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Analyst Says Wal-Mart/Vudu Deal 'Validates' Digital Distribution

23 Feb, 2010 By: Erik Gruenwedel

Wal-Mart’s reported $100 million acquisition of Vudu underscores the growing status of digitally distributed Hollywood movies, an analyst said.

While Wal-Mart is considered the leader in selling DVD/Blu-ray Disc movies, the Bentonville, Ark.-based retail giant has been absent from the recent surge in digital rentals/purchases since its video-download service ceased operations in 2008.

Analyst Eric Wold, with Merriman Curhan Ford in New York, said that while packaged media will continue to drive home entertainment sales over the next five years, digital distribution is slowly generating incremental revenue for studios and increasingly retail as well.

Wal-mart hasn't disclosed pricing for its new service, but typical electronic distribution of movies and TV shows online and via cable generate anywhere from $1.50 to $4.99 per episodic program or new release movie.

"We believe Wal-Mart’s entry into this space clearly validates the growth potential over the longer-term (and maybe even nearer-term) horizon," Wold wrote in a note.

He believes Wal-Mart will market Vudu under its brand for easier consumer adoption and probably align itself with third-party providers of so-called "digital locker" platforms that allow storage of, and access to, digital content across multiple devices. 

Wold said any potential impact by Wal-Mart entering digital distribution revolves around the percentage of consumer electronics products embedded with Vudu software sold in its stores, compared with retailers stocking CE products with which CinemaNow has agreements.

"We believe there is an opportunity for CinemaNow’s digital-locker technology to become a part of the Wal-Mart digital offering through a future licensing agreement that could allow Sonic Solutions to participate in Wal-Mart’s digital revenue growth," Wold wrote.

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