Bloomberg News

Wal-Mart Tries Hollywood Cloud-Seeding Plan to Sell Films

March 13, 2012

Wal-Mart Stores Inc. signage is displayed outside of a location in American Canyon, California. Photographer: David Paul Morris/Bloomberg

Wal-Mart Stores Inc. signage is displayed outside of a location in American Canyon, California. Photographer: David Paul Morris/Bloomberg

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, backed a Hollywood-led plan that seeks to increase home-video sales by letting consumers buy, store and stream movies on the Internet.

Wal-Mart will offer a service called disc-to-digital that lets customers bring DVDs and Blu-ray discs they already own into stores to convert into online copies, the Bentonville, Arkansas-company said today at a press event in Los Angeles.

Support from Wal-Mart, the biggest DVD seller, is a major step in Hollywood’s strategy, called UltraViolet, to reignite home-video purchases and counter a rise in online rental and subscription services that generate less profit for studios. The exclusive deal gives Wal-Mart’s Vudu.com movie-sales and rental website a jump on rivals like Best Buy Co. (BBY)’s CinemaNow.

“This is a monumental step for UltraViolet,” said David Bishop, head of home entertainment at Sony Pictures Entertainment. “This is what the promise of UltraViolet was when we started it.”

Wal-Mart’s service starts on April 16 in 3,500 stores and will be exclusive for a period still under discussion, John Aden, executive vice president for general merchandise, said in an interview. The company will charge $2 for each disc converted, or $5 to upgrade from a normal DVD to a high- definition cloud-based copy.

UltraViolet allows users to buy and store movies online and access them through multiple devices. It was developed by five of the six biggest studios, along with retailers and device makers, to counter a consumer shift toward Netflix Inc. (NFLX), cable pay-per-view and Apple Inc. (AAPL)’s iTunes, which generally generate less profit for Hollywood than DVD or Blu-ray sales.

Disney, Apple

Viacom Inc. (VIAB)’s Paramount, News Corp. (NWSA)’s Twentieth Century Fox, Comcast Corp. (CMCSA)’s Universal and Time Warner Inc. (TWX)’s Warner Bros. are members of the UltraViolet group along with Sony Corp. (6758) Walt Disney Co. (DIS) has its own cloud-based system, as does Apple with the iCloud adjunct to the iTunes store.

Disc-to-digital is a key component of UltraViolet, giving customers a chance to seed a cloud-based movie collection without repurchasing titles they already own. Wal-Mart is betting that once customers upload their existing libraries to Vudu they’ll return to the site for new purchases.

“If this actually is the trigger and consumers start seeking the UltraViolet rights, this is a huge win for Wal- Mart” depending on how long exclusivity lasts, said Scott Smyers, an analyst with Sunrise Digital Technologies and a former Sony executive.

Wal-Mart rose 0.5 percent to $61 at the close New York and has added 2.1 percent this year.

Online Competition

Studios expect to have 4,500 titles, including many popular ones, within weeks of disc-to-digital’s initial push.

UltraViolet faces an uphill battle competing with the ease and lower expense of online movie rentals or subscription plans by Netflix, Hulu LLC and Amazon.com, Rich Greenfield, an analyst with BTIG in New York, said in an interview. It won’t spur movie ownership because it doesn’t address the high price of new releases, he said.

“Seeding a collection is a great idea if you could seed it for free,” Greenfield said. “There are multiple flaws right now in the strategy that hinder adoption.”

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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