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Wal-Mart (NYSE: WMT) said Tuesday it would soon launch a downloadable video service, a move that could hasten the demise of the traditional DVD and help catapult the retailer into the center of the video-on-demand marketplace.
The discount retail 
giant, which already ranks as the largest seller of DVDs in the world, unveiled plans to launch a download-on-demand test in February 2007. The service's exact launch date was not announced.
Wal-Mart is previewing the service with an offer that lets consumers purchase a DVD bundle of the movie "Superman Returns" that comes with a video download option as well as the physical disc.
When consumers buy the DVD, they can pay another US$1.97 for a version suitable for portable devices, or $2.97 for a version that will run on computers, or $3.97 for a package that includes both download options.
The offering marks Wal-Mart's "first step into the video downloads market," said Kevin Swint, Wal-Mart's divisional merchandise manager for digital media.
"They have the DVD as a collectible and for viewing on their home theaters, plus the freedom to download and watch the movie on multiple devices," Swint said. "We believe that as we expand this offering to other movie titles, our customers will come to value this extra option as one of the benefits of buying a DVD at Wal-Mart."
The move came as Web-based video site BitTorrent signed content-licensing deals with several major media companies, including 20th Century Fox and MTV Networks.
Keeping DVDs Alive
The Wal-Mart and BitTorrent announcements indicate that the trend toward using the Internet as a distribution channel for high-value content is gaining steam. A year ago, few studios or TV networks were willing to make content available on the Web for fear of cannibalizing other media or falling prey to rampant piracy.
Endorsement of on-demand distribution by Hollywood studios is a key piece of the Internet video puzzle; massive retailers such as Wal-Mart have the power to help bring them around to new distribution models.
For the time being, Wal-Mart plans to focus on DVD packages that include the download option, but the retailer eventually intends to roll out a direct download option. At that time, Wal-Mart's service will join Apple's (Nasdaq: AAPL) iTunes Movie Store and Amazon's (Nasdaq: AMZN) Unbox as major brand-backed offerings in the online video-on-demand space.
Wal-Mart's video download site will include movies and TV shows, according to the company. In addition, its incremental approach to the download option is a nod to its key role as a seller of packaged movies, with about 37 percent of the U.S. market share.
Kevin Tsujihara, the president of Warner Brother's Home Entertainment Group, said the bundled approach "plays to the strengths of Wal-Mart's successful DVD business while breaking new ground in the nascent digital video download market."
Hurdles Remain
Inevitably, media will move to downloadable form, but the transition will take several years to unfold.
Additional advances in technology will help to shorten download times, which can be laborious even over high-speed connections, and to make content more versatile and portable once it has been downloaded.
Wal-Mart has moved to become a digital distributor of media in the past. Last year, it launched a music download store that offers songs for 88 cents, a discount compared to the 99 cents charged by Apple's iTunes Music Store.
Studios are testing various approaches to the digital distribution option, looking for ways to get ahead of the curve on video downloading without harming their core DVD business, said Yankee Group analyst Mike Goodman.
"It's still the early days in this industry's emergence," Goodman told the E-Commerce Times. "Studios are forming alliances but not committing to any single distribution model just yet. The winners and losers will emerge over the long run."
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