The news that NBCU is talking with Walmart about purchasing VUDU makes good sense for both companies. Walmart was never able to grow VUDU into a major transactional VOD store. NBCU can leverage VUDU in Peacock to boost free users and generate incremental transactional revenue.
NBCU in talks to acquire VUDU from Walmart.
The Hollywood Reporter says that Walmart is in talks to sell VUDU, its digital video store, to NBCU. Neither company provided any comment on the story. However, there is reason to believe that NBCU is at least interested. Late last year, Variety reported that Comcast/NBCU was looking to acquire free ad-supported service XUMO. Though nothing seems to have come of the talks, it suggests that NBCU is looking for efficient ways to boost the value of Peacock.
Peacock is a strategically critical product for NBCU. So far, the broadcaster has sat on the sidelines of the streaming revolution, instead preferring to rely on others, like Hulu, to lead the online TV charge. Now that Disney is in full command of Hulu, NBCU needs quickly to establish an online TV platform.
TVOD market challenged in the SVOD era
Walmart purchased VUDU in 2010 to compensate for falling disc sales in its stores. However, the strategy largely failed. Between 2011 and 2016, VUDU’s share remained virtually unchanged, with around 2% of consumers renting a movie from the store.
To help get more people into the VUDU store, Walmart introduced VUDU Movies on Us in Oct 2016. It provided a variety of movies to watch for free with a light ad load. Though it likely didn’t produce much ad revenue, the strategy did get more people into the store. The number of people saying they used VUDU to rent a movie grew from 2.2% in Q4 2016 to 3.7% in Q4 2017.
More recently, VUDU began releasing a limited slate of originals, also available free to watch with ads. Eleven episodes of a reimagining of the ‘80s iconic movie Mr. Mom is available and a kids movie called Adventure Force 5. However, a revival of Blues Clues and several reality shows were also promised but have yet to arrive.
That said, the last nine years have been tough for the TVOD industry. Revenue from digital movie rentals has barely increased, gaining just 10% to reach just under $2 billion in 2019. Over the same period, disc rentals have plummeted $3.6 billion to $1.4 billion.
Digital sales have done a little better over the same period, growing 400% to $2.6 billion in 2019. Over the same period, disc sales have lost over $5.5 billion in annual sales to reach $3.3 billion.
Consumers have taken much of their transactional spending and used it to subscribe to SVOD services.
NBCU Peacock a better home for VUDU
VUDU should fare much better if NBCU pairs it with Peacock, the soon to launch online TV service combining a premium subscription tier with free ad-supported streaming. Along with NBCU’s movie ticket and rental service Fandango, Peacock could become a nexus for much of a household’s entertainment needs.
The addition of a movie purchase and rental store could be a very beneficial addition to Peacock for both service users and NBCU. VUDU can help Peacock in the following ways:
- Allows a customer to build a library of purchased videos, which will keep them subscribed longer
- The free library of content from VUDU Movies on Us augments the planned free tier
- Generates incremental revenue by adding rental and purchase options to returned search results
Of course, all the above benefits are only useful if Peacock can quickly establish a large user base. To do it, NBCU must deliver plenty of value in the free tier of service, which is its primary differentiator from rival Hulu. It has already promised 7,500 hours of programming at the free level. VUDU Movies on Us could boost that considerably. If it can make the free tier valuable enough, there is no reason to think it can’t quickly garner 10 to 20 million monthly active users.
Moreover, if all those free users come, NBCU is ready to monetize them fully. It can upsell them to the premium $4.99 a month tier and rent and sell movies to them through the VUDU store.
Why it matters
Walmart has failed to make much improvement in the performance of VUDU since it purchased it ten years ago.
NBCU can help VUDU’s TVOD business grow much faster than Walmart can.
Pairing VUDU with Peacock will provide immediate benefits to both businesses.