Wal-Mart's new service bridges two worlds

Updated: March 13, 2012 - 10:37 PM

For two bucks, Wal-Mart will make your DVDs available in the "cloud." So far, Best Buy remains on the digital sidelines.

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Best Buy CEO Brian Dunn

Photo: Craig Lassig, Associated Press - Ap Images Fo

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If this were a movie, Wal-Mart would play the DVD lover's knight in shining armor.

The Bentonville, Ark., retailer announced Tuesday, from Hollywood no less, that it will offer a "disc-to-digital service" at its 3,500 stores in the United States. For $2 a movie, Wal-Mart Stores Inc., which is partnering with Vudu, will store your DVD movies in the "cloud," or Vudu's remote servers, where they can be downloaded to any Internet-connected device, including smartphones and tablets. (Pay three more dollars and you get a high-definition conversion. Consumers also get their DVDs back.)

The service allows consumers "to unlock value in investments that they have already made," said Wal-Mart Executive Vice President John Aden.

Frankly, I would've expected Richfield-based Best Buy, with its Geek Squad brand, to do something like this. A Best Buy spokesperson said the company would not comment on Wal-Mart's service "at this time."

Despite CEO Brian Dunn's exhortations that the company sits at the intersection of life and technology, the retailer has been strangely absent from hot topics like digital streaming and consumer-based cloud computing.

Perhaps that's why Best Buy last week hired Starbucks Chief Information Officer Stephen Gillett to run its digital efforts. He oversaw the launch of Starbucks Digital Network, a partnership with Yahoo that allowed store customers to access digital content on their laptops and mobile devices. The disc-to-digital service sounds intriguing for a few reasons. Wal-Mart and the five major movie studios (20th Century Fox, Paramount, Warner Brothers, Sony Entertainment, Universal) that are promoting the service want desperately to arrest the decline of DVD sales.

"Digital is NOT replacing physical" content, Aden insisted.

But the DVD demise continues. In 2010, DVD sales fell 11.3 percent to $14 billion, according to the Digital Entertainment Group. Meanwhile, digital movie sales grew 19 percent to $2.5 billion.

In general, any entertainment content you can touch, whether book, CD or DVD, has seen better days.

Digital downloading has especially siphoned sales from good old-fashioned CDs. In 2010, manufacturers shipped 212.4 million units to retailers, a 22 percent decline from the previous year, according to the Recording Industry Association of America. At the same time, the number of digital units rose 2.3 percent to 1.3 billion.

Under this context, Wal-Mart's service seems rather defensive.

But Wal-Mart's move could also help drive people into stores, where they might buy something else, like a television or tablet. Plus it will generate extra revenue for the retailer.

From a technology standpoint, Wal-Mart is at least trying to show that it's a relevant player in the digital world. Other companies yak a lot about multichannel retailing, integrating physical stores with cyberspace. At least Wal-Mart is trying to do something about it.

So where does this leave Target Corp.?

Never really known for its tech savvy, the Minneapolis-based retailer's playbook consists of redesigning its stores' entertainment sections and offering exclusive editions of movies like "Twilight: Breaking Dawn." Despite these efforts, Target's entertainment sales have been weak, though they did improve last month.

Target declined to comment.

If Wal-Mart's service is a huge hit, you'd think Target would have to respond in some way. After all, a customer who walks into a Wal-Mart to convert his DVD library is one less customer that's buying a DVD at a Target store.

But then again, Wal-Mart's service might very well flop for this reason: Customers actually have to do work. They have to gather their DVDs. They have to drive to the store. They have to wait for Wal-Mart to complete the transfer.

With Apple's new iCloud service, customers can transfer their digital content to the cloud without having to leave their homes.

Wal-Mart seems to have the right ideas about digital content. But whether the retailer has the right business model for it is a question that's floating in the clouds.

Thomas Lee • 612-673-4113