John Aden, Wal-Mart's executive vice president for general merchandise,… (Christina House, For The…)
Wal-Mart Stores Inc., the nation's largest retailer, is providing a big boost to Hollywood's effort to persuade consumers to keep buying movies in the digital age.
Wal-Mart on Tuesday threw its support behind the industry's UltraViolet program and unveiled an exclusive arrangement with five of Hollywood's top studios to convert people's DVD collections into digital copies.
Starting next month, consumers will be able to take their DVDs to about 3,500 Wal-Mart stores and leave with a digital copy stored in the cloud — a storage system offering access from a broad array of Internet-connected devices — for $2 each. Customers will have the option to upgrade standard DVDs to high-definition online copies for $5 each. The studios will receive an undisclosed fee for each transaction.
Chris Nagelson, vice president of entertainment merchandising for Wal-Mart, said the initiative is intended to help boost sales of movies at a time when fewer DVDs are moving off the company's shelves.
"We need to do a better job of giving value to customers, and one way to do that is to take away the complexity of people watching however they want to," he said.
Wal-Mart, by far the nation's largest retailer of DVDs, will be the only store that can offer the so-called disc-to-digital service until its period of exclusivity ends in the fall. The retail giant received exclusive rights from the studios in exchange for aggressively launching the service first, according to people briefed on the matter but not authorized to discuss it publicly.
The news came as part of an event held in Hollywood on Tuesday to announce Wal-Mart's support for UltraViolet, the online movie technology backed by most movie studios and a coalition of technology companies.
Studio executives in attendance were not modest in describing the significance of the news.
"This is truly a revolutionary moment," said Craig Kornblau, president of Universal Studios Home Entertainment. "This is going to be the ushering in of the golden era of digital movie ownership."
With home entertainment revenue down about 40% from its peak in the mid-2000s because of plummeting DVD sales, studios are looking for a new catalyst to encourage people to keep buying movies. Online movie purchases are more than three times as profitable for studios as digital rentals and as many as 30 times as profitable as Redbox and Netflix rentals.
However, most online movie transactions have been rentals, not purchases, in large part because of the complexity of downloading movies, a problem that UltraViolet is meant to solve.
"We need to get people comfortable with using digital movies, and this is a transitional step on that path," said Simon Swart, executive vice president of home entertainment for 20th Century Fox.
However, Wal-Mart did not emphasize its involvement with UltraViolet. One knowledgeable person said that was in part the result of negative press surrounding UltraViolet's troubled launch last fall. Studio executives are hopeful that many of the technical problems that caused that bad buzz have been solved and that Wal-Mart's backing, along with a marketing campaign to support the new offering, will help turn around that image.
Beginning April 16, customers can take their DVDs to Wal-Mart photo centers, where employees will add digital copies to Vudu, the Arkansas firm's online movie store. In addition, films bought directly from Vudu will be stored in the UltraViolet digital locker, which is accessible through a variety of services.
To make sure the same disc is not copied multiple times, store associates will stamp the discs after the conversion is done. They won't accept DVDs rented from outlets such as Redbox, Netflix and Blockbuster.
Not every movie will be available to convert, however, as studios have not yet created digital copies of all their movies. Universal Pictures, for instance, currently has about half of its library of 1,300 titles online.
Studios are hopeful that the Wal-Mart deal will pressure other retailers that don't yet back UltraViolet, including Amazon.comand Best Buy, to jump on board this year.