Thinking Tech

WalMart tries again to build an Internet channel with Vudu

WalMart tries again to build an Internet channel with Vudu

Posting in Finance

Could WalMart be on the verge of becoming rural America's ISP?

WalMart will try again to build an exclusive Internet distribution channel following its purchase of Vudu, an online video rental service.

The idea seems to be that TVs equipped with Vudu technology will become an exclusive channel into the home for WalMart, last seen retreating from both social networking and direct competition with Netflix, which currently dominates the video rental space.

What makes this new deal different? Vudu has its technology installed in HDTVs. WalMart sells HDTVs. Those TVs could now become an exclusive channel for WalMart content and shopping services.

While some analysts who boost the industry are saying this validates digital distribution of TV and movies, Motley Fool is not so certain. Netflix is now established in the market, even over Amazon, which should have it beat on costs.

BNET and Seeking Alpha agree with the pessimists, the former saying video on demand does not fit well with WalMart's market, the later expressing doubt WalMart can scale.

But WalMart can buy scale. WalMart is worth $200 billion, over twice the value of (say) Verizon. A core Internet player like Level 3 would be easy to buy. It could buy into the Sprint-McCaw-Google-Comcast Clear deal. Sprint itself could be had for less than 5% of WalMart's current market cap.

Could WalMart be on the verge of becoming rural America's ISP?

There is only one way to get stuff faster than you can get it at WalMart. That is to go online for it. WalMart has an extensive online shop, but it still trails Amazon badly. Amazon, in turn, trails Netflix in video on demand.

Why isn't video on demand a bigger business?

As a research report from the Catalyst Group late last year put it, most consumers don't know they can buy videos online to watch instantly (WalMart can tell them) and don't like having to switch between PCs and TVs to get the full experience (Vudu puts its technology in the TV).

And once you own the channel by which people buy their entertainment, you can sell them everything else, exclusive.

That's WalMart's strategy. Own the pipe, own the channel, own the customer.

My question is, do they have the patience to wait for the market and the political stomach to fight for an exclusive Internet channel into the living room?

Stay tuned.

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Dana Blankenhorn

Contributing Editor

Contributing Editor Dana Blankenhorn has written for the Chicago Tribune, Advertising Age's "NetMarketing" supplement and founded the Interactive Age Daily for CMP Media. He holds degrees from Rice and Northwestern universities. He is based in Atlanta. Follow him on Twitter. Disclosure