Walmart (NYSE:WMT) is expanding its presence in the entertainment industry. To be more specific, the retail king recently partnered with MGM Studios to create content to bolster its Vudu video streaming service. Don't dismiss Walmart's move as a lemming-like effort to copy its rivals, though. The company has a target audience in mind, and it has a plan to monetize its programming in a differently than rivals.
Walmart the great entertainer?
Let's take a walk down memory lane. In terms of the video-streaming industry, 2010 seems like ages ago. That's the year Walmart acquired Vudu,a tiny start-up that had managed to raise $36 million over a few rounds of venture funding, for an undisclosed sum. Netflix (NASDAQ:NFLX) was barely making $2 billion in annual revenue at that time (it's now knocking on the door of $14 billion), and Amazon (NASDAQ:AMZN) Prime Video didn't even exist yet.
Today, internet-based video-on-demand is par for the course, and Vudu is all but forgotten by investors. Though the platform reportedly has 25 million registered users, it trails behind the popularity of Netflix, Amazon, and Apple's TV services. Walmart doesn't even give financial performance metrics for Vudu. Nevertheless, the big-box store says it has seen success from Vudu's Movies On Us service, which allows free movie and TV show streaming from mostly older titles. Walmart justifies the "free" service's existence with limited ads.
In keeping with the retailer's goal of saving customers money, it wants to bolster the Movies On Us service, and that's where MGM comes in. Titles from MGM will begin exclusively streaming on Vudu in the first quarter of 2019. Walmart says it isn't interested in becoming a full-blown studio like its techy rivals Netflix, Amazon, and even Apple anytime soon -- all of which are interested in the recurring revenues from TV subscriptions. Walmart's interest in entertainment has a different impetus.
Walmart's real angle could be a trendsetter
Walmart's transformation into a technological powerhouse was panned, but the company has pulled it off in spite of the odds and is now a force to be reckoned with. The retailer remains the world's largest seller of merchandise, and Vudu's coming attractions are a cleverly disguised way to defend that title.
Movies On Us is free because it has ads, a fundamental difference from the subscription and ad-free models of Netflix and Amazon Prime. Later this year, Vudu will begin testing a new type of interactive advertisement that allows viewers to request more info. That isn't a groundbreaking move; there are plenty of clickable internet video ads that divert the user to the advertiser's website.
Vudu's take is a little different, though. The "request more info" option will send an email, allowing the viewer to continue being entertained and shop later. The other option will be an instant "add to cart" option. Since we know Walmart owns Vudu, that can only mean one thing: TV audiences on Vudu will also be Walmart online shoppers. Talk about vertical integration.
With over $500 billion in annualized sales, Vudu's advertising results aren't likely to show up on Walmart's quarterly earnings reports anytime soon. However, if enough viewers start making use of the ad-supported freebie service and interacting with those ads, digital sales will get a boost. Digital sales enjoyed robust 40% year-over-year growth during the second quarter of 2018. In today's day of technology disruption, Walmart is striking back with some upheaval of its own. Digital retailers, take note: The big-box-king has volleyed the ball back into your end of the court.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Apple. The Motley Fool owns shares of and recommends Amazon, Apple, and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.