Wal-Mart Buys Vudu Movie Download Service

22 Feb, 2010 By: Erik Gruenwedel

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Electronic distribution of Hollywood movies took a step toward Main Street after Wal-Mart Stores Feb. 22 said it acquired struggling movie download service Vudu.

Bentonville, Ark.-based Wal-Mart said the deal, which is expected to close in the next few weeks, will make Santa Clara, Calif.-based Vudu a wholly-owned subsidiary. Vudu claims a library of 16,000 digital movies, including the largest 1080p resolution library of VOD titles.

“Combining Vudu’s unique digital technology and service with Walmart’s retail expertise and scale will provide customers with unprecedented access to home entertainment options as they migrate to a digital environment,” said Eduardo Castro-Wright, vice chairman for Wal-Mart.

Edward Lichty, EVP at Vudu, said the merger will give Walmart a “powerful” new vehicle to offer customers entertainment content in addition to expanding the digital frontier.

Merger talk was prompted earlier this year after Vudu announced it was moving away from a set-top box and repositioning itself as software app for third-party CE manufacturers, including Internet-based televisions, Blu-ray Disc players and related devices.

“At this point, our future is entirely focused on embedded devices,” Vudu spokesperson David Speiser said in January.

Wal-Mart in 2009 made an aggressive move to establish itself as major CE retailer following the demise of Circuit City, including reaching parity in the fourth quarter with Best Buy, according to analysts.

Best Buy is slated to bow an online content store featuring music and movies compatible with CE hardware this summer.

Independent analyst Rob Enderle said he envisions Wal-Mart using Vudu as a marketing tool to drive in-store traffic toward DVD and Blu-ray Disc, while generating ad-supported incremental streaming revenue.

Enderle believes Wal-Mart could re-create Netflix’s popular streaming service and offer superior content due to its strong studio-supported physical sellthrough business.

“This might make sense depending on how [Wal-Mart] marketed the service to consumers and studios,” Enderle said earlier this year.

Richard Doherty, director of The Envisioneering Group in Seaford, N.Y., said the deal could alter Wal-Mart's negotiating position with studios where it is the No. 1 retailer of packaged media.

He said it remains to be seen how the studios continue to license content (notably rates and rights) to Vudu now that the world’s largest retailer owns it.

“We’re not sure Wal-Mart has fully flushed this out,” Doherty said. “It has never ceased to amaze me the number of lawyers who take money and go through with deals without checking whether the assets are transferable.”

Analyst Michael Pachter, with Wedbush Morgan Securities in Los Angeles, remains nonplussed by the scuttlebutt considering Wal-Mart shuttered a movie download service just 10 months after launch in 2007. The retail behemoth’s foray into online DVD rentals met a similar fate; its subscribers re-directed to Netflix.

“I don’t see how Wal-Mart ownership changes anything,” Pachter said. “Vudu is just like any other delivery service on a pay-per-view model, and I don’t see how it is better or different because it’s owned by Wal-Mart.”

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