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

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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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7 Responses to “Wal-Mart, Best Buy to Face Off in Digital Video Sales”

  1. Hi,

    Got confused with Napster/Sonic.S., but as I said at the time:

    Dan, as ever is right, but it’s the same old chicken-and-egg situation; HDTV is still at the foot-hills of its adoption curve, but the feature was available earlier as standard in hardware, then in content, so Wal-Mart is positioning to have some penetration by default as part of core product offerings.

    Combine that with the famous $20 DVD players as applied to network-players (and networked blu-ray) in this generation, and in 10 years, it’s less likely to matter. At that rate, it could afford to give away the boxes on a minimum-rent bundle, and even if the boxes are so cheap that they fail, a few rentals/download-to-owns would cover a free swap-out, with actual buying-history retained, much like the games industry does.

    Making the hardware just a shell and content access follow the viewer wherever they are as long as they’ve paid.

    On the earlier posts, Boxee wouldn’t have worked because it’s not proprietary, inc. preventing long-term content margin.

    Also, The studios are getting better at consolidating digital rights and simpler digital access around the world, and Walmart has already provided products that are available internationally under all of its local brands, The International unit being quite a substantial portion of its business, so shouldn’t be so readily dismissed.

    Finally, I believe Wal-Mart will retain the Vudu brand so as not to damage the potential brand-equity (from association).

    Yours kindly,

    Shakir Razak

  2. No one seems to be looking at the number of devices that would need to be sold in order for this to matter. In-Stat’s 80 million number is worldwide, not U.S. and does not say how many of those Blu-ray players a) have internet connectivity and b) will actually be connected to the Internet. When you break out those numbers, they are small, really small. In-Stat also says that Japan and Europe are the best markets, which does nothing to help Walmart.

    I broke out the numbers last night for Internet connected TVs and it’s even smaller than Blu-ray:

    My point is that a lot of people in the industry keep talking about all of these content services but no one is talking about the adoption rate of the devices. Until there are enough devices in the market, none of the content services can be successful, which means we are more than a few years away from any real opportunity.

    • Ryan Lawler

      Really? How so? I mean, it seems obvious how electronic sell-through on connected devices makes sense as a strategy for Wal-Mart. But what’s the strategic value of buying Boxee? I don’t see why how it makes sense for Wal-Mart.

      • Boxee hasn’t committed to minimum guarantees to the studios, yet they’ve already made progress getting their software embedded into hardware devices. This means that the money they make is high margin profits because once the software is built, there is little cost to continue with it. Whereas, Vudu must make payments to the studios whether the public ends up buying their VOD products or not. Boxee also has a more loyal fan base, a better reputation (buzz) and would give Walmart a way to access the laptop customer while they’re waiting for the connected eco-system to build out. It’s really about the approach, do you go direct to the studios and make a deal with the devil or do you build a browser that can aggregate what’s already out there. I think consumers would rather have lots and lots of different choices (Netflix, Hulu,, etc.) than to be forced to be locked into a single VOD provider.