Wal-Mart entry to video downloads a 'game changer'

By Gina Keating

LOS ANGELES (Reuters) - Wal-Mart Stores Inc.'s entry into movie downloading should have a bigger impact on the growth of digital video distribution in the near term than on the ultimate decline in DVD sales.

Media industry experts say Wal-Mart, whose stores make an estimated 40 percent of annual U.S. DVD sales, will introduce millions of its customers to the practice of downloading movies to their computers or portable media players.

The world's largest retailer unveiled on Tuesday the first download-to-own service to offer movies from all major Hollywood studios, at a price comparable to Wal-Mart's retail prices for DVDs.

Last year, media reports said Wal-Mart and other "big-box" retailers had threatened to retaliate against studios offering films for download at prices that undercut the stores, which rely on new DVD releases to drive traffic.

Wal-Mart's embrace of movie downloading comes about two years after it pulled out of online DVD rental and directed its subscribers to Netflix Inc., and months after it protested Walt Disney Co.'s move to sell movies on Apple Inc.'s iTunes online music store at below-retail prices.

Industry experts said the move was natural for the retail giant.

"They are doing an internal analysis and saying, 'We jumped into DVD rental late and Netflix and others got entrenched.'" a media industry source said.

"A lot of experts this year expect DVD sales to be flat," said James McQuivey, principal analyst with Forrester Research. "There is a fear ... we'll see a reduction in DVD sales (from downloads). We're seeing Wal-Mart respond in advance to that threat, not that downloads is a threat to DVD sales because not many people are downloading."