Wal-Mart to buy digital movie provider Vudu

[February 23, 2010]  LOS ANGELES (AP) -- Wal-Mart Stores Inc. said Monday it will buy broadband entertainment provider Vudu, a deal that gives the world's biggest retailer the ability to sell movies directly through TVs and Blu-ray players over the Internet.

The deal could give Wal-Mart a way to compete with electronics rival Best Buy Co., which partnered with Sonic Solutions in November to offer Roxio CinemaNow movie-downloading software on all Web-connected devices sold in Best Buy's U.S. stores.

Wal-Mart did not disclose the terms of its deal or define its ambitions for the service.

Eduardo Castro-Wright, vice chairman of Wal-Mart, said in a statement the acquisition will "provide customers with unprecedented access to home entertainment options as they migrate to a digital environment."

Vudu Inc. delivers movies to consumers for a price per transaction -- either $3.99 to rent or $19.99 to buy -- and requires broadband Internet access and an Internet-ready TV or Blu-ray player.

That capability puts Vudu in competition for customers of video-on-demand services offered by cable operators such as Time Warner Cable Inc., and retailers such as Amazon.com Inc. and Apple Inc. Such services charge similar prices to rent new movies.

Another movie provider, Netflix Inc., charges a flat monthly fee starting at $8.99 to get DVD rentals in the mail or online, but those movies will come out a month later than other higher-priced services after the company agreed with Warner Bros. to a 28-day delay on new movies last month.

Michael Pachter, an analyst with Wedbush Morgan Securities, said Wal-Mart's acquisition won't settle the race to offer consumers the best, most convenient way to watch movies at home.

"They're just one more guy in this me-too race to get the Internet connected to the TV," he said.

Andy Hargreaves, an analyst with Pacific Crest Securities, said Wal-Mart could try to use its position as a top seller of DVDs to get Hollywood studios to lower the wholesale price for online movies, but it wasn't clear if it would succeed.

"There are lots of questions, not very many answers," he said.

Several Hollywood studios, including Sony Pictures, 20th Century Fox and Warner Bros., declined to comment.

With the acquisition, Wal-Mart returns to the Internet movie business, which it tried several times in the past but failed. Its most recent attempt, offering movie downloads, ended in 2007 after less than a year. Wal-Mart, which is based in Bentonville, Ark., also handed off several thousand of its online movie subscribers to Netflix when it exited that business in 2005.

Vudu's service has been embedded in LG- and Mitsubishi-made devices since August, but Wal-Mart does not currently carry those brands of TVs or Blu-ray players.

In January, Vudu announced it had expanded its partnership deals to include Internet-connected TVs made by Sanyo, Sharp, Toshiba and Vizio. Wal-Mart sells high-definition TVs by all of those brands except Toshiba.

Vudu says it has licensing agreements with almost every major movie studio and independent distributors to offer about 16,000 movies, and has a large number available in high definition.

Vudu, based in Santa Clara, Calif., was founded in 2004 and funded by venture capital firms Greylock Partners and Benchmark Capital.

It started out selling set-top boxes for as much as $295 but began phasing them out six months ago in favor of working directly with makers of TVs and other devices.

[Associated Press; By RYAN NAKASHIMA]

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