In November 2006 WalMart offered a trial program for downloading Superman Returns. It’s been a while since that experiment but today Wal-Mart introduced a demo version of a more comprehensive video download service. The service has the support of 6 major Hollywood studios and is set to include more than 3,000 TV and film titles at launch from properties held by Viacom’s studio properties, Disney, Warner Brothers, and 20th Century Fox. Prices of downloads are expected to be similar to the prices of buying a DVD so as not to undercut that market.
The marketplace for downloadable content is crowded. Among commercial content providers, Wal-Mart will compete against iTunes, Cinemanow, Amazon and others. Wal-mart’s chances of success are uncertain, and they’ve failed before when experimenting with services outside their traditional core competencies. (A notable effort being their attempt to compete with Netflix which they gave up on.)
Still, even with high risks of failure, Wal-Mart’s entrance into this market was almost a requirement. Wal-Mart is the largest single seller of DVD’s in the US. Some sources say they are responsible for nearly 40% of domestic DVD sales. Even if that number is well exaggerated, with consumer spending on home video nearly 3x the theatrical box office, and total video sales (including VHS) greater than $16m in 2005, the amount of revenue they generate from TV and Movie DVD’s is still enormous. Downloads meanwhile are increasingly infringing on that market share. According to a report recently published by Informa (www.informatm.com), revenue from downloaded TV and Movie content is expected to rise from $538m in 2006 to $3.9b in 2012 in the US. ($42M to $708m in the UK). As downloads grow they will eventually slow/replace DVD sales. Wal-mart’s bottom line would take some serious bruising if they didn’t find a way to accept and participate in the changes.
It’s no question that Digital downloads scare retailers. Big box merchants like Target and Wal-mart, or even online powerhouses like Amazon, are all concerned about how changing delivery mechanisms for entertainment content will impact some of their more profitable product sales. 2 billion songs sold on iTunes account for at least some number of lost album sales. The same will be true with DVD sales.
I’m not sure Wal-mart will succeed but they can’t’ afford not to try.
Note: 2005 statistics taken from the Entertainment merchants Association