Wal-Mart and Studios in Film Deal

February 6, 2007 at 9:53 am Leave a comment

By MICHAEL BARBARO

Wal-Mart Stores may have lost the online DVD rental battle, but it has no plans to lose the higher-stakes video downloading war.

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Today the company will introduce a partnership with all of the six major Hollywood studios — Walt Disney, Warner Brothers, Paramount, Sony, 20th Century Fox and Universal — to sell digital movies and television shows on its Web site (www.walmart.com/videodownloads), becoming the first traditional retailer to do so. The move plunges Wal-Mart into competition with several established sites, like Amazon.com, CinemaNow and iTunes, and given the chain’s penchant for price cutting, could drive down the cost of a digital download. But supremacy in the digital movie business could prove elusive for Wal-Mart, a company that is used to being the No. 1 seller of everything from DVDs to diamonds.

Apple already dominates the online music and movie industry, leaving a sliver for everyone else to fight over. And Wal-Mart has already stumbled once before with online video rentals, shutting down its DVD rental business two years ago and referring users to its rival Netflix instead. “As much of an 800-pound gorilla as they are in retail sales, they are an 80-pound weakling when it comes to digital distribution,” said Michael Goodman, digital entertainment program manager at the Yankee Group, a consulting firm.

This time, however, Wal-Mart says it has used its clout to pull together all the right Hollywood players, create an easy-to-use Web site with Hewlett-Packard and develop a broad library of videos. One big draw, it says, is that all the top studios have signed on. Even in a business crowded with new companies, “we will be the only one at this point in time to have the support of all six of the majors,” said Kevin Swint, Wal-Mart’s divisional merchandise manager for digital media.

On the television side, Wal-Mart will cull titles from networks big and small, like Comedy Central, CW, FX, Logo, MTV and Nickelodeon. It will have access to 3,000 productions, including films like “The Devil Wears Prada” and “Little Miss Sunshine” and TV series like “24” and “Veronica Mars.” Download prices will be $12.88 to $19.88 on the day of the DVD release; older movies will start at $7.50 and TV shows at $1.96 an episode.

Wal-Mart said its prices would be competitive, and a quick scan of a major rival, CinemaNow, suggested the prices would be relatively close. A download of “Superman Returns” cost $14.88 on WalMart.com yesterday versus $14.95 on Cinema Now. To avoid running afoul of studios, who want to protect their DVD business, Wal-Mart said the price of a digital movie would be comparable to that of the DVD at its stores. To be considered a success, Wal-Mart’s download service will not only have to compete with strong rivals. It will have to pass the same test all services do at WalMart.com: to lure customers into Wal-Mart’s 4,000 stores, to buy groceries, electronics and clothing. Wal-Mart’s online video-rental service failed to do just that, and analysts said the digital download system could encounter the same problem. “If you are doing digital distribution, you are doing it because you do not want to be in the store,” said Mr. Goodman of the Yankee Group.

Mr. Swint of Wal-Mart said the company would create discounts that encouraged shoppers to purchase both DVDs and digital videos. “There will be customers who download and be done with it,” he said, “but we will have offers that begin online and end in the store.” Bill Dreher, an analyst at Deutsche Bank Securities, said that by becoming a Web destination for videos, Wal-Mart would bolster its position as an authority for all things digital, perhaps enticing customers to buy a PC or television at either WalMart.com or a store. Even so, Mr. Dreher said he did not expect sales from the digital video service to “become more than a freckle” on the chain’s earnings.

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Entry filed under: amazon, amazon.com, apple, dvd, dvd rental, hewlett-packard, netflix, sony, sony.com, video dowload, video downloading, wal-mart, walmart, walmart.com, walt disney.

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