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

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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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