Vudu Convinces Walmart to Pay Up: Why an Also-Ran Web Movie Service Sold for More Than $100 Million
As I wrote in January, Walmart is indeed interested in buying Vudu, the online movie service. I was off about one thing, though–the price.
Walmart (WMT) will be paying more than $100 million for the service, people familiar with the deal tell me. That’s much more than the $50 million I had previously heard Vudu was seeking and much more than industry observers thought it would get.
At this point I need to advise skepticism about reported sales prices, since they’re often inflated or include theoretical but seldom achieved “earnout” clauses. But my source tells me this will be a cash deal when it officially closes, which it hasn’t. No money has changed hands yet.
Vudu is an also-ran in the online movie business, which isn’t that much of a business to begin with. So why would the world’s biggest retailer pay a premium to get in?
Because Vudu’s management has convinced Walmart that its video-compression technology is something special, people familiar with the transaction tell me. Apparently, others think so, too: Vudu was able to attract multiple bidders. I’ve heard, but haven’t been able to confirm, that one of them was Cisco (CSCO).
Vudu has licensing deals with all the big movie studios as well, but that’s of secondary importance to Walmart, which has way more leverage with Hollywood than Apple, Netflix or Amazon (AMZN): The studios need Walmart’s physical reach much more than Walmart needs to get into the digital movie business.
Still, doesn’t hurt to make nice. Walmart and Vudu have been briefing the Hollywood studios today in advance of an official announcement, which could come later today.
Here’s some more background on the piece, from my January story:
After trying for two years to compete with Netflix’s DVD-by-mail business, Walmart gave up in 2005 and agreed to send its customers directly to Netflix (NFLX). In 2007, with the backing of all the big studios and tech help from Hewlett-Packard (HPQ), the retailer tried to launch a download service, a la Apple’s (AAPL) iTunes. But it abandoned that effort in less than a year.
Meanwhile, sources say Vudu has been seeking a buyer–in the form of either a big-box retailer or an electronics manufacturer–for some time without success. Internet executive Mark Jung ran the company for a year but left in November 2008; founder Alain Rossmann became interim CEO when Jung left and has kept the title since then.
Santa Clara, Calif.-based Vudu has raised at least $21 million from Benchmark Capital and Greylock Partners.
UPDATE: Walmart has officially announced the deal, noting that it is expected to close within a few weeks. No word on price except that it won’t be material.
Walmart Announces Acquisition of Digital Entertainment Provider, VUDU
Company takes next step to enhance home entertainment and information delivery options for consumersBENTONVILLE, Ark., Feb. 22, 2010 — Walmart announced today a definitive agreement to acquire VUDU, Inc., a leading provider of digital technologies and services that enable the delivery of entertainment content directly to broadband high-definition TVs and Blu-ray players. The deal is expected to close within the next few weeks.
VUDU is a revolutionary service, built into a growing number of broadband-ready TVs and Blu-ray players, that delivers instant access to thousands of movies and TV shows directly through the television. Customers with broadband Internet access and an Internet-ready TV or Blu-ray player can rent or purchase movies, typically in high-definition, without needing a connected computer or cable/satellite service. New movies and features will be added continually, enabling customers to enjoy a product that continues to become more robust long after they have left the store.
“The real winner here is the customer,” said Eduardo Castro-Wright, vice chairman for Walmart. “Combining VUDU’s unique digital technology and service with Walmart’s retail expertise and scale will provide customers with unprecedented access to home entertainment options as they migrate to a digital environment.”
VUDU has licensing agreements with almost every major movie studio and dozens of independent and international distributors to offer approximately 16,000 movies, including the largest 1080p library of video on-demand movies available anywhere. Via their broadband Internet connection, users have the ability to rent or buy titles and begin viewing them instantly.
VUDU will continue developing entertainment and information delivery solutions such as VUDU Apps, a platform that delivers hundreds of streaming Internet applications and services to TVs and Blu-ray players with built-in Internet connectivity. VUDU has partnered with some of the leading names in Internet and media entertainment to offer applications on its platform including Facebook, Flickr, Twitter, The New York Times and The Associated Press.
“We are excited about the opportunity to take our company’s vision to the next level,” said Edward Lichty, VUDU executive vice president. “VUDU’s services and Apps platform will give Walmart a powerful new vehicle to offer customers the content they want in a way that expands the frontier of quality, value and convenience.”
VUDU, based in Santa Clara, Calif., will become a wholly-owned subsidiary of Walmart. The company is not disclosing financial terms of the agreement as the acquisition is not material to its first quarter earnings for fiscal year 2011.
Comments
How ironic – “Wal-Mart, which has way more leverage with Hollywood than Apple (AAPL), Netflix (NFLX) or Amazon (AMZN): The studios need Wal-Mart’s physical reach much more than Wal-Mart needs to get into the digital movie business.”
The studios have been afraid to put too much into the digital download / online viewing market, and in particular have not wanted to let Apple become a dominant player in this segment, yet know the great destroyer of corporate wealth, Wal-Mart, will be trying to drive the profit out of the business. Good luck studios!
Posted by Mike Lane at February 22nd, 2010 at 10:24 pmI think the studios are fully wary of Wal-Mart, but they're very happy to have multiple competitors. And given that Wal-Mart has an enormous influence on the fate of DVDs sales — which will be their biggest revenue source for quite some time — they'll have no choice but to do deal with Bentonville.
Posted by PKafka at February 22nd, 2010 at 11:41 pmReally interesting to see this development. The amount of money is certainly surprising but I guess its all relative to the rest of the market.
Overview of the article at: http://moviebake.com/uncategorized/struggling-v...
Posted by Moviebake at February 22nd, 2010 at 11:43 pmWhy would I want to pay extra for a InterNet capable TV that will only connect to a half dozen web services that the TV manufacturer has struck a commercial deal with. How does that represent long term value to the customers.
OH….RIGHT…. the customer's interests are of little importance when it come to corporate value chain considerations.
What ever happened to the old “CUSTOMER IS KING” as the key to forming a long term and thus profitable relationship with your customers?
I guess we still have to leave that up to Apple. Everybody wants to be the next Apple Killer as long as they don't have to stoop to Apples level and actually practice any form of “CUSTOMER IS KING” because everybody knows customers are not willing to pay extra for a quality experience, except if you're Apple. Duh, someone with deep pockets should just go ahead and give it a try, it just might work, their price commoditization approaches certainly have not?
I guess that leaves me with little other choice, I will just have to waiting untill next year when Apple takes it's obvious next step and slaps a version of the iPad's circuitry right into a Flat Panel TV. There you go AppleTV Version-3.
Posted by raycote at February 23rd, 2010 at 2:52 amI think in a couple years you're likely to get an Internet-connected TV if you buy a new TV, simply because most of them will be Internet-connected TVs. Same way that you now have to go out of your way *not* to buy an HD set. And just like with an HD set, you won't *have* to connect your Internet-connected set to a service that adds functionality (can't believe I just typed “functionality”).
Posted by PKafka at February 23rd, 2010 at 4:26 amI 'm saying why are these new internet capable TVs creating instant fail, greedy lock down devices. Go straight to the proper approach that is fair to consumers.
Put a full web browser & a TV industry wide standard runtime environment with a TV industry wide App Store. Any thing less will have too much user interface friction and fair value issues for customer and will fail to gain traction in the market place, as usual happens with these half measures.
This is where Apple steps in late with the simple frictionless product and steals the market. Most consumers are not tech people. They will pay for simple. They love simple. They fear confusing big feature lists. Know your customer. All the tech fanboys in these tech blobs imagine that they are representative of the average entertainment device consumer. NO, we are not… not… not! This is the same reason the iPad gets panned in all these tech blogs but will be a runaway best seller for Apple. The techies can not get it into their self centered heads that the iPad is not a computer. It is an simple comfort food data appliance for computer fearing consumers.
Posted by raycote at February 23rd, 2010 at 6:53 amI 'm saying why are these new internet capable TVs creating instant fail, greedy lock down devices. Go straight to the proper approach that is fair to consumers.
Put a full web browser & a TV industry wide standard runtime environment with a TV industry wide App Store. Any thing less will have too much user interface friction and fair value issues for customer and will fail to gain traction in the market place, as usual happens with these half measures.
This is where Apple steps in late with the simple frictionless product and steals the market. Most consumers are not tech people. They will pay for simple. They love simple. They fear confusing big feature lists. Know your customer. All the tech fanboys in these tech blobs imagine that they are representative of the average entertainment device consumer. NO, we are not… not… not! This is the same reason the iPad gets panned in all these tech blogs but will be a runaway best seller for Apple. The techies can not get it into their self centered heads that the iPad is not a computer. It is an simple comfort food data appliance for computer fearing consumers.
Posted by raycote at February 23rd, 2010 at 6:55 amThanks for additional resources.
Posted by Digital Kitchen Scale at April 9th, 2010 at 10:26 am