Wal-Mart Threats: Part 2
Last week I wrote about the threats Wal-Mart made to movie studios who were considering offering DVD downloads through iTMS. Reports indicate that things have changed in this past week. According to several sources, Apple and Wal-Mart are now in negotiations regarding DVD downloads.
The reports I’ve been reading have had a few inconsistencies, but the general idea is that Steve Jobs asked Wal-Mart if they could figure out a compromise. One possibility is for Wal-Mart to sell something similar to gift cards. This digital coupon would allow the purchaser to download DVDs from iTMS. Wal-Mart would get a cut of the sale and Apple would have another outlet. It is one option that might work for both.
Some question why Apple would want to negotiate with Wal-Mart at all. If the future is in digital DVDs, Apple could just wait it out. Though Wal-Mart plans to offer it’s own DVD download service in the future, iTMS has proven repeatedly that it knows how to get download business.
Variety.com says that Wal-Mart demanded the same terms from the studios as Apple was getting. According to this article, these demands were enough for Universal, Lionsgate, and Fox to pull out of negotiations with Apple. This would be a possible reason for Apple to try to negotiate with Wal-Mart.
Then again, this same article earlier stated that the rest of the major studios are close to working out a deal with Apple. It also mentioned that there were really no repercussions when Disney signed with iTMS. Despite initially sending DVDs back to the company, Wal-Mart has since placed large orders with Disney.
So what does Apple have to gain by making a deal with Wal-Mart besides the extra sales outlet? For starters, the ability to purchase digital coupons should not be overlooked, especially around the holidays. It makes it possible for people to give DVD gifts to friends and family without the worry that it is one the recipient already has. Buying this way gives them something to wrap and put under the tree.
If the second part of the article is true, if studios are pulling out of the deal because of Wal-Mart, it makes sense for Apple to make a deal of some kind to get its DVD business going. The faster the studios sign on, the sooner iTMS will have a chance at watching the DVD business build.
However, there is one more possible reason for Apple to want to get along with Wal-Mart. Wal-Mart is one of Apple’s largest sources of iPod sales.
Wal-Mart has good reason to want to keep their DVD sales going strong, too. According to the Variety.com article, customers who purchase a DVD while shopping spend quite a bit more overall than those who don’t. Maybe these customers tend to be the impulse buyers. No matter why they spend more, these are customers that Wal-Mart has reason to covet.
Ars technica reminds readers that talks are in the early stages. Early news about anything is often inaccurate. With the holiday season approaching, however, we might have more news soon. It’s likely to the benefit of both to have a plan in place as soon as possible.
What do you think? Does this mean Wal-Mart has won through its threats or is this a good move on Steve Jobs’ part? There is no mention of what happens when consumers download without a digital coupon. What happens when Wal-Mart wants a piece of that pie?
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Comments
Believe it or not, Jobs is playing pretty smart ball right now.
Perhaps it might be seen to some as “caving”, but if Walmart were to carry coupons, it keeps the iPod as ubiquitous in the eyes of consumers. Putting those coupons on Walmart racks is like free in-store advertising for the iPod.
What does Apple have to lose? A small margin of iTunes DVD sales, but it maintains one more iPod stronghold… and if you think about it, how much of the profit margin will be “lost” to Walmart?
Very little. I’m guessing the download coupons won’t sell all that well. Afterall, there are already iTunes gift cards all over the place. Why limit your gift card to just movies when you could give your friend movies, music or TV downloads with a regular iTunes gift card? The whole DVD download coupon thing makes very little sense to me on the Walmart side.
So Apple appeases Walmart and gets the other studios on the hook if this deal goes through. Walmart gets a tiny share by way of movie-specide gift cards (when they already sell regular iTunes gift cards).
It almost appears as if Jobs is selling ice to Eskimos.
Love him or hate him, he sure does seem to know how business works.
movie-specific, that is. I don’t know how I managed that typo.
It almost appears as if Jobs is selling ice to Eskimos.
Yes, except even more so: he’s selling Walmart their own destruction… At least if you subscribe to the view that downloads will eventually supercede or take a large cut out of disc sales, then Apple only needs to pull this off until they get the major studios on their side.
Apple is forcing the hands of the media world in ways that seem to me increasingly clever the more I find out about them.