Walmart To Acquire VUDU: Get Ready For Another Failed VOD Offering

In January, Peter Kafka broke the news that rumors were circulating that Walmart might acquire VUDU and it appears a deal has now been reached. The New York Times is reporting that the deal is done and while there is no official word from VUDU or Walmart, I just spoke to a consumer hardware vendor that has a deal with VUDU that confirmed they were briefed on the news earlier today. Updated: Here is the official release from Walmart.

While we don't know the terms of the deal or how VUDU made out, it's a really bad business for Walmart to try to get into. This would be Walmart's third or fourth attempt to get into the digital media space after trying to compete with Netflix and trying a movie download and kiosk service that they killed within a year. While I like VUDU, Walmart will not know what to do with them. I know some will say that this is Walmart showing that they get digital and that it is the future, but that's not what this means at all. Walmart does not own any content or hardware which means the success or failure of any offering will be dependent on the studios and hardware vendors.

In order for any video on demand service to take off it has to have scale. And while Walmart sells a lot of CE devices that they could get the VUDU platform onto, the price would still be too high for any type of mass market adoption. Considering you can rent DVDs for $1 from Redbox and Blockbuster Express, why would I want to purchase a device to access movies at four or five times that cost? Maybe Walmart plans to sell content and compete with iTunes, but then won't get the reach Apple has since they don't have any devices of their own.

If Walmart really wanted to get into the space and was serious, they would buy Netflix and hit the ground running. While they would have to spend a lot more money for Netflix than they did for VUDU, they would have something to show for it. With VUDU, all they get is technology and some studio relationships. VUDU has less than 100,000 stand-alone devices in the market and Walmart now has to find a way to get enough devices in the market that have their platform on it. While VUDU has been cutting deals with CE manufactures and moving away from the hardware business, they still don't have enough deals in place to give Walmart any sizeable footprint today or anytime soon.

Yes, Walmart has a huge reach and physical presence with consumers, but that does not automatically translate over to success with regards to digital media, especially when the media is being consumed without the need for having to go anywhere, like to a physical Walmart store. For VUDU, they had to sell at some point as they could not survive long in the current state they were in and if they got a lot of money from Walmart, good for them. But I think whatever Walmart spent on this acquisition will be shown to be a complete waste of money and time on their part, sooner than they think.

Does anyone see an upside to Walmart from this?

Added: While some are suggesting that Walmart bought VUDU for the deals that VUDU has in place with seven TV manufactures to carry VUDU's platform, four of those manufactures don't even have TV sets out in the market. And if you look at the number of total Internet connected TVs expected to be sold in 2010, most analysts put that number around seven million. And out of that seven million, analysts predict about 25% will be connected to the Internet. That's not a lot of TVs.

  • http://www.marcellus.tv preetam mukherjee

    Lol..Dan, you remind me of George Carlin at times, RIP.

  • Kevin

    “Get Ready For Another Failed VOD Offering”
    ==> Unfortunately you got that right!
    “Does anyone see an upside to Walmart from this?”
    ==> More proof/examples of how not to do a VOD business? Maybe, eventually, other large retailers will pay attention and make some real moves. Yawn to Wallmart…

  • raycote

    Why would I want to pay extra for a InterNet capable TV or set top box that will only connect to a limited number of fixed web services that the device manufacturer has struck a commercial deal with. How does that represent long term value to the customers.
    OH….RIGHT…. the customer’s interests are of little importance when it come to corporate value chain considerations.
    What ever happened to the old “CUSTOMER IS KING” as the key to forming a long term and thus profitable relationship with your customers?
    I guess we still have to leave that up to Apple. Everybody wants to be the next Apple Killer as long as they don’t have to stoop to Apples level and actually practice any form of “CUSTOMER IS KING” because everybody knows customers are not willing to pay extra for a quality experience, except if you’re Apple. Duh, someone with deep pockets should just go ahead and give it a try, it just might work, their price commoditization approaches certainly have not?
    I guess that leaves me with little other choice, I will just have to waiting untill next year when Apple takes it’s obvious next step and slaps a version of the iPad’s circuitry right into a Flat Panel TV. There you go AppleTV Version-3

  • http://dhdeans.blogspot.com David H. Deans

    Assuming that Walmart intends to market the Vudu OTT service as-is, I see that advertising investment and in-store exposure potentially benefiting Netflix — who has a more compelling (once you do the comparison research) all-you-can-stream subscription offer.
    But, this assessment is based upon the assumption that the Vudu service stays the same. However, if Walmart were to create a similar $8 per month flat-rate subscription offering, combined with a decent rating and recommendation engine, then indeed this Walmart investment could start to get very interesting.

  • Ryan

    “While some are suggesting that Walmart bought VUDU for the deals that VUDU has in place with seven TV manufactures to carry VUDU’s platform, four of those manufactures don’t even have TV sets out in the market. And if you look at the number of total Internet connected TVs expected to be sold in 2010, most analysts put that number around seven million.”
    …don’t have hardware out in the market, YET.
    I think you underestimate the deal struck with TV manufacturers. They are now partnered up with LG, Mits, Vizio, Samsung, Toshiba, Sharp & Sanyo, ALL of whom will be releasing either HDTVs or BDPs in 2010. This is huge, and can only get bigger. Side by side comparisons of Vudu with it’s competitors have largely been favorable towards Vudu. As long as Wal-Mart keeps this team intact, I think it’s a great move for them. Sure the #s for 2010 might be a little low, but what about 2011, 2012? Along with 3DTV, internet connectivity is the next big thing for HDTVs.