Just as it has sought to offset slower CD sales with its digital music store, Walmart–the nation's largest DVD retailer–is looking to insure against lower DVD sales by purchasing the online video company Vudu.
But Vudu isn't just another Internet video company with a loopy name offering a pure over-the-top video service. Like Sezmi, its delivery method is an interesting hybrid. While Sezmi leverages free over-the-air TV, leased spectrum, and broadband (with ample local storage as a force multiplier), Vudu uses a hybrid peer-to-peer model. Content is both delivered to a Vudu device through a standard client/server model, as well as peer-to-peer between different Vudu devices. Additionally, content is pre-positioned at the edge of the network to increase the number of peers. Leveraging peer-to-peer allows Vudu to keep its prices low, while increasing the redundancy of its system.
I hope that Walmart will continue to apply the lessons it learned in digital music–you need to give consumers what they want, third party choke points can threaten your business model, and content providers short-sightedly can act against their own interests. The first version of Walmart's online music store sold tracks in a proprietary format limited by DRM–a music industry requirement. The success of the store was tied to the success of the technology they picked–Microsoft's PlaysForSure–which has now been all but abandoned along with music DRM generally. But even in its heyday, PlaysForSure was incompatible with the player customers overwhelmingly preferred: the iPod. Walmart bet on the wrong horse, as consumers rejected every music store with iPod-incompatible DRM. As Apple's iTunes Store, by contrast, grew and grew, the music industry realized that ditching DRM was the only way to avoid creating a middleman monopoly, and once the record labels let them, Walmart started doing the right thing by consumers by selling music in a standard format (mp3) without DRM. (DRM came back to haunt Walmart–most consumers expect that once they buy something, it's theirs, and won't be taken away due to a corporate strategy change.)
In short, Walmart's first attempt to be an online music retailer wasn't that impressive, but it picked itself back up again and now offers a credible product.
Walmart's past forays into online video haven't been that successful. So, I hope it takes the lessons it learned in building an online music store to heart.
- Give your customers what they want–be a tough negotiator with content suppliers.
People want to watch the content they have lawfully purchased on the devices of their choice. When I buy a DVD, I don't have to pay extra to watch it on my laptop instead of my living room. That's the model to emulate. It should be just as easy to watch video content I have purchased on a variety of devices. The DVD example can cut the other way–it's illegal to rip a DVD so I can watch it on my iPod. That's the model to avoid.
To the big content providers today, all eyeballs aren't equal. Working against device convergence, TV and movie studios want to be paid over and over for the same content, depending on whether it's displayed on a mobile device, over the Internet, or on a TV screen. They require complex licensing deals that built firewalls between screens, and are scared of new delivery models–limiting growth in next-generation services while not doing a thing to prevent piracy.
As with DRM for music, screen and device firewalls are a backward-looking strategy that at best sacrifices long-term growth for next-quarter results. The biggest barriers to bringing lawful content to consumers are not technical, but legal. Walmart should follow Cablevision's example and be creative in finding ways to bring content to multiple screens.
- Avoid chokepoints.
ISPs who want to offer their own online video services have a motivation to discriminate against others' video content. And carriers might have an incentive to discriminate against peer-to-peer technology generally–this Cisco white paper spells out these concerns. But consumers have signaled loud and clear that they like lawful peer-to-peer services: Skype, for instance, is now the largest international voice carrier.
These aren't just hypothetical concerns–Madison River, a phone company, was caught red-handed interfering with VoIP services, and Comcast was found to be interfering with all traffic using the peer-to-peer BitTorrent protocol. Anticompetitive blocking to protect incumbent businesses is unacceptable, and carriers can limit their upstream transit costs in neutral ways that don't single out particular kinds of protocol. Thus, to allow continued innovation at the edge of the network, Walmart should support net neutrality.
Whatever Walmart's position ends up being on the policy debates that are increasingly part of the Internet video space–and whether they even take a position–its entry disrupts a disruptive industry, and should give the cable and content incumbents something more to think about.