Will Wal-Mart's Vudu Service Cast a Spell on Movie Lovers?

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Film buffs everywhere, rejoice: There's a new DVD-to-streaming service coming to town, promising to preserve all the movie classics. The best part is, it will be premiering next month at a Wal-Mart (NYS: WMT) near you.

In an attempt to meld the best of DVD ownership with anytime, anywhere streaming of customers' personal viewing libraries, the retail giant has partnered with five major Hollywood studios to convert patrons' own DVDs into a format that can be stored online and conveniently accessed by computer, cellphone, or tablet. The concept uses Vudu, Wal-Mart's own video service, in conjunction with Ultraviolet, a streaming service being supported by the movie studios.

For the movie studios, the benefit is clear. If consumers take a shine to the idea, it should translate into more DVD purchases, an activity that has been lagging lately. Universal Studios, Paramount, Sony (NYS: SNE) , 20th Century Fox, and Warner Bros. (NYS: TWX) all stand to see their DVD offerings become a more attractive investment if customers know they can get more utility from them. For Wal-Mart, the $2 or $5 charge will probably pale next to the gain from increased foot traffic into its stores that the new program will hypothetically bring. The big question is: Will it fly?

Giving customers what they want
Wal-Mart claims that the new service was born from marketing data it accumulated on DVD purchases versus purely digital content. The company saw that customers want the best of both worlds and are still interested in owning the actual DVDs of their favorite films.

For customers, there are other advantages, too. Movies stored in the cloud can be streamed to their TVs, Xbox 360s, PS3s, or Blu-ray players. Damaged DVDs can be processed, as well, since the content's license is all that is stored on the customer's Ultraviolet -- or, in this case, Vudu -- account. It doesn't matter where the customer originally bought the disc, either.

Disadvantages? One or two
At the moment, it is unclear how many of Ultraviolet's services will also be available to Vudu account holders, such as Android compatibility and simultaneous streaming on multiple devices. Another big question is how Wal-Mart's service will stack up against pure streaming plays like Netflix's unlimited streaming for $8 per month. Some observers are also concerned with the complexity of setting up and using a Vudu account, unsure whether customers will be able to navigate the somewhat confusing steps necessary to set up and use the video service.

Fool's take
I think that this new service will be a real boon to the movie studios, but especially to Wal-Mart -- whose uninspiring fourth-quarter results upset the markets last month. From what I can see on the company's website, the process of opening and using a Vudu account is not arduous, and employees will be available to walk customers through the process, anyway. Also, I believe there is a real market for ownership of DVDs combined with instant access. The Digital Entertainment Group notes that the value of DVD sales in 2011 was still nearly $9 billion, while other digital products made up $553 million of sales. That's a lot of people who are willing to pony up to own their favorite movies in DVD format.

Much will depend upon how well the new initiative is marketed, and sign-ups may be slow at first. Given some time, I think this may just be the infusion of innovation that Wal-Mart needs to remind everyone just who it was that originally put the "big" in "big-box retailer."

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At the time this article was published Fool contributorAmanda Alixowns no shares in the companies mentioned above.The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Netflix. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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