Walmart is getting deeper into the media business, launching a free, ad-supported video-on-demand service, Vudu Movies on Us, offering high-definition feature films and TV titles in 1080p high definition with pre- and mid-roll advertising.
The service available across devices will initially include such titles as "Mad Max," "True Grit," "Abduction" and "School of Rock." Vudu's existing offering is a digital rental service with prices ranging from 99 cents to $5.99, along with a service that allows people to get digital versions of DVDs they buy or already own.
As part of Walmart, "Vudu is always looking for new ways for customers to save money, and nothing is more affordable than free," said Jeremy Verba, VP-general manager of Vudu. High definition will help set the service apart as offering "free without sacrificing quality," he said.
Movies on Us fills a gap in the market as Mr. Verba sees it. He said research shows more than half of Walmart shoppers prefer free ad-supported video-on-demand to subscription services. That matches a recent Hub Entertainment Research study showing 53% had that preference. Yet pure ad-supported options remain sparse, with Hulu recently discontinuing its "free-with-ads" service in favor of a tiered subscription service that offers a discount for people who accept some ads. (Hulu offloaded its ad-supported service to Yahoo View, where it should become part of Verizon's offerings pending the close of its acquisition.)
Walmart rival Amazon's Prime Video is ostensibly a subscription service, but the large portion of Prime members who pay the $99 annual subscription fee just for free two-day shipping without using the video or music streaming services in the bundle suggests they're widely viewed as a free throw-in.
Mr. Verba said Walmart has opted initially not to bundle Movies on Us with its Prime-fighting $49 Shipping Pass service, which offers free two-day shipping on a wide range of online orders. "We'll watch for opportunities carefully as we go along," he said. "But for now it's a standalone offering."
But no matter who's offering it, AVOD has an uphill battle. Despite consumers' stated preference for free ad-supported streaming, Hub's study found avoidance rife with 52%-56% of consumers skipping ads on AVOD when possible, 45% saying fast-forward disabling on VOD and online platforms is a "major frustration," and 83% of DVR users saying they skip ads most or all of the time.
Also, plenty of people are willing to pony up to avoid ads. Netflix yesterday delivered an upside surprise in subscriber growth, which reached 46.5 million in the U.S. in the third quarter, up more than 4 million from a year ago.
But Vudu, launched in 2004 and acquired by Walmart in 2010, has access to a huge potential customer base in Walmart stores, Walmart.com and Jet.com, including through the many TVs, smartphones, game consoles and other streaming devices sold there. Mr. Verba said Vudu plans to use its in-house advertising and distribution opportunities extensively in addition to advertising on outside digital channels, backed primarily by in-house creative.
Vudu points to a 2014 Deloitte Digital Democracy survey showing 43% of U.S. consumers subscribe to a video streaming service, but even with recent growth, that leaves a majority who don't -- with most of them likely shopping at Walmart regularly.
"We've been very much working with Walmart customers to bring them into the digital world, which has helped make us into one of the fastest-growing premium services," Mr. Verba said, with millions of users, though he didn't specify how many millions.
At the same time, he sees Movies On Us as a way advertisers -- and Walmart suppliers -- can chase ever-elusive eyeballs. And it gets Walmart, which already offers suppliers programmatic digital media buying through its Walmart Exchange and numerous ways of advertising their products in and through its stores and websites, deeper into the business of selling advertising.
AVOD is expected to reach nearly $11 billion in annual revenue within five years, Mr. Verba said. "Consumers expect to view content in an on-demand environment. This allows advertisers to reach those consumers where they are and where they're going."
Initial advertisers include automotive and credit-card brands, in addition to Walmart. Vudu will work with Ooyala to sell advertising and ultimately "other partners as well," Mr. Verba said. It also will work with Nielsen on audience measurement and analytics initially, he said, but is open to working with other third-party measurement providers.