Wal-Mart set a precedent today by announcing the first deals with the support of all the Hollywood studios, launching a beta service, www.walmart.com/ videodownloads, with more than 3,000 movie and TV titles.
Wal-Mart isn't the first into the space: Apple CEO Steve Jobs recently said iTunes has sold 1.3 million movie downloads through its deal with Walt Disney Co.; Amazon.com has a similar deal with Paramount. But Wal-Mart's offering is by far the most comprehensive to date, and that opens the door for studios to do download deals with just about anyone.
"For the movie studios, this has given them the green light to work with other retailers on deals," said James McQuivey, analyst with Forrester Research. "Even if the technology takes a couple of months because of any exclusivity deal [between Wal-Mart and Hewlett-Packard, the provider of the HP Video Merchant Services digital-commerce platform Wal-Mart's service will utilize], I believe now that movie studios won't have to worry that any time they do an online-distribution deal that they'll get one of those phone calls from Wal-Mart saying, 'Hey, don't undercut us in the market or we can't guarantee you shelf space.'"
The threat of retaliation by Wal-Mart in the DVD market has been a legitimate concern for studios, given the current makeup of video sales. Wal-Mart accounts for an estimated 40% of DVD sales, a huge market compared to the fast-growing but still minor digital-movie download business.
The Digital Entertainment Group pegged the U.S. market for buying and renting DVDs and VHS tapes at $24.2 billion in 2006, essentially flat from 2005. While sales numbers aren't available for digital downloads, they're likely well under $1 billion today.
Few have paid to download
Mr. McQuivey said only 10% of consumers indicate they've ever downloaded a movie for sale online and NPD Group finds even that number overblown. Based on its sample of 12,500 internet-using households, NPD in December reported only 2% of people have ever paid to download a video, while 8% have downloaded movies for free using peer-to-peer services.
It's not a sure thing that Wal-Mart's entry will make a major dent in the market immediately. Though it has offered digital-music downloads for years, Wal-Mart.com remains a distant also-ran in the market. Wal-Mart's online music store had 1.6 million visitors in December, compared to 26.7 million visitors to iTunes, according to ComScore Media Metrics. And while Wal-Mart is by far the largest retailer offline, it was No. 4 overall online over the holidays, ComScore reported, trailing Amazon, Yahoo and Dell.
"Wal-Mart is very good at selling things to people that they know they need," Mr. McQuivey said. "This is something they don't know they need. This is going to require a lot of long-term marketing commitment in the store, and if they don't do that, they won't generate momentum. And then even if they do, they don't necessarily have the digital-download customer frequenting their store."
Biggest potential losers
The biggest potential losers, he said, are the players who pioneered digital movie downloads years ago -- CinemaNow and Movielink -- which already have deals in place with Warner Bros., Sony Pictures, Universal Pictures, Paramount, Fox and other studios. But executives at CinemaNow, which also counts Disney, MGM, Lionsgate and other major entertainment companies as clients for downloadable movies and TV shows, said they've anticipated Wal-Mart's move in the area for some time.
"We view [Wal-Mart's] decision as yet another development that legitimizes the innovative format we helped develop more than eight years ago," said Curt Marvis, CinemaNow's CEO. The company believes "there is plenty of room for everyone."
Wal-Mart's beta video-downloading service includes new-movie releases, recent releases, and catalog titles from 20th Century Fox, Disney, Lionsgate, Metro-Goldwyn-Mayer Studios (MGM), Paramount Pictures, Sony Pictures Entertainment, Universal Studios Home Entertainment, and Warner Bros. Also, participating television networks and content providers include Comedy Central, the CW, Fox, Fox Reality, 20th Century Fox Television Classics, Fuel TV, FX, Logo, MTV, Nickelodeon, Nick Jr., Speed, The N, VH1 and Warner Bros.
An HP spokeswoman said that the computer company's video-downloading platform isn't exclusive to Wal-Mart for any period and is available to other retailers at any time.