DRM Helps Sink Another Content Distribution Project

With a surprisingly frank comment from Forester Research: Wal-Mart Pulls Plug on Movies via the Web

Nearly a year ago, Wal-Mart Stores grandly announced plans to enter the movie download business. It has exited with much less fanfare.

Wal-Mart posted a short message on the Web site of its movie download service saying that operation had closed as of Dec. 21. The move went largely unnoticed for a week, an unmistakable sign that the service had not caught on with consumers. Gizmodo.com, an equipment review site, was one of the first to point it out Thursday with a headline: Wal-Mart Kills Video Download Store Before Christmas, No One Notices.

[…] Hewlett-Packard confirmed it indeed has scrapped the project. “The market for paid video downloads has not performed as expected, and the broader Internet video space continues to remain highly dynamic and uncertain,” the company said. H.P. said it has decided to redirect its research and development dollars into higher-growth areas.

Wal-Mart is the nation’s largest seller of DVDs. Its quiet abdication of digital downloads at the height of the holiday shopping season, while a stark contrast to the ballyhooed announcement of the service, was consistent with the ho-hum reaction by many consumers to the downloadable movie concept.

[…] In a research note published Friday, Rich Greenfield, an analyst with Pali Capital, said the D.R.M. might have doomed Wal-Mart’s movie service. “We suspect a key reason behind Wal-Mart’s decision to exit the digital video download business was the need for D.R.M., which prevented the content from working with iPods,” he wrote. “Anywhere you look, Apple’s devices are winning, forcing content holders’ hands.”

[…] Its failure in video downloads is not Wal-Mart’s first misstep in its effort to extend its profitable in-store movie business. In 2003, the company introduced a rival to Netflix’s mail-in rental service. Two years later, the company gave up the effort and said it would direct its customers to Netflix’s service.

In an interview last month, Raul Vazquez, chief executive of Wal-Mart.com, emphasized that the movie download service was still experimental: “This has been in beta. We want to understand what the customers want. And I think what we learned is that the initial experience of buying and downloading content needs to be better. We thought it was going to be easier for the customer to understand.”

Now that’s the kind of thinking that leads to business success — “our customers are too dumb to buy what we’re offering.” That’ll bring ’em in!