Wal-Mart, Best Buy to Face Off in Digital Video Sales

For years, people have gone to Wal-Mart (s WMT) and Best Buy (s BBY) to buy DVDs and Blu-ray discs of their favorite movies, but pretty soon those brick-and-mortar stores will be coming to them, in the form of digital storefronts through HDTVs, Blu-ray players and other connected devices. Wal-Mart’s reported acquisition of Vudu marks just one more step by the major retailers to gain a foothold in the new digital living room, enabling consumers to purchase content without ever having to leave the couch.

Vudu already has deals in place for its online video service to be embedded on connected devices from seven of the top nine consumer electronics manufacturers, including new HDTVs and Blu-ray disc players from LG, Mitsubishi, Vizio, Samsung, Sanyo, Sharp and Toshiba. Whether the service continues to operate under the Vudu brand or takes on the Wal-Mart brand, the retailer will essentially be operating its digital storefront in millions of homes over the next few years.

But Wal-Mart is not alone in taking its retail ambitions digital. Best Buy also entered the space through a partnership with Sonic Solutions (s SNIC), through which it will license and white-label the Roxio CinemaNow video service to be embedded on devices sold in its stores. The white-labeled service, which will be available on devices from Samsung, Sony, Panasonic and Best Buy’s own Insignia and Dynex brands, will let consumers watch movies that they rented or bought through the Best Buy store to be viewable across a number of other CinemaNow-enabled devices.

By launching embedded video services, Wal-Mart and Best Buy will find themselves up against competition from Amazon’s (s AMZN) Video on Demand service and (to a certain extent) Netflix’s (s NFLX) Watch Instantly subscription streaming service. Even so, electronic sell-through on connected devices is still a nascent but growing market. The number of devices that currently have Vudu or CinemaNow services on them is still limited.

However, the $100 million price tag that Wal-Mart reportedly paid for Vudu just goes to show how big a strategic bet the retailer is willing to make on taking its services digital. DVD sales have been slumping for years, and the big brick-and-mortar stores need a digital strategy to make up for lost sales of physical media. So rather than try to entice consumers to come to their stores, Wal-Mart and Best Buy are going to the consumer’s living room.

It might be a long time before digital sales are material to either retailer’s business, but it’s clear that both see a big opportunity in connected devices, as they probably should. In-Stat estimates that 80 million Blu-ray players will be sold by 2013, which could lead to a huge install base for the companies. And by making titles available on demand from your couch, Best Buy and Wal-Mart could make the physical media that those devices were built to play obsolete.

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