This Isn't Wal-Mart's Worst Idea Ever

Rick Aristotle Munarriz, The Motley Fool

I knew there would be a lot of people that don't share my excitement about Wal-Mart's (NYS: WMT) new "disc-to-digital" service, but I didn't think I'd be the lone optimist.

  • "The studios are doing exactly what consumers don't want, which is forcing them to pay multiple times for the same piece of content," industry watcher Dan Rayburn wrote in breaking the story.

  • AllThingsD's Peter Kafka called it dead on arrival.

  • "I've been skeptical of Ultraviolet since the consortium first formed in 2010, and this latest effort isn't doing much to help," writes PC World's Jared Newman.

The five studios behind the UltraViolet movement -- essentially all of the major players with the glaring exception of Disney (NYS: DIS) -- have certainly stumbled during the early goings of this cloud-based initiative that's supposed to reignite interest in DVD ownership to secure streaming rights.

However, using Wal-Mart's Vudu as a centralized log-in to access streams across a growing array of devices is at least a step in the right direction.

Folks are complaining about having to lug old DVDs to a Wal-Mart photo center. Others are upset about the price, though $2 per title is more than reasonable. Blu-ray combo packs with digital copies often charge more than that. You can't expect retailers to offer this for free and fork over the pocket change in bandwidth costs whenever someone decides to stream a particular title.

Reel challenges
Studios aren't stupid. At least not this time. They know that folks will game the system. Friends will borrow DVDs to have them activated. Legitimate owners may decide to sell them after they've been validated, adding to the industry's woes by pumping up a market of cheap secondhand optical discs.

Give it time. More importantly, give the world's largest retailer a chance.

It's not easy; Wal-Mart has more than a checkered past when it comes to online initiatives.

  • After eight years of selling musical downloads, shut down its MP3 store this past summer.

  • During Netflix's (NAS: NFLX) early days, Wal-Mart rolled out a similar mail-based DVD rental service. It didn't last long. The retailer pulled out in 2005, agreeing to hand over its small subscriber base to Netflix.

  • Hoping to cash in on the early days of social networking, Wal-Mart launched a botched social hub geared around back-to-school fashions in 2006. It lasted about as long as you think it would. Wal-Mart nixed it less than two months later.

  • What seemed like free publicity -- a Wal-Marting Across America blog by fans taking an RV trek to Wal-Marts around the country began gaining traction -- backfired when it was revealed that the retailer was financing the stunt.

With a history like that, why should anyone take Wal-Mart seriously now? Well, it's here -- isn't it? And surely there may be some concerns that Wal-Mart will kill Vudu the way it did its MP3 store, but if so, Wal-Mart would probably have to refund all of the validation fees because this is being promoted as a perpetual streaming service.

It won't come to that. There's too much at stake. As more couch potatoes rely on to revisit their existing libraries it will make it that much easier for Wal-Mart to push newer rentals and releases.

Wal-Mart has surely made plenty of digital mistakes in the past. This time it has it right.

Stream on
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At the time thisarticle was published Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story, except for Disney. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Wal-Mart Stores.Motley Fool newsletter serviceshave recommended buying shares of Netflix, Walt Disney, and Wal-Mart Stores, as well as creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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