Will Wal-Mart Bomb Out of Video Downloads?

walmartlogoWal-Mart’s announcement yesterday that it is entering the video download market was met by a fair amount of skepticism as well as some gleeful remembrances of how the retail giant left the DVD rental business. We read that “delusionary behavior [is] making a strong comeback,” “There are too many me-too download services out there,” and “None of these companies [already in the market] are going to lie down in the face of competition from Walmart, and they know that Walmart will bail out of markets that they can’t dominate.” Jeez, makes you glad you’re not Wal-Mart, doesn’t it?

Let’s slow down here. Wal-Mart isn’t trying to create a high-flying tech business primed for sale to some sucker like… well, Wal-Mart. It’s simply trying to add a product to its virtual shelves. Yes, a product. Downloadable videos, to Wal-Mart, are a product, not a separate “business.” Does Wal-Mart dominate every product category it’s in upon entry? Does it have to dominate video downloads to be successful? I don’t think so.

Let’s look at DVD rentals a minute. Why is there concern about Netflix’s prospects right now? Because downloadable videos have the potential to eat their lunch. What market is Netflix entering? The video download market. And Wal-Mart abandoned the rental business to move into downloadable videos, right? Hmm, but Wal-Mart is the loser here? Sure, selling video downloads is different than selling DVDs in a store, it’s got that scary technology component. On the other hand, apparently they have some tech guys on staff given that they run an e-commerce operation. DRM, studio cooperation, player compatibility – all waiting to ambush Wal-Mart? True, perhaps, but they lay in wait for everyone else too, so we can’t count those issues in the analysis of WM vs. the tech guys.

If you expect Wal-Mart to be running an e-commerce operation in the foreseeable future, you have to expect them to offer video downloads. Videos are part of their product mix and as online sales become larger, they’ll need to have that product online. Wal-Mart can wait for this market to grow while the leaders bleed their way to technology and DRM standards. Wal-Mart doesn’t need to lead, but it can look pretty good as a close follower. While not exactly a glorious moment for Wal-Mart, it was easier to get out of DVD rentals because downloads are the ultimate game. Meanwhile, when the day arrives when consumers can easily transfer videos from an online store to their TV screens, Wal-mart, with years of experience in the download market, will be sitting pretty.

Now, the fact that the site doesn’t work with Firefox is a whole other issue!

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