The media seemed to get all worked up over Wal-Mart's (NYSE:WMT) beta launch of its online video store yesterday. As the leading DVD retailer, it's easy to get excited. If you're selling as many as 40% of the country's flicks, shouldn't you also command a significant chunk of the digital market?
Well, not so fast. Remember that Wal-Mart was the world's top mover of discs two years ago, yet it still only managed to land 100,000 subscribers to its discounted mail-order movie rental business. It wound up just handing those users over to Netflix (NASDAQ:NFLX).
Whether it's selling online connectivity, rolling out a social networking site for teens, or having to re-launch its namesake website after a false start, Wal-Mart hasn't fared too well in cyberspace.
The company did finally get it right in terms of positioning its online site as an attractive e-commerce solution, but Wal-Mart's digital history is one lined with heartbreak and do-overs. This should not be any different.
I am not going to argue that Wal-Mart shouldn't be in this niche. I just don't expect it to be much of a factor. Yes, Wal-Mart is blessed with lining up every major studio for its new venture. That's what happens when you are an important distributor.
Tell me, though -- how many of Wal-Mart's shoppers do you think went scrambling to order their digital copy of The Devil Wears Prada for $14.88 yesterday?
Let's go over the requirements. You need broadband connectivity. You need between 500 megs and a full gig of available hard drive space for a single movie. You need a DVD burner to back up the download, because if your hard drive bites the dust Wal-Mart will force you to buy the film again. And burning it on to a DVD only means that it will play on the PC associated with your account. If you want to watch it on a television set, you may have to lug your computer out to your living room and buy the appropriate cable.
Does that sound convenient? For $3 more you can just buy the darn movie and get all of the special features.
When it comes to physical retail, no one beats Wal-Mart. The company has the economies of scale working in its favor. It is also a supply chain management beast, turning over inventory like a tornado to make sure that it can still score respectable profits on meager markups.
None of that training will help it out on the virtual sandlot. The playing field is level. Apple (NASDAQ:AAPL) can offer videos cheap because it moves video iPods. Amazon.com (NASDAQ:AMZN) has the advantage of a deep list of online shoppers. In time, the studios themselves will offer flicks directly with the ability to go cheap by cutting out the middleman.
Netflix and Amazon.com have been popular recommendations for Motley Fool Stock Advisor subscribers. Wal-Mart made the cut for Inside Value readers.
Longtime Fool contributor Rick Munarriz has never paid for a digital download, though he has taken advantage of the free video streaming service for Netflix subscribers. Rick does own shares in Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
