What's Wal-Mart Up To Next?

I found a small story in Investrend this week that has huge connotations.

"Wal-Mart, which sells about one-third of all DVDs sold in the United States, appears to be preparing an online movie download service to compete with the services just announced by Apple Computer Inc. and Amazon.com, Inc."

Why is this story so big?

To understand, you'd have to have read my post for October 30, 2005 titled "The Cuban Revolution." I discussed an article by Edward Jay Epstein in which he described the "video window," an artificial barrier "which prevents cable operators and TV stations from showing movies at the same time as their release on DVD." Epstein said the delay for pay-per-view is 45 days, and the delay for subscription cable (like HBO) is at least four months.

Epstein claimed that it would be to Hollywood's advantage to eliminate the video window and encourage viewers to switch to an electronic delivery system. In the same way that e-books eliminate much of the expense of hard copy print books, pay-per-view and cable are much cheaper means of product delivery for films (eliminating "the manufacturing, warehousing, distribution, sales and return costs" of the hard copy DVD). He said that electronic delivery directly to the consumer's home would eliminate video stores which (at that time) were getting about 40 percent of the rental money.

Why then were the studios not moving more rapidly toward electronic delivery? Epstein said the reason was . . . Wal-Mart.

Wal-Mart. In addition to being the biggest retailer in the world, Wal-Mart is the single biggest seller of DVDs. Epstein said Wal-Mart "has made it clear that it does not want to compete with home delivery."

Fearful of ticking off the mega-company which provided studios with "more than one-third of their U.S. DVD revenue in 2004," Hollywood maintains the artificial barrier that protects Wal-Mart's DVD sales.

We're left with two questions: How do we know Wal-Mart is changing its stance on the video window and, if their DVD retail business is so successful, why would they do so?

The "how" is in Wal-Mart's recent job postings. According to Investrend, they're "seeking a business manager for a new digital video venture at Walmart.com." Investrend said there were no clues as to when this new venture might be launched.

As to the "why," by now, most people have heard the hype about the new downloadable services being offered by Apple and Amazon. In addition, as the fall preview for the new television season gets underway, several stations have offered free video downloads of their upcoming shows. Electronic delivery is fast becoming a staple of consumers' lives.

Everything we know about Wal-Mart says they have their gaze firmly fixed on the bottom line. That means if they want to retain their position at the top of the food chain for delivering movies to the American public, they're going to have to adapt to that public's changing tastes.

Stay tuned . . .