If Walmart is actually serious about becoming a major player in streaming movies, it’s buying the wrong company. Specifically, instead of buying online video upstart Vudu, for a reported $100 million-plus, it should buy Netflix.
Don’t feel bad if you’ve never heard of Vudu, which Walmart is now acquiring. Vudu is one of a handful of companies — including Apple, Amazon, etc. — that lets you rent or buy digital movies over the Internet. But no one uses it, so it’s selling out to Walmart.
Why would Walmart want Vudu? More recently, Vudu has focused on getting its Web video service built into consumer electronics devices, including those from Samsung, Sanyo, Sharp, Toshiba, LG, and Vizio. (And because, according to MediaMemo’s Peter Kafka, Walmart thinks its video compression technology is “something special.”)
The idea is that Walmart — which is selling many of these devices, such as TVs and Blu-ray players, to consumers — could keep its movie revenue intact as DVD sales and rentals gradually shift to digital. As a reader points out, Walmart already has good relationships with studios, which could potentially help it strike better streaming deals than its rivals.
The problem is that it’s just going to take way too long for Walmart and Vudu to make a major impact here on their own, and as a result, this deal will likely be a failure.
Unless Walmart has something up its sleeve — a MUCH better pricing model, tons of exclusive content, some amazing features, life-altering UI, etc. — there’s really no reason why it would take the lion’s share of the on-demand movie market in such a crowded field, starting from zero. Netflix’s lead isn’t insurmountable, and these are the early days of Internet movie streaming. But it’s still a lead that’s taken the better part of a decade to build up.
Netflix has an established customer base of 12 million subscribers, half of whom are already streaming movies. And it has better consumer electronics deals — including all three major video game consoles. And a subscription model that is already profitable and can finance its transition to digital.
Sure, Netflix is a lot more expensive than Vudu. Its market cap is about $3.5 billion, and it’s trading at a relatively high 33 points/earnings ratio. But Walmart could easily get the deal done if it really wanted to.
Bottom line is that it’s already going to be a huge, lengthy challenge for digital companies like Netflix, Amazon, and Apple to challenge the cable incumbents, which are the natural leaders in on-demand content. In the end, there will only be a few big winners here.
If Walmart were REALLY convinced that it needed to be a leader in this business, instead of throwing more than $100 million away on Vudu, it should have made the bigger bet and bought Netflix.
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