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Wal-Mart acquires online movie service Vudu (updated)

February 22, 2010 | 12:38 pm

Wal-Mart wants to work some voodoo on the online movie distribution business. The retail giant has acquired struggling digital video store Vudu, according to a person familiar with the situation. Vudu launched with much fanfare in 2006 but was unable to interest consumers in buying its pricey set-top box necessary to watch movies.

Representatives for Vudu and Wal-Mart could not be reached for comment.

Executives at several movie studios have been contacted by Wal-Mart for briefings this afternoon.

When Vudu launched in the fall of 2006, it sold a $400 box that consumers could use to rent or buy digital movies and watch them at home on TV. Like other Internet-connected set-top boxes, such as the Apple TV and MovieBeam, Vudu was unable to find many buyers willing to spend several hundred dollars on hardware on top of the money it cost to rent or purchase a movie via the Web. They became particularly unappealing in the last couple of years as more video-game consoles and cable boxes provided video on demand.

In December of 2008, Vudu began allowing consumer electronics manufacturers to integrate its software into their own devices to enable movie downloads. Throughout 2009, it announced deals with numerous television and Blu-ray player makers that agreed to offer Vudu on their devices, such as LG, Mitsubishi, Sanyo, Sharp and Toshiba. That's a very crowded market, however, with companies including Amazon.com, Netflix, Microsoft, Sony and cable and satellite operators all offering movie downloads, rentals or subscriptions by way of the Internet.

At the same time, the company was running short on cash from its original venture-capital investors and was shopping itself to potential buyers last year, said two people familiar with the situation. As recently as last month's Consumer Electronics Show, Vudu was entertaining private meetings with potential buyers, including Wal-Mart, said one of the people.

The deal marks Wal-Mart's second attempt to get into the digital video business. In 2007, it partnered with Hewlett-Packard to launch a Web store that sold downloads of movies and television shows. It shut down the store after just 10 months. It was one of many unsuccessful film-download businesses to launch at the time. All were plagued by usage and pricing restrictions imposed by movie studios wary of undercutting the multibillion-dollar DVD business.

[Update, 4:43 p.m.: According to two people familiar with the matter, Vudu chief executive and chairman Alain Rossmann is stepping down as part of the deal, but will continue to serve as a consultant. Executive vice president of strategy and content Edward Lichty will manage the Vudu unit for Wal-Mart.

The retailer plans to maintain the Vudu brand and will continue to embed its software on devices sold by other retailers while also promoting it in Wal-Mart stores.]

[Update, 9:18 p.m.: For more, see the story in tomorrow's Times.]

-- Dawn C. Chmielewski and Ben Fritz

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