February 6, 2007 / 11:00 PM / 10 years ago

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

3 Min Read

<p>In this file photo shoppers leave a Wal-Mart store in Niles, Illinois, November 24, 2006.John Gress</p>

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."

Download sales equaled about 1 percent of the $24.5 billion in DVD and home video sales and rentals in 2006, but industry experts expect downloads to grow to 10 percent within a decade.

About 100 million U.S. households have DVD players, and an estimated 46.7 million households had access in 2006 to broadband Internet services needed to access video content.

Industry analysts said Wal-Mart's move into downloads was unlikely to dent DVD sales in the short term, but could remove barriers to digital growth, such as the limited number of movie titles now available and the inability of most customers to transfer movies easily from the Internet to the TV.

"They are able to say (to the studios), 'We are going to do this and you are going to do it with us,'" McQuivey said. "My hope is that movie studios will now say, 'We've got the Wal-Mart thing taken care of, we can move really aggressively."

Rob Enderle, an independent analyst at the Enderle Group, said Wal-Mart's download offering is a "game changer" that will help set off "a long decline" for DVD sales.

"The need to buy discs will not go away, but it will cut into any growth the market has," Enderle said. "We are talking about the beginning of the end for DVDs."

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