Walmart DVD/VUDU Growth

Strategy

Table of Contents

1.
2.
3.
4.
5.
6.

Executive Summary
Background on VUDU Acquisition and Consumer Video Industry
Current Trends
Competitive Landscape
SWOT Analysis of VUDU
Recommendations

Merchandise Finance & Strategy

Confidential Do Not Distribute

Executive Summary

Amid changing customer preferences for purchased movie / TV media

consumption, Walmart needs to identify ways to
- (i) increase its sales in digital media while
- (ii) minimizing the loss of physical DVD sales

With the acquisition of VUDU in 2010, Walmart has the opportunity to win in
digital media but faces tough competition from Netflix and Amazon, among
many others

Harnessing Walmarts substantial resources, the recommendations for

VUDU are centered upon
- (i) leveraging its existing competitive advantage in video quality,
- (ii) bolstering the media inventory with original content to attract new and
retain existing users, and
- (iii) engaging with Walmarts other high growth programs for novel
marketing and promotional campaigns
2

Merchandise Finance & Strategy

Confidential Do Not Distribute

Walmarts acquisition of VUDU came at a time when industry trends

suggested a changing of the guard, focusing on digital

Despite being one of the worlds largest physical movie distributors, Walmart
faced steep industry declines in retail sales of physical DVDs with more
consumers moving to consumption of digital content (Video on Demand /
Electronic Sell-Through)
By 2015, Walmarts market opportunity in traditional movie sales will have
shrunk by half, making its 2010 acquisition of VUDUs digital movie content
delivery business strategically important

2008

2010

Physical movie sales

and rentals start
annual decline; digital
consumption begins
to rise

Digital expected to
nearly surpass both
physical rental and
sell-through in
revenue

$24B

$12.2B

$2.6B

$9.3B

Merchandise Finance & Strategy

Confidential Do Not Distribute

Rental spending
surpasses sellthrough
Walmart acquires
VUDU

2015

Over the last three decades, the landscape of home consumption movie
distributors has changed significantly
1990s

2000s

Traditional Physical Home

Video Rental

Alternative Physical Home

Video Rental / Sales

Traditional Physical Home

Video Sales

Merchandise Finance & Strategy

Confidential Do Not Distribute

2010s
Digital Home Video
Consumption

Current industry trends show market leaders moving to streaming

subscriptions and adding exclusive content

(1) 2013 Netflix Annual Report

(2) 2013 Outerwall Annual Report
5

Merchandise Finance & Strategy

Confidential Do Not Distribute

Growing its streaming business by over

25% annually while seeing a 20% loss of
physical DVD rental revenues1
House of Cards and Orange is the New
Black extremely popular exclusive shows

Pseudo subscription-based model piggybacking off Prime customers

Exclusive HBO streaming content for older
titles

Decreasing Redbox revenue and kiosk

growth y/o/y2
Announcement of Redbox Instant by
Verizon JV, with $8 subscription content
for older titles / a la carte ESL + rental for
new releases

VUDUs competition in the space is fierce but no single service dominates.

Players compete primarily on title library, video quality, pricing, device
compatibility, and original / exclusive content

Delivery

Streaming /
Download

Streaming /
Download

Streaming /
Download

Streaming Only

Streaming Only

Subscription

Subscription

$7.99 / mo.

$9.99 / mo.

Pricing Structure

A la carte

A la carte

A la carte or
subscription w/
Prime

Pricing

$0.99-$5.99
rental

$3.99+ rental

$2.99 + rental or
$99 / yr Prime

Content
Availability
Video Quality
Device
Compatibility
Exclusive Content
UltraViolet
Compatible
6

Merchandise Finance & Strategy

Confidential Do Not Distribute

A SWOT analysis of VUDU reveals opportunities to leverage its marketleading premium quality video while developing exclusive content and
expanding its reach with retail shoppers
Strengths

Best HD and HDX quality, content

Daily exposure to U.S. shoppers in
Walmarts nearly 5,000 stores
Allows almost immediate watching
of newly released movies and shows
UltraViolet / Disc-to-Digital capability

Weaknesses

Opportunities

Develop VUDU exclusive content to

pair with premium quality video
Create new marketing campaigns
with Walmart To Go
Leverage suppliers to ensure VUDU
compatibility on more Walmart-sold
consumer devices

Merchandise Finance & Strategy

Confidential Do Not Distribute

Higher cost compared to other

streaming services that are
subscription-based for low volume
users
No original content
More limited movie and TV library
compared to its competitors
Not all devices can handle HDX

Threats

Increasing market share from

subscription-based competition
Digital entry by other physical
retailers

Given Walmarts massive resources, it can afford to adopt a variety of

solutions to increase VUDU digital and Walmart physical media sales
Using its existing considerable retail and supplier leverage

4,100 physical stores within 5 miles of 2/3 of

U.S. population
>$25B in operating profit annually
>$7B in cash on balance sheet

Walmart can improve its sales of digital and physical media

Recommendations
1
Develop exclusive content for VUDU that
would compete with similar offerings from
Netflix and Amazon

2
Create marketing promotions to cross-sell
movies and TV with Walmart To Go
8

Merchandise Finance & Strategy

Confidential Do Not Distribute

Develop exclusive / original content for VUDU to attract new purchases

and increase exposure to the platform

VUDU should partner with a television

production house to develop original
content that could reach popularity
levels of shows such as Netflixs wildly
successful original series House of
Cards and Orange is the New Black
with HDX format, can justify a premium

Key Benefits

Walmart stores and Walmart.com would

become exclusive distributor for limited

edition collectors item DVDs and
exclusive merchandise

Key Risks

Netflix and Amazon each is expected to

spend $500M-$1,000M in 2014 in
original content acquisition, increasing
their subscriber base to justify such
investments
9

Merchandise Finance & Strategy

Confidential Do Not Distribute

Creates reason to adopt VUDU

as primary VOD service
Attracts market of loyal
customers with higher
willingness to pay >
increased CLV
Generates exposure and buzz
about brand
Brings people into Walmart for
physical store sales

May require a reassessment /

adoption of subscription model
Given acquisition costs, negative
ROI could be substantial if
unsuccessful

Subscription

A La Carte

10

Merchandise Finance & Strategy

Confidential Do Not Distribute

$6.99 SD / $8.99 HD / $10.99 HDX

10-20% premium over existing TV

shows for original programming

Combine promotions of VUDU and DVD sales with Walmart To Go

Walmart To Go offers pickup and home

delivery services for groceries, orderable
online

Key Benefits

Walmart should tap into the To Go

demographic (more Internet/ecommerce
savvy) of consumer to align with its
movie business to increase home
entertainment sales

Offer a promotion of a weekday Dinner

and a Movie deal: half off a movie
purchase w/ basket size of $50+
- Can work for both digital or DVD

11

Merchandise Finance & Strategy

Confidential Do Not Distribute

Similar purchaser demographics

Incents consumers to both
purchase DVDs as well as utilize
the home grocery service

Key Risks

Online grocery is still a very

nascent business; may not be
best offer much exposure

Questions?

12

Merchandise Finance & Strategy

Confidential Do Not Distribute