Wal-Mart Attacks Netflix Again!

Wal-Mart Stores (NYSE: WMT  ) has tried to knock down video rental guru Netflix (Nasdaq: NFLX  ) more than once -- and skulked back home to Arkansas with egg on its face every time. And it's time for another round. 

According to The New York Times, Wal-Mart is buying digital movie streaming service Vudu for an undisclosed amount, putting a long-running rumor to rest in the affirmative. Vudu's claim to fame is an extensive library of high-definition Hollywood movies.

Its total catalog of mainstream films stands at about 7,800 titles. That is certainly enough to be respectable next to Netflix, which used to boast of 12,000 titles or more but doesn't like to pull out those numbers anymore. Vudu's streaming library absolutely beats the 2,700 MovieLink-powered titles available from Blockbuster (NYSE: BBI  ) On Demand. Then again, more titles does not automatically lead to a better movie-watching experience, nor does it guarantee more customers. Otherwise, Netflix would already have lost to Amazon.com (Nasdaq: AMZN  ) , where you can find more than 20,000 titles in the Amazon Video On Demand rental library.

Vudu's ace in the hole looks like it's dead on arrival: Vudu is the only one of the major digital movie outlets to serve up adult content. Uncle Walton doesn't like porn or even colorful language, and may deep-six Vudu's adult offerings right away.

So what we have here is a major retailer gearing up for online video battle by buying a bit-player in the game. Buying MovieLink didn't set Blockbuster on fire. Amazon is a fine retailer and an online giant, but Netflix isn't running scared. Even Apple (Nasdaq: AAPL  ) , which sells set-top boxes for watching its digital videos and generally dominates the digital music space, isn't much of a threat in digital video today. 

The last time Wal-Mart entered the ring with Netflix, the young upstart walked away with Wal-Mart's customers in its pocket. Netflix is older and wiser today, and arguably doing what CEO and founder Reed Hastings meant to do all along. Those red mailer envelopes were just a stopgap distraction until technology and consumer habits caught up with Hastings' vision.

I think Wal-Mart is setting itself up for another fall here. Do you think the megaretailer stands a chance this time? Let us know why (or why not) in the comments section below.

Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. Wal-Mart Stores is a Motley Fool Inside Value selection. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 23, 2010, at 10:59 AM, foolishfoder wrote:

    Netflix doesn't seem to care much about the digital/streaming or high-def market. Even its website for online access is basic at best missing even a couple basic features. If they don't start shaping up, they could be buried by any one of the other retailers if the movie industry ever performs the long rumored shift to exclusively digital/streaming content.

  • Report this Comment On February 23, 2010, at 11:02 AM, foolishfoder wrote:

    Netflix doesn't seem to care much about the digital/streaming or high-def market. Even its website for online access is basic at best missing even a couple basic features. If they don't start shaping up, they could be buried by any one of the other retailers if the movie industry ever performs the long rumored shift to exclusively digital/streaming content.

  • Report this Comment On February 23, 2010, at 12:11 PM, 98analysis wrote:

    What I am getting from this article is digital movie streaming service may really be taking off and is becoming mainstream.

    Wal-Mart must be seeing a lot of potential if it risks to go after this market already populated with many vibrant players.

    The fact Wal-Mart bought a low-quality company indicates that Wal-Mart saw a window of opportunity in this market that it thought it couldn't afford to miss. Wal-Mart would rather buy a company and deep-six its nasty part than wait for a right company to come along. This shows the urgency of the timing.

    A good article.

  • Report this Comment On February 23, 2010, at 1:37 PM, swiing wrote:

    Amazon may have 20,000 titles but they charge about $5.00 per view. Netflix offers free downloads to members. They really seem to be going after completely different markets. I bet the average Amazon VOD customer watches new releases and does not want the inconvenience of going to the RedBox.

  • Report this Comment On February 23, 2010, at 2:13 PM, Manutius wrote:

    According to Netflix last earnings conference call, they are up to 17000 streaming titles, and they see streaming video as a rapidly growing, soon to be dominant part of their business. They do NOT see themselves in competition with "video on demand (for a one-time fee". Their negotiations with media producers were characterized as "acrimonious" (but often, successful). Asked what they needed in order to increase their streaming library: the response was "Money enough to write bigger checks." My money is currently on Netflix (literally) -- they seem to understand this market better than anyone else.

  • Report this Comment On February 23, 2010, at 4:04 PM, JPDemers wrote:

    Presumably this was just a quick and dirty way of getting their hands on Vudu's distribution agreements with the studios. What's not clear is how they plan to get more people to think "Walmart.com" (or "Vudu.com") when it's time to download a movie.

    Selling Vudu hardware at rock-bottom prices is one approach. Maybe they'll even give away a Vudu box with every big-screen TV that they sell ("free" with a subscription, like a cell phone.) That would yield very slow but steady market penetration, but they've got the money and patience - and sell enough TV sets - to pull it off.

    As for Uncle Wally deciding for you what you can't watch --- lots of people are happy to have someone else do their thinking for them. They don't care that what WalMart hides from view isn't just "adult content". Religion and politics get filtered as well, in a way that suits the Faux News demographic.

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