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Monday, September 18, 2006

Wal-Mart Will Hurt NetFlix And Blockbuster


According to CNN Money, Wal-Mart will join the long parade of companies offering movie downloads.

The question at this point is not who is in the business, but rather, who isn’t. AOL, Apple, and Amazon are among those who have services ready. Movielink and CinemaNow are in the fight. Google Video will probably be there soon, and it is unthinkable that Yahoo!, run by a former head of Warner Bros., would not get into the mix.

The clear advantage Wal-Mart has besides it retail outlets and balance sheet is that the retailer has 40% of all DVD sales in the US. Unlike Amazon, this gives the retail giant access to an extraordinarily large pool of existing customers who already buy movies, a considerable head start.

Wal-Mart’s built in advantages of DVD share and it customer base probably make it a more formidable competitor for overall movie download share than other newcomers like Amazon. The company’s efforts will also further splinter a business that has a rapidly growing number of competitors.

Blockbuster has already been damaged by the move away from rentals in movie stores. Download could spell and end to its model, especially, as is rumored, Wal-Mart offers free downloads with the purchase of a DVD. Blockbuster's stock has already fallen from $10 in June 2005 to under $4. NetFlix now has the franchise for video rental referrals from Wal-Mart. Long-term, downloads will kill that arrangement, and NetFlix will be the poorer for it.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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