The Flaws in Wal-Mart's Digital Download Strategy
That said, I think Wal-Mart's recently-announced digital download strategy (or at least, Phase I of their digital download strategy) is going to prove to be a bad experiment for Wal-Mart, the movie studios, and consumers. (Here's the Wall Street Journal coverage...NY Times...Variety.)
The gist of the strategy: once a consumer buys a DVD like `Superman Returns' ($14.87), she will have the option of also buying a digital copy for her portable video player (an additional $1.97), a PC ($2.97), or both devices ($3.97). Ostensibly, this seems like a win for Wal-Mart and the studios -- new products to sell the consumer generate additional revenue. Yee-ha!
But here's why this experiment won't work out:
1. Consumers don't like the idea of having to buy the same product two or three times. Today, when you purchase a DVD, you can play that in your living room, on your laptop while flying cross-country, or in your car's DVD player. I think consumers will feel like they're being nickled-and-dimed with the offer to pay $2.97 to watch the movie they already own on DVD. Why doesn't Wal-Mart also try selling me a blow-dryer, and then adding a surcharge if I want to plug it in at a hotel, or at my mother-in-law's house, or at the gym?
2. For Wal-Mart, the pricing is too low. It won't be economical for them to support all of the problems users are going to encounter trying to load a movie onto their portable video player when they've paid all of $1.97. (Not that I think they're going to have a whole lot of users to support, given problem #1.) Another issue for Wal-Mart is the simple resentment about being sold the same product twice, or three times.
3. For the studios, the $1.97, $2.97, and $3.97 price points could start to stick in consumers' minds. Once studios start to charge $9.99 or $12.99 for a digital movie (without a DVD purchase), consumers are going to wonder why those prices are so high. The Times piece hints at this problem: "Some studios feel that it would be better to provide the downloads free to DVD buyers, making them clearly a promotion, so that those prices do not become fixed in customers’ minds as the going rate for movies online." And studios will, like Wal-Mart, be a target for consumers' resentment about being sold the same product twice or thrice.