Walmart is considering selling its 15-year old Vudu on-demand video service, say people familiar with the situation, a sign of how the digital video business has evolved from on-demand rentals and purchases to streaming.

Word of Walmart’s desire to sell Vudu comes days before Disney and Apple each launch video streaming services meant to compete with Netflix and Amazon’s Prime Video. Vudu offers a different kind of video service, allowing people to rent or buy individual shows or movies, in what is essentially an electronic version of a video rental store. While a decade ago that market was expected to replace the DVD market, it has instead been leapfrogged by the emergence of subscription video streaming services which let people watch as much as they want for a flat monthly fee.

The Takeaway
• Retailer discusses sale of video service as competition heats up
• Walmart decided against subscription service last year due to costs
• Partnerships may make more sense than owning entertainment

The Bentonville, Arkansas-based retailer has concluded that it would have to invest substantially in the business to compete and it might make more sense to just partner with media companies to offer TV shows and movies to customers, said one of the people. Walmart has also decided that Vudu isn’t core to its business, the people said.

It is unclear if Walmart has hired bankers for the sale or what price it would want for Vudu. Walmart bought Vudu in 2010 for around $100 million, according to one of the people. The company was originally founded in 2004, according to Crunchbase.

Walmart has been ramping up original programming for Vudu which could boost its value. Last year the retailer struck a deal with MGM to create original family-friendly shows and movies for Vudu such as a reboot of “Mr. Mom,” the classic movie that starred Michael Keaton. At a presentation to advertisers last spring, Walmart announced it was launching 12 original movies and series this year, including a reboot of the kids’ show “Blue’s Clues.” Such deals will help retain the value of Vudu if Walmart proceeds with a sale, one of the people said.

Meanwhile, Walmart may be shifting its video strategy towards interactive programming that could prompt viewers to make purchases. It last year invested in interactive media company Eko to develop interactive and “shoppable” content, potentially including cooking shows or an “interactive toy catalog,” it said when it announced the Eko investment. 

"Over the last nine years, we’ve built Vudu into an incredibly strong and growing business with an installed base of more than 100 million devices across America," a Walmart spokesman wrote in an emailed comment. "We’re constantly having and [are] open to conversations with new and existing partners to explore opportunities for continued growth; however, we never share details of those discussions."

Walmart’s ownership of Vudu has its roots in the retailer’s historic strength in the DVD market. In the early 2000s, when DVDs were the main way people bought or rented movies, Walmart had as much as 20% of the market for the sale of DVDs. That dovetailed with the company’s sale of DVD players and TVs, and helped get customers in the door.

As people began to rent or buy movies online rather than with DVDs, acquiring Vudu made sense for Walmart. And for a few years, the trend in consumer spending suggested the Vudu purchase had been a smart move. U.S. consumer spending on “packaged” video entertainment—DVDs or videocassettes—fell from $10.3 billion in 2010 to $4 billion in 2018 and dropped a further 21% in the first half of this year, according to the Digital Entertainment Group, which tracks spending. Meanwhile, online purchases of entertainment jumped from $508 million to $2.4 billion between 2010 and 2018. 

But more recently Netflix and similar streaming services have taken off at a much greater pace. Spending on subscription streaming hit $12.9 billion last year—more than five times what consumers spent buying movies or TV shows digitally—and was up another 22% in the first half of this year.

Moreover, in the market for digital purchases, Vudu is competing with Apple, Amazon and Google. Amazon has already diversified its video business to include streaming, with the launch of Prime Video, and Apple on Friday will launch its entry.

There was a point as recently as last year when Walmart was considering launching a subscription streaming service to compete with Amazon and Netflix. As The Information first reported, Walmart discussed launching a subscription streaming service targeting consumers in Middle America. But after several months of discussions, Walmart abandoned the idea because the costs of launching such a service were too great, people familiar with the situation told The Information. 

Jessica Toonkel is a New York-based reporter for The Information covering media and how the industry is being disrupted by technology. Before that, she spent seven years at Reuters covering a range of topics including media, mergers and acquisitions and financial services. She can be found on Twitter @jtoonkel.
Tom Dotan joined the Information in 2014 covering the media, advertising and streaming video businesses. He is based in San Francisco and can be found on Twitter at @cityofthetown.