Weekly Update

How Wal-Mart could move ahead in the cloud-based storage race

Wal-Mart has long been a power in Hollywood behind the scenes. The millions of DVDs it still sells each year, and before that VHS cassettes, has made it the largest single customer in any distribution channel for every studio in town. That status gave it tremendous leverage over everything from the timing and length of release windows to how the studios spend their marketing budgets.

Now Wal-Mart is looking to use that leverage to accelerate the movie industry’s move to cloud-based storage and digital commerce. In the process, it could steal a march on other providers of cloud-based media lockers like Apple, Google and Amazon, whose platforms to date are geared largely around music storage, by establishing itself as the first video-based cloud media service.

According to the Wall Street Journal, Wal-Mart is in advanced discussions with the studios about an in-store service that would provide a major boost to the movie industry’s struggling UltraViolet initiative. Under the plan, Wal-Mart employees would assist customers in setting up UltraViolet accounts and help them register DVDs and Blu-ray Discs they purchase or already own in their cloud-based UV rights locker.

The complicated and balky setup process consumers encountered with UltraViolet at launch has been widely blamed for the initiative’s stumbling start. Only about 1 million UltraViolet accounts have been created since the first UV-compatible DVDs were released last fall. An in-store service staffed by trained employees could help overcome that hurdle.

Wal-Mart’s goal for the service probably extends beyond mere customer service, however. The UV setup process at Wal-Mart is almost certain to include the creation of a Vudu account as well, for those customers who don’t already have one. With a $30 million, studio-funded marketing campaign planned behind the in-store service, the studios in effect will be driving the creation of millions of new Vudu accounts for Wal-Mart, all linked to UltraViolet accounts.

Critically, the planned Wal-Mart service includes enabling consumers to register DVDs they already own in their UV rights locker. While that sort of personal library storage was not part of the original UltraViolet plans, linking personal storage through UltraViolet to millions of new Vudu accounts could have a significant upside for Wal-Mart.

As Apple has demonstrated with iTunes, capturing users’ personal media collections creates platform lock-in and makes subsequent e-commerce with those users much easier. If Wal-Mart can make Vudu the default streaming platform for its customers’ existing video collections it could seize the same sort of advantage in cloud-based video sales that Apple enjoyed in digital music, at least among Wal-Mart shoppers. Vudu is currently the third-leading video streaming service in the U.S., behind iTunes and Xbox Live, but its share is growing rapidly.

Unlike iTunes, of course, UltraViolet is not a proprietary platform. Once consumers have set up UltraViolet accounts, they are free to stream any content registered there, using any streaming platform that supports the UV protocol. In principle, at least, there is nothing to stop the owner of a UV locker set up by Wal-Mart from turning to YouTube or iTunes to stream the content instead of relying on Vudu.

So far, however, neither Google nor Apple has joined the UV consortium, eliminating that threat for now. Given its strong preference for erecting its own walled gardens, in fact, Apple is unlikely ever to join.

The biggest threat to Wal-Mart’s cloud-based video strategy, if there is one, will come from Amazon, which joined UltraViolet at CES in January and has a sophisticated streaming platform in Amazon Prime. Amazon also already provides some cloud storage for movies purchased through Amazon Instant Video and for some DVDs, through its DVD + On Demand service.

The extent of Amazon’s support for UltraViolet remains unclear, however. Presumably, Amazon users will be able to link their Amazon VOD and Prime accounts to a UV locker. But how far it will go in linking its own cloud-storage platform with UltraViolet remains to be seen. It also won’t be able to match the sort of hands-on assistance with UltraViolet that Wal-Mart plans to offer in its stores.

In any case, Wal-Mart’s studio-backed in-store push behind UltraViolet and Vudu is likely to be the first exposure most non–early adopters have to cloud-based video rights management. And as Wal-Mart has proved in the brick-and-mortar world, once it gets a lead, it’s very hard to catch.

Question of the week

Can Wal-Mart become a major player in cloud-based media platforms?