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Mixed Signals

VuDu: Walmart’s Video Magic At Retail

2/04/2013 8:01 AM

Santa Clara, CA-HQd Vudu has been around since the early years of the millennium, and has been under the pure control of the Walmart conglomerate since early 2010. Within Walmart’s 3,981 U.S. outlet environment (as of 12-31-2012), the Vudu subsidiary permits U.S. customers to purchase and rent  online Internet TV shows and movies on dozens of devices, from a remarkably large stable of content owners and rights holders. Yet, importantly, Vudu lacks access to its own, proprietary devices and a larger digital ecosystem (think Amazon, Xbox, and Apple, for example). 

This article highlights the fundamentals of Vudu’s digital retail distribution.

Recent visits to many new video distributors have provided the basis for these Multichannel News' write-ups (See, the first article about Netflix in "Mixed Signals" on Jan. 7, 2013; see, the second about Microsoft's Xbox on Jan. 17 and the third examining Amazon on Jan. 27, 2013).

In this, the fourth, of more than half a dozen write ups about today’s key digital media players -- all of which have their sights set on the delivery of digital video to end-users -- The Carmel Group examines Vudu, a company that typically offers one of today’s most diverse device landscapes for the rental and purchase of TV shows and movies, within a huge “brick and mortar infrastructure. Yet, it remains challenging to see Vudu not only as part of that “larger digital ecosystem,” but, importantly, even with its own proprietary device (which it no longer has). Vudu thus finds itself vulnerable to remarkable competitive pressures from some remarkable competitors in the new world of digital media.


Strengths

Like other well-funded competitors, such as the deep-pocketed combination of Xbox and Microsoft and that of Google (with its YouTube, GoogleTV, and GooglePlay services), Vudu is now very well funded, in that it is owned by The House That Sam (Walton) Built, with a couple years of that relationship already under its belt. As such, The Bentonville, AR-HQd retailer can not only risk on subsequent acquisitions, but also undercut competitors’ prices, even to the point of making Vudu a loss leader, in order to drive related revenues on other products and services (especially hard goods, like big screen smart TVs).       

Further, the sheer breadth of the Walmart conglomerate, with its scores and scores of millions of daily customers, allows Walmart to use customer volume to not only grow Vudu’s all-important word-of-mouth marketing; but also, to be able to better justify its current low-cost and huge volume model (vs. that of lower volumes but higher revenues…and presumably, higher margins). Plus, that many daily Walmart customer visits mean strong in-store marketing activities toward the Vudu brand and in-store Vudu booths. 

Furthermore, Vudu claims one of the largest libraries of streamed movies, at well over 15,000, and an especially high volume of HD movies, which also tends to make existing and would-be end-users happy customers.

Moreover, and also very importantly, partnership deals in place with consumer electronics (CE) manufacturers such as Xbox 360, PS3, Roku, Boxee, and iPad; as well as with TV manufacturers Samsung, LG, and Vizio; together with makers and distributors of Blu-ray, tablet, and similar devices, act to place the pre-loaded Vudu guide and easily accessible content inside each of those CE devices. Thus, when consumers buy those new smart TVs, for example, Vudu is pre-loaded and waiting to be used, which is a marked advantage. All together, nearly 25 CE manufacturers like those named immediately above have deals in place now with Vudu/Walmart, and WalMart will be eagerly seeking more.  

Vudu’s recent exclusive deal with Boxee is a prime example of this in-store device strategy. In this arrangement, Vudu is the leading transactional video application on the Boxee device, and in return the Boxee set-top box (STB) gets prominently placed on thousands of Walmart shelves across the U.S.

International expansion?  With more than 5,000 stores in 26 countries, global expansion last rumored in April of last year into Latin America, Europe and Asia, still seems both brilliant and natural. Yet, like most other parts of its business, that expansion will already place Vudu in direct competition with the other U.S.-based streaming company with big international growth plans (think Netflix). Plus, a few other digital competitors, such as Apple and Microsoft, know a few things about doing business overseas.

Another real plus to the Vudu/Walmart system is the ability of customers to visit a Walmart store, hand over their treasured DVDs, and then, for a small sum ($2 for standard definition; $5 for high definition), have those TV shows and movies copied into each person’s separate, private “digital cloud locker in the sky.”

 Challenges

Vudu’s roots in, and early focus on, STB manufacturing, as well as its place within the greater Walton businesses, means the Walmart subsidiary has a relatively limited experience with the entire e-commerce arena. In this e-commerce realm, the Apples and Googles and Amazons tend to mix the better potions of ones and zeros.

In addition, few are unaware of the strong-arm tactics Walmart is renowned for, and that reputation tends to limit the partnership relationships Walmart enters into with CE dealers.

Further, as noted above (and in the prior articles listed above), Vudu’s lack of that “larger digital ecosystem” within which to push other electronic content – such as music, live/linear video,  and a greater e-commerce retail presence (think Amazon.com) – put it at a competitive disadvantage in some real respects. In the end, presently, when using the Vudu service of one Vudu single order and pay, after another, and another, compared to an e-commerce priest like Amazon, Walmart is much less able to tie-in with the same kinds of cross-selling opportunities, for instance. Until Vudu does something to create a way to link itself with a proprietary operating system and many devices -- such as Apple’s iTunes Video store, or Googleplay’s Android products/services -- the Vudu corporate body will likely remain subject to an occasional needle poke by those powerful competitors.

 Other

The Vudu business model long ago parted ways with the specialized Vudu STBs (that Vudu itself built), instead today focusing on delivering video to consumers via the Internet, in this case specifically in the form of video stored in the Ultraviolet cloud locker. Upon proper payment and activation by the customer, that content gets delivered to the end-user in the form of Electronic Sell Through (EST) sales and/or 24 or 48 hour Transaction Video On Demand (TVOD) rentals.

Another transition that is part of the Walmart video sales and rental model is to move away from in-store DVD sales via the Vudu experience. Instead, that in-store foot traffic gets replaced by digital sales, and if it does its job well, eventually the cross-marketing kicks in to drive those digital end-users back into the store, as foot traffic that then sees more in-store advertising and buys more hardware goods. 

Industry estimates suggest that the Vudu service follows behind both Apple’s iTunes and Microsoft as the Number Three market leader in the EST and VOD areas. Estimates of seven to eight mil. transactions yearly amount to a fairly solid Vudu business.

Summary

Many believe that if Vudu is ever to become Le Grande Zombi of that magical digital media world, it will need to figure more broadly and strategize more thoroughly toward that greater and larger “digital ecosystem.” Whether this means Vudu partners, or it ultimately purchases or get purchased by, an entity with that greater power, is an answer now reserved for a few bewitched Vudu (and Walmart) soothsayers. Yet when that happens, watch that magic, watch that power, release.

 Jimmy Schaeffler is a telecom author and chairman/CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (www.carmelgroup.com).

 

September