Apple and Wal-mart: A feisty relationship

1 09 2006

First off, happy Labor Day weekend to readers in the US!

Business Week reported and Techcrunch posted on the purported to come announcement about Apple to close a deal with Disney to start (possibly Fox and Lions Gate to follow) selling movie downloads on iTunes.

The storyline goes that Wal-mart is pissed and Walmart CEO H. Lee Scott is sending David Porter around to spread the message of this displeasure. At heart is the battle between the $17 billion DVD market (of which Wal-mart has market share of 40%) and upcoming movie downloads.

Wal-mart should clearly use the aggressive pricing Disney is giving to Apple ($14 per movie) to drive down its own wholesale pricing ($17 per movie). Perhaps only the close ties with Steve Jobs as Disney’s largest shareholder is the reason this deal even can exist in its current deal structure.

In my previous post, I explained why I agree with Mark Cuban that movie downloads have some major hurdles. From the Business Week article, it’s clear that movie studios are stalling. So far, only Disney has committed and Wal-mart’s reaction was to threaten not to distribute Disney’s High School Musical after it was released initially only on iTunes. This has movie studios supposedly spooked and it’s even reported that Fox and Lions Gate will only join if other studios join as well.

Movie downloads do not have rampant movie piracy breathing down its neck, creating and forcing new business models, as did the music industry in the ‘participate or be cheated out’ way that Napster and other P2P technologies essentially forced record labels’ hands. It’s smart for movie studios to get out in front of this unlike the record labels, but they also know that there’s no rush to alienate Wal-mart and the DVD format. And piracy won’t get out of hand until bandwidth increases to the point where movie downloads take a reasonable amount to download AND the viewing experience can be translated to the family room and big(ger) screen.

Another interesting angle is that movie downloads may or may not remove the secondary market, strictly at the behest of Apple (or Amazon or any other intermediary). While there’s a healthy movie (and video games even more so) resale market, movie downloads could eliminate that – making consumers REALLY buy their movies.

Portability of movies is still an issue from a DRM standpoint, but also the sheer process of constantly performing data transfer between devices. You have Apple (iPods and Macs), PCs, set-top boxes, PSPs, Blu-rays, HD-DVDs, so on and so forth. A proprietary format helps curb piracy, but also is a thorn in consumers’ asses who simply want to see all movies on all devices. In the digital future, a seamless cross-platform sync (tough) or something like Slingbox could be great to solve this, but even a great idea like Slingbox has gotten slow traction.

There’s a lot of angles to cover, so if I’ve missed any you’d like to discuss, please let me know.

Our new start-up deals with many of these issues, so it’ll be interesting how it plays out.

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2 responses

20 05 2007
colleen

sounds interesting how?

20 05 2007
colleen c mccomas

cool

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