Wal-Mart Enters the Movie Download Wars

The retailer's strategy doesn't rely on price. Rather, it aims to offer far more films than rivals—helped by deals with big studios

by Pallavi Gogoi

When it comes to prices, it's hard to top Wal-Mart (WMT), even though low prices haven't helped the world's largest retailer conquer media sales. Apple's (AAPL) iTunes store is the leader in music downloads despite charging 11 cents more per song, and in video rentals Wal-Mart conceded defeat to Netflix (NFLX) two years ago.

But now there are signs the Arkansas retailer may have learned from its past stumbles in music and movies. Announcing its entry Feb. 6 into the nascent movie download business, Wal-Mart came out charging not only with the lowest price, but also a potent arsenal of backing from all of Hollywood's big studios. The company's beta download site has 3,000 titles, with most new releases costing between $14.88 and $19.88.

All the majors have signed on to the venture, lured by Wal-Mart's market reach and its marketing muscle. Among them: 20th Century Fox (NWS), Disney (DIS), Lions Gate (LGF), MGM (MGM), MTV Networks (VIA), Paramount Pictures, Sony Pictures Entertainment (SNE), Universal Studios Home Entertainment, and Warner Bros. (TWX), along with television networks including Comedy Central, Fox, and Nickelodeon.

Apple is backed by two studios, Disney (DIS) and Viacom's (VIA) Paramount Pictures, and will face challenges from Wal-Mart's deeper roster. Moreover, Wal-Mart—which holds a 40% share in the lucrative DVD market—has negotiating muscle with studios that hardly anyone can match. "We are starting with 3,000 titles right now and more will come on a daily and weekly basis, which is more than you can find anywhere on the Web," says Kevin Swint, divisional merchandise manager for digital media at WalMart.com.

Unpredictable Market

Will customers bite? Tricky to say just yet. Downloading entire movies is a recent phenomenon, and represents barely 1% of the $17 billion market for DVD sales. Overall, Americans spend about $30 billion a year on home videos, including rentals and television programs. Wal-Mart's prices start at $7.50 for older movie titles, compared with $9.99 at iTunes. Most of Wal-Mart's newer films will be available for $14.88, with a few titles $5 more. TV episodes are available for $1.96, 4 cents cheaper than at iTunes. Since launching in September, iTunes has sold 1.3 million movie downloads. (Wal-Mart's new service doesn't work with Apple's Mac OS.) Apple didn't return a phone call seeking comment.

Downloads are available from the likes of Apple, MovieFlix, CinemaNow, and Amazon.com (AMZN). On Feb. 7, Amazon.com and digital video recording company TiVo (TIVO) began testing a service that poses a challenge for the retail giant. Customers of Amazon's "Unbox on TiVo" can download movies from Amazon straight to their TiVo box for viewing on a television set.

Amazon's service aims to solve one of the biggest challenges facing download services: delivering content to a home theater. Many services only get programming to the TV if the computer is connected via cable, a process that can degrade the quality of the movie and is confusing for many. New products are being released this year to help solve this problem, but it's too early to tell how well most work (see BusinessWeek.com, 1/29/07, "Internet TV Is Finally A Reality Show").