Walmart Shutters its Music Store—Again!—but Video Survives

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Attention Walmart digital music shoppers: please make your final selections and bring them to the checkout before Sunday. At that time, the store will be closing -- for good.

The once-dominant player in physical CD sales is shuttering its MP3-based online music store, after eight years of competing unsuccessfully with Apple's iTunes Store. Even when offering songs for $.64 to $.88 apiece versus $.99 to $1.29 on iTunes, Walmart saw its market share dwindle.

We covered a chapter of this story back in 2008 when Walmart shifted strategies away from Windows Media Audio (WMA) files that were protected by Digital Rights Management (DRM) to DRM-free MP3 files. In October 2008, the company sent out a notice to current customers that it planned to turn off its DRM servers, rendering purchased music unplayable on any Windows machine whose operating system was subsequently updated. The company provided instructions on how to circumvent the DRM, but a strong outcry from consumers forced Walmart to reconsider its decision to shutter its DRM servers.

Now that its music store's lights are going dark, what does this mean for Walmart's video streaming service?

The same day that Walmart announced it was shuttering its music store, it took the wraps off an iPad-centric overhaul of Vudu.com.

Walmart purchased Vudu in 2010, intending to integrate Vudu technology into its private-label network-attached DVDs and smart TVs. That integration is still mostly uncharted territory, as the company had limited success selling consumers on Vudu. Blame the Netflix juggernaut: Netflix was already dominant on gaming consoles and set-top boxes.

Skirting the iTunes Store -- as Walmart plans to do with Vudu.com -- and going directly to consumers gives the company another 30 points to play with from a pricing standpoint, and may allow Walmart to institute variable pricing in much the same way it attempted with the music store. Vudu's content library is impressive: it has a rental library of over 20,000 Hollywood premium movies, independent films, and TV episodes (Disney content is noticeably absent). That may give Vudu.com a chance to find an audience with iPad-wielding customers.

The re-launch of Vudu.com as an iPad-centric video hub means Walmart is trying to take on Apple at its own game, leveraging in-store displays and online ads to push consumers to Vudu.com.

Success is anything but a given, and Walmart needs to address three major shortcomings as it streams to multiple screens:

1. No HD Playback for iPad

While Vudu bills itself as a leader in HD delivery, that's only true for one of the three screens where Vudu content can be played: both the iPad/iPhone and computer are stuck at standard-definition (SD) playback. Only Vudu-equipped set-top boxes and smart TVs will play HD video.

2. No Disney Content

Walmart has DVD and Blu-Ray distribution deals with all the major studios, but the Mouse House deal doesn't yet extend to Vudu's iPad playback. The likelihood of picking it up is slim, as Vudu.com takes money out of Apple's pocket (Steve Jobs is a major shareholder in Disney as well as Apple's CEO).

3. No Purchase and Download Option

Like Netflix, Vudu is an online-only model when it comes to viewing content, as content purchased from Vudu.com remains on the Vudu servers and can only be played online. Customer purchases would cease to exist if Vudu.com were shuttered. Walmart may be wise to stick with this model, but its past experience with downloadable music, even if it wasn't a market leader, should push the company towards a purchase plan that offers offline playback on multiple devices.

To do so, of course, the company would need to build its own video playback tool, and that would need to be cross-platform for at least Android, iOS, Mac OS and Windows. Therein lies a problem, however: Walmart didn't even allow Mac users to download audio files until mid-2008, and its music player only functioned on a limited number of Windows operating systems.

So where does this leave Vudu renters? At the moment, they're still part of the Walmart experience. But they're probably nervously glancing over their shoulders, watching the lights go out in the music store and wondering if they're next.

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