For a couple weeks—along with launch rumors of Amazon Unbox and Apple’s iTunes movie download service—a few bubbles floated to the surface that real-world mega-retailer Wal-Mart was considering getting into the digital movie download business. Now, those rumors are being substantiated by reporting in mainstream financial press (including Money and The Financial Times). Apparently Wal-Mart really does want to enter the movie download market toward the end of 2006, and is advertising for a high-level manager to handle the business unit. But can the retailer succeed in the online space, or will the effort meet the same success as its online music efforts?
Wal-Mart has proved enormously successful at marketing traditional DVD media, accounting for more than 40 percent of new DVD sales in the United States, according to the NPD Group. Following the Wal-Mart credo, DVD releases are offered at low retail prices, which draws in consumers and forces Hollywood to treat Wal-Mart as a special case retailer, kowtowing to its wishes so as not to jeopardize DVD sales through the chain. However, Wal-Mart has been in the digital music download business since 2003, offering songs at prices that undercut Apple’s iTunes Music Store—and, yet, Wal-Mart’s digital music business has failed to grow.
At this point, it’s unclear how Wal-Mart could distinguish itself from existing movie download services like Movielink and CinemaNow, or newcomers like Amazon Unbox and Apple’s iTunes (coupled early next year with the forthcoming iTV player)—except on price. Rumors have Wal-Mar bundling discounted or free downloads with sales of physical DVD media, but that seems to take the appeal out of downloading music: why would customers go to a physical store, just so they can go home again and spend more hours downloading enormous movie files—especially if they already have the DVD in their hands? Isn’t the whole point of downloadable movies to save customers the hassle of going to a retailer? (Of course, if you’re a regular Wal-Mart customer anyway, perhaps combining physical and digital movie purchases makes sense). But Wal-Mart’s music business has proven that price (and price alone) isn’t enough to create a successful download business—that seems to require the full package of ease of use, necessary functionality, and compelling content. Wal-Mart definitely has the retailing clout to bring major studios to its service, but it remains to be seen whether the retailer can bring anything else to the table.