Why Wal-Mart Wont Kill Netflix

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This video is part of our "Motley Fool Conversations" series, in which consumer-goods editor and analyst Austin Smith discusses topics around he investing world.

In today's edition, Austin talks about Wal-Mart's (NYS: WMT) foray into the streaming game. The company recently announced a deal with Ultraviolet that would allow customers to upload the DVDs they already own to a cloud-based platform for as little as $2 to $5. This move pits Wal-Mart against current streaming heavies Netflix (NAS: NFLX) and Amazon.com (NAS: AMZN) , as well as companies such as Coinstar (NAS: CSTR) . 

With Wal-Mart selling 40% of the DVDs in the U.S. already, it's easy to see why the company would like to encourage the continued purchase of physical discs. Selling actual disks is a higher-margin business than streaming content, and this move is expected to remove many customers' angst about whether they should buy a disc or have a streaming plan, because now they can do both. 


Ultimately, Austin thinks this deal is flawed from the start. It doesn't seem meaningful enough to move the needle for the world's largest retailer, and it also overlooks the fundamental reason people are moving toward streaming in the first place. Last year was the inflection point for cloud services, with e-books becoming a billion-dollar business and digital music downloads surpassing CD sales. This program, while it may seem like a step toward the cloud revolution, actually makes owning a DVD more expensive and encourages the purchase of physical discs, which consumers are resisting in droves.

Wal-Mart has been called out in a major way in our recent free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see which retailers are able to consistently outperform and how two cash kings are planning to ride the waves of retail's changing tide. You can access it by clicking here.

At the time this article was published Austin Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Microsoft, and Wal-Mart Stores.Motley Fool newsletter services recommendAmazon.com, Microsoft, Netflix, and Wal-Mart Stores. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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