• Wal-Mart's Acquisition of Vudu Makes Little Difference

    Yesterday's announcement by retailing giant Wal-Mart that it was acquiring Vudu, the on-demand movie service, generated a flurry of reactions from industry commentators. Some think it gives Wal-Mart the juice it needs to finally be a major digital media player. Others believe that Wal-Mart's miserable record in digital media suggests that the deal will be much ado about nothing. I'm in the latter camp, but not because of Wal-Mart's track record, but rather because of Vudu's own shortcomings.

    Vudu's problem is that its value proposition is hamstrung by both the deals the Hollywood studios insist on to give Vudu access to their titles and by the current state of technology. Each of Vudu's 2 movie delivery models - rental and download-to-own - has its own problems that severely curtail its consumer appeal. No matter how slick the service looks or how many CE devices it's embedded in, consumers will readily see these drawbacks and resist embracing Vudu.

    The rental model is primarily handicapped by the ongoing provision that the rental period "expires" 24 hours after the movie was started. That means that if real life (e.g. a crying child, a call from an old friend, a household emergency) interrupts the Vudu's users' planned viewing window, they're out of luck. It's an absurd restriction, but all online movie rentals are laboring under it. Then there's the provision that most new releases aren't available for rental until 30 days after they debut on DVD. This kind of delay doesn't mean as much for a subscription service like Netflix (which of course just agreed to a new 28-day "DVD sales window" with Warner Bros.), because it has a huge back catalog to offer. But for Vudu (and Redbox) these delays are very noticeable to users.

    The download-to-own model is even more challenged. First off, tech-savvy and value-conscious consumers are increasingly focused on cost-effective rentals or subscriptions, not purchasing films. The demise of DVD sales is ample evidence of this. The idea of creating a movie "collection" in a fully on-demand world is already on the verge of seeming as archaic as creating a CD collection has been for a while. And with download-to-own prices of approximately $20, which are more than a DVD costs, consumers will be even more hesitant.

    But the real killer for download-to-own is the technology limitations, more specifically the lack of portability and interoperability. Say you're actually inclined to own movies using Vudu. What do you do, download them to an external hard drive? And when you travel, do you lug that thing around with you? When you get to your destination, what device will actually let you play back your movie from your hard drive? The issues go on. The reality is that ubiquitous, cheap DVD players and the compact size of the discs themselves have created a very high bar for digital delivery to exceed. "Digital locker" concepts like DECE and Disney's KeyChest are desperately needed to move digital downloads along, but even they are just a part of a larger CE puzzle.

    So, although the Vudu service is very impressive, with a slick user experience and really nice quality video, the reality is that unless Wal-Mart is able to break through these challenges, the Vudu service is going to be marginally attractive to consumers at best. That means the Wal-Mart acquisition, in fact, makes little difference.

    Maybe Wal-Mart has the clout to move the studios, but given mighty Apple's own difficulties doing so, I'm skeptical that Wal-Mart will have better luck. I continue to believe that Netflix's model - which combines the full selection of DVDs with the convenience and growing selection of online delivery (including TV shows by the way) - is a far better approach. Netflix may not have all the HD and user interface bells and whistles that Vudu has, but it's a far better value proposition for consumers. This is partly why Netflix has doubled in size, to 12.3 million subscribers, in the last 3 years.

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