Wal-Mart Buys VuDu. What does it mean?

On Monday, February 22, Wal-Mart announced it was buying the movie download service VUDU.

The announcement, which was a bit of a surprise, nevertheless makes sense in light of Wal-Mart’s 2009 decision to downplay in-store sales of DVDs and Blu-ray discs. Now, Wal-Mart can deliver HD-quality movies directly to a variety of compatible TVs and media players, including LG’s new BD590 player/DVR.

According to a Business Week story, a VUDU executive said he expects the VUDU platform to be integrated into more than 150 TVs and related AV products in 2010. This is significant because VUDU picture quality tends to be higher than iTunes and Netflix streaming video. In fact, many VUDU movies can be downloaded in the 1080p/24 format for true HD playback.

VUDU’s original set-top box

This move also pits Wal-Mart directly against Apple, Amazon, and Netflix as demand for digital downloads of TV shows and movies heats up.

So – what does that mean for packaged media sales? DVD sales continued their slide last year, falling off 13% from 2008, according to Adams Media Research. Even the Blu-ray format hasn’t proven compelling enough to reverse this trend, which many analysts still blame on the economy.

I’ve got three more sensible explanations. First off, DVD rentals are still hanging in there, which means more consumers have decided they really don’t need to buy every movie or TV show boxed set out there. Renting once is just fine, particularly if you have a $1-per-night Redbox DVD kiosk in your local grocery store.

Second, there just aren’t that many memorable movies out there from recent years that are worth owning. And if you’ve already accumulated RL or BD copies of the ‘classics’ plus some boxed sets here and there, why continue to fill up your shelves with more DVDs that will likely still be sitting in their original shrink wrap a year later?

Third, it’s pretty clear that the public is captivated by broadband video. That includes video-on-demand over cable, Hulu, Netflix streaming, Amazon digital downloads, and YouTube.  Granted, mailing Netflix and Blockbuster movies back and forth is pretty convenient (although Netflix spends hundreds of millions of dollars per year to make that happen!).

But pointing your remote at the TV and downloading a movie or TV show is even more convenient (and cheaper for Netflix). And if you have access to thousands of movie titles and TV shows at the click of a button, why do you need to fill up your shelves at home with DVDs you might watch one time, then consign to a garage sale or your local library?

Wal-Mart is betting that you don’t, and that direct downloads are what you crave. And they want a piece of that action.