UltraViolet About to Get Walmart Assist?

6 Mar, 2012 By: Erik Gruenwedel

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Walmart is expected to announce a major retail initiative, presumably about UltraViolet, at a March 13 press conference in Los Angeles together with 20^th Century Fox Home Entertainment, Warner Home Entertainment Group, Sony Pictures Home Entertainment, Paramount Pictures Home Entertainment and Universal Studios Home Entertainment.

The event, dubbed an “important milestone” in entertainment, noticeably will not include Walt Disney Studios Home Entertainment, underscoring the probable UltraViolet theme and Disney’s wait-and-see approach to the cloud-based digital locker platform.

The Wall Street Journal Feb. 28 reported Walmart would spend upwards of $30 million on the campaign, which includes in-store signage and customer support.

Studio-backed UltraViolet is intended to reinvigorate disc (and digital) sales at a time when increasing numbers of consumers are renting. Since its launch last October, consumers have created more than 1 million UltraViolet accounts.

At a recent investor event, Kevin Tsujihara, president of WHEG, said the studio would be rolling out disc-to-digital UltraViolet initiatives with major big box retailers that allow consumers to bring in their DVD and Blu-ray Disc movie collections and convert them into digital files stored in the cloud.

It has not been disclosed what consumers will be charged for this service.

Walmart, which is one of the biggest retailers of movie discs, also owns transactional video-on-demand service Vudu.com, which could help jumpstart electronic sellthrough with an UltraViolet component.

Indeed, 56% of disc buyers reported buying them at Walmart through last September, among other retailers, according to The NPD Group.

Russ Crupnick, SVP, media analysis with NPD, said the average Walmart customer may not be perceived as the technophile you would target for cloud adoption but the sheer number of disc consumers frequenting Walmart lends itself to a good starting point for new technology.

“[They may] not adapt as fast as the average Best Buy customer, but if you got 10% of Walmart DVD/BD buyers to go with UltraViolet you’d have at least as many users currently buying electronic sellthrough,” Crupnick said. “And a lot of Walmart shoppers have kids who are savvy when it comes to tech.”

The digital component will be key to selling UltraViolet to consumers — not packaged media, according to Frost & Sullivan analyst Dan Rayburn.

Rayburn, who is an advocate of digital distribution, also is EVP of StreamingMedia.com.

Rayburn said having Walmart on board would not necessarily be the panacea studios are looking for to sell UltraVIolet to consumers. He said asking consumers to bring in their disc collections and likely pay a surcharge to convert to digital is not a user-friendly approach to cloud-based storage and misses the point where home entertainment is going.

“UltraViolet thinks it’s a big deal because Walmart’s agreed to it. So what? That’s not how consumers want to get to content,” Rayburn said.

The analyst said consumers are not asking to buy more movie discs, instead they are seeking digital forms of entertainment — a reality he said is not possible with UltraViolet, which heretofore mandates purchase of a disc to get a digital file.

What Rayburn is neglecting to mention is that studios are seeking distribution channels with the highest margins. Packaged media releases deliver 20 to 30 times the margin of a physical rental or SVOD file — and more than twice the return of electronic sellthrough or transactional VOD.

The analyst said the pending disc-to-digital program is a backward model for home entertainment consumption, considering the multiple options available to end-users, including sellthrough, kiosks and subscription VOD.

“One [distribution channel] won’t replace the other,” Rayburn said, adding that he uses Redbox and Netflix depending on the device and/or resolution quality he wants to watch a movie in.

“Some consumers want to buy stuff, some want to rent, and some want to do a combination of both,” he said. “[UltraViolet] is not a replacement; it’s a compliment to overall distribution.”

Regardless, Crupnick said the disc-to-digital transfer fee has to be free or perceived as free (e.g. subsidized). This could involve buying a new release and getting 10 movies converted into the cloud. In addition, the process has to be really easy, similar to developing photos at a kiosk, Crupnick said, adding that when Apple offered to convert customer’s copy-protected music catalogs to DRM-free files for a small fee nobody did it. Nobody wanted to pay.

“It’s got to be perceived as a value-add that reinforces the importance of physical ownership and use over rental (physical or digital),” Crupnick said. “Walmart is smart at promotion. Given the number of Walmart disc shoppers, this has a reasonable chance of success if the education process and benefits are clear.”

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