Blu-ray discs may be the dominant form of physical home media in the movie and TV world, but they aren't enjoying quite the same kind of run that their DVD predecessors did. In fact, DVD sales actually still outpace Blu-ray sales, and sales of both formats combined fell by nearly half from 2014 to 2015. Today, many customers turn to alternatives that don't require them to own physical copies in any format. Amazon's (NASDAQ:AMZN) Amazon Video, Apple's iTunes, Alphabet's Google Play Video, and other digital media marketplaces offer digital sales and rentals of movies and TV shows, and they've been very successful. Home entertainment revenue is actually up despite the plunge in sales of physical media, because digital marketplaces have more than made up the difference.
Tech companies aren't the only ones competing in this space, though. Walmart (NYSE:WMT) bought digital marketplace Vudu in 2010. And Comcast's (NASDAQ:CMCSA) Fandango is also in this space with a digital video rental and purchase marketplace called FandangoNow. Though the tech companies have some advantages, at least one of their competitors is working hard to catch up. Fandango announced last week that it will acquire Walmart's Vudu, effectively neutralizing a threat to FandangoNow and consolidating the resistance to the big tech's major marketplaces.
Tech's inside track
Vudu has never been as dominant as its tech-backed competitors, and it's not that hard to imagine why. Many of Vudu's competitors enjoy the distinct advantage of being owned by the very same tech companies that make streaming devices and maintain streaming platforms. Amazon's Amazon Video rental and purchase service is built right into its Fire TV platform -- users don't even have to select an app to get to the marketplace, because it's integrated into the main menus in the Fire TV platform. Fire TV has more than 40 million users, which is a pretty big head start. Google Play Video is, of course, a default app on the Android TV platform, which is built into some brands of smart TVs and is available on devices like NVIDIA's NVIDIA Shield and Alphabet's own yet-to-be-released next-generation Chromecast device. Users of Apple TV devices (which run Apple's tvOS) find iTunes' digital marketplace readily available via the Apple TV app. Of course, tech's situation is not totally static, and not all tech platforms are flourishing -- iTunes, one of the first in this space, was dominant in the early 2010s and has since lost its lead.
FandangoNow has managed to even the playing field a bit with a deal that puts it on Roku (NASDAQ:ROKU) devices. FandangoNow is built into the Roku platform in the form of the "Movie Store by Fandango" and "TV Store by Fandango," each of which is available on Roku's main menu, off to the side of the app icons. Roku is the biggest of the home streaming platforms, but FandangoNow's position on the platform isn't quite the same as the ones its tech competitors enjoy on their parent company's platforms. Fire TV users log in with their Amazon accounts, so there's no extra login process to worry about when it comes time to rent or buy media. With FandangoNow on Roku, users still have to create a separate account. The process is made easier, at least, by the fact that the billing is done through users' Roku accounts.
It's important to remember that Comcast also has a share in video rentals in the form of on-demand content and digital copies purchased through the set-top boxes that Comcast pay-TV customers use. Comcast added the option to purchase digital media (rather than just rent it as on-demand content) and surged to a 15% market share in 2017. But the cord-cutting trend is bad news for on-demand offerings tied to Comcast's set-top boxes, which is part of why Fandango's digital media business is important.
Getting it together
Buying Vudu makes a lot of sense for Fandango. According to Walmart, Vudu has been installed on 100 million devices, including more than 14 million downloads on mobile devices. Vudu is a significant player in the digital video rental and sales space, and it also offers a free, ad-supported video-on-demand (AVOD) service similar to the ones that have been so successful for companies like Amazon and Roku -- though Walmart reportedly had some issues translating that platform into the sorts of ad sales that have flowed to those other companies.
By buying Vudu, Fandango removes the service as a competitor and consolidates the competition to the tech giants' video marketplaces. Vudu's AVOD service could patch a hole in Fandango's streaming offerings and give the company something to tempt fans of free streaming services like Tubi and Sony's Crackle, as well as advertisers who might otherwise turn to competitors. (Fandango's parent company, Comcast, has a new AVOD service of its own in the form of subsidiary NBCUniversal's Peacock, but The Wall Street Journal is reporting that Vudu's AVOD service will "complement" Peacock's.)
Timing is everything
This deal is coming in the midst of an international crisis that is driving up streaming in a customer base that is now largely stuck at home. The "stay-at-home streaming boom" helps explain why Comcast acted now. As for Walmart's part in the decision, that comes as no surprise; the company has reportedly been weighing a sale of Vudu for at least a few months now. Changing circumstances may just have pushed Comcast toward a deal that Walmart had already wanted to make.
The current crisis doesn't just make Fandango's streaming side more important; it's also actively hurting the other, larger part of Fandango's business, which is movie theater ticket sales. Fandango wants to scale up its home media side to match its massive presence in movie theater ticket sales, and that would certainly be a nice thing for the company to be able to pull off at a moment when movie ticket sales have plunged to their lowest point in 20 years.
And there's yet another reason this timing makes sense: the Fox Corporation (NASDAQ:FOX) is reportedly taking a look at acquiring Tubi, a company that offers an AVOD service much like Vudu's version. With Peacock in the midst of a "soft launch," it makes sense for Comcast to move to strengthen its budding AVOD business against a competitor by making this acquisition (and if this move drives up Tubi's asking price and costs Fox money, then so much the better for Comcast).
Work left to do
Fandango's home media marketplace holdings now look more impressive and more ready to battle the competitors that the tech giants own. And since consolidation among those tech giants is very unlikely, Fandango can count on a fairer fight going forward. But Fandango will still have to find a way to make it in a market that rewards integration, like Amazon's Fire TV/Amazon Video synergy, and it will need to solve whatever problems caused Walmart to fare worse in AVOD ad sales than other companies have. The real work is still getting started.