Wal-Mart Tests Movie Download Service with All Major Studios

This morning, the US' leading retailer is rolling out what it calls a "beta" of its pay-per-download video service, though the "pay" part is clearly turned on. What immediately differentiates Wal-Mart's Video Downloads Store from its competition -- other than undercutting their prices by about 11 cents -- is that it features new and recent releases from every major Hollywood studio, including Sony (Columbia, Screen Gems, MGM), Warner Bros., 20th Century-Fox, Disney, Paramount, Universal, and Lionsgate.

So while studios continue their long bargaining process with technology brands such as Netflix, Amazon's Unbox, and Apple's iTunes, holding firm on their retail price "suggestions," it behooves them to not risk alienating themselves from their principal retail outlet, which analysts estimate is responsible for at least 40% of all DVD sales to US customers.

Wal-Mart launched this morning with titles such as Warner's Superman Returns downloadable at $14.88, compared with $14.99 at Unbox. Wal-Mart is notorious, even in its retail outlets, for never pricing anything with the classic "99-cent suffix," to help give the appearance of deeper discounts.

While Wal-Mart wrestles with some minor technical issues dealing with its HP Digital Media Platform (a few of which we noticed this morning, such as losing track of the customer ID in sessions lasting longer than five minutes), competitors such as Netflix that were hoping as far back as early 2004 to conquer the broadband download market find themselves playing catch up.

Last month, Netflix announced it was resuming the countdown for its broadband video service, but this time only as a streaming video system rather than downloadable video. Subscribers there could pay $5.99 per month for six hours of online viewing, or subscribe to the full movies-by-mail service for $17.99 per month to receive 18 hours of streaming.

Netflix settled for this deal after negotiations with major studios bogged down in late 2005, after it found itself unable to secure distribution licenses from studios after having announced a distribution partnership with television industry nemesis TiVo.

But ironically, the entry of Wal-Mart into the video market could alleviate one of Netflix' and others' major obstacles to starting or boosting their downloadable services, analysts are saying today. Up to this point, studios have avoided setting their asking price too low for downloadable video, for fear of creating too enticing a price tier for bargain hunters, and in so doing upsetting Wal-Mart, whose relationship must be attended to carefully.

Now, the Wal-Mart price could potentially set a benchmark for the rest of the industry to follow: roughly $15 per first-run title downloaded (subtract 22 cents if you're Wal-Mart).

Ironically, though, for Netflix and potential competitors like Blockbuster to have this roadblock lifted, they may want Wal-Mart's efforts to succeed, in order that the industry and consumers alike will start to perceive $15 as the benchmark movie download price. So any technical support they may be willing to offer at this point to help Wal-Mart get over the initial glitches, may be much appreciated.