they'd return to rental. “After all, no one wants to own all those DVDs,” they said.

That was before $1 discs and the sea change in the public attitude from treating home videos as transactional products to treating them more like books, objects to be collected and owned, not necessarily always perused.

Are we seeing history repeat?

Certainly, the download market has several obstacles to overcome, not the least of which is convenience. But the cries of foul from retailers who currently dominate the DVD market make it look a more credible threat.

Studios have a long history in the video industry of pitting “partners” against each other. Once, it was Blockbuster against the independent retailers, who had become too numerous and cumbersome with which to deal. In the name of streamlining, the studios cut out distributors, forcing indies into cumbersome copy-depth deals, went direct with Blockbuster, gave Big Blue the preferential treatment its market share demanded and created a dominant goliath.

Enter Wal-Mart, an even bigger giant. Once again, the studios used a stronger “partner” to take an old one down a peg or two. Wal-Mart simply offered a better deal. The studios realized more profit from discs sold directly to the consumer than from discs sold to a rentailer that realized most of the income from the discs afterward. While battling the sellthrough onslaught, Blockbuster also had to swat at the nimble Netflix, which was threatening the core rental business with an online model that the studios seemed happy to support.

Wal-Mart seems to fear yet another “partner” switch in downloading. Will the retail goliath be jilted for the come-hither promise of downloading? Is it merely a studio dalliance or a full-bloom affair leading to a messy breakup? Perhaps the “partners” will live together, but I doubt it will always be happily.

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