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Wal-Mart’s Vudu Buy Puts Dealers In Tough Spot

BENTONVILLE, ARK. —
Wal-Mart’s acquisition of Vudu,
the Internet video download service,
is putting competing retailers
in a tough spot.

Vudu, based in Santa Clara, Calif.,
will become a wholly-owned Wal-Mart
subsidiary after the deal closes within
the next few weeks. Terms of the acquisition
were not disclosed, but the price
tag was reported to be just over $100
million.

Wal-Mart will be in the thorny position
of owning an embedded service that
is sold through competing retailers. But
will dealers want to sell a product owned
by the largest retailer in the world?

Retailers have voiced their concerns
with manufacturers, few have done so in
public and it is unclear whether retailer
reaction will impact vendor support for
Vudu on open line models.

One retailer who did speak out is Mike
Decker, marketing senior VP of electronics
for the $12 billion Nationwide
Marketing Group, who told TWICE
some models developed for the independent
channel will feature Vudu, and others
will not.

Vudu is currently included on
select TVs and Blu-ray players
from LG and Mitsubishi, and
is being added to products from
Samsung, Sanyo, Sharp, Toshiba
and Vizio.

The announcement follows Best Buy’s
partnership in November with Sonic
Solutions, through which the chain will
market, sell and promote the company’s
Roxio CinemaNow video streaming services
in packages with broadband services
and various connected devices.

Vudu began three years ago as
a download-to-own or downloadto-
rent video distribution service
that required a proprietary set-top
box. It has since been incorporated into a growing number of IP-enabled
TVs and Blu-ray players through which
consumers can download some 16,000
films and stream hundreds of Internet
applications and services including Facebook,
Flickr, Twitter, The New York
Times and The Associated Press.

And Wal-Mart is bullish about the
new acquisition. “Combining Vudu’s
unique digital technology and service
with Wal-Mart’s retail expertise and
scale will provide customers with unprecedented
access to home entertainment
options as they migrate to a digital
environment,” said Wal-Mart vice chairman Eduardo Castro-Wright. “The real
winner here is the customer.”

“We are excited about the opportunity
to take our company’s vision to the next
level,” added Vudu executive VP Edward
Lichty. “Vudu’s services and apps platform
will give Wal-Mart a powerful new
vehicle to offer customers the content
they want in a way that expands the frontier
of quality, value and convenience.”

Following an aborted digital download
venture with Hewlett-Packard in 2007,
“Wal-Mart is re-entering the [over-the-top]
market at an opportune time,” observed
Kurt Scherf, research VP at Parks Associates,
a Dallas-based market research fi rm
and consultancy. Usage of paid online video
services including movie rentals and movie
and TV downloads doubled between 2008 and 2009, he said, and revenues for premium
video rentals and downloads are projected
to grow from $2.3 billion this year to
$8.4 billion by 2014.

At that point, more than 40 percent of
transactional revenues for premium online
video services will be through connected devices
such as connected TVs, Blu-ray players,
game consoles, and networked digital media
set-top boxes, the company predicts.

“With Wal-Mart’s retail muscle, this
could mean significant growth of more
Web-enabled consumer electronics products,”
Parks Associates said.

In one of its first acts as Vudu’s new
owner, Wal-Mart will shut down the service’s
“After Dark” adult-entertainment
offering, according to TWICE sister
publication Multichannel News.

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