Wal-Mart, the leading DVD retailer, has announced plans to dismantle its commercial video download offering. The service lasted less than a year and never made it past the initial beta test stage. Wal-Mart’s decision to exit the video download market at this time was precipitated by HP’s plans to discontinue development of the HP Video Merchant Services system, the underlying technology that Wal-Mart used to operate the site. More important, Wal-Mart’s online store performed very poorly in the first place.
When Wal-Mart announced the service in February, we characterized it as underwhelming and predicted poor sales. In order to obtain distribution agreements with all of the major players, and to protect the sale of physical goods like DVDs, Wal-Mart allowed the studios to dictate the pricing model. New releases were priced equally with the physical DVDs and the content was all heavily encumbered with (Windows-only) DRM that prevented playback on more than one computer. Obviously, consumers didn’t see any value in paying full price for diminished flexibility.
At the same price, one could buy a DVD, which is more or less universally playable, or one could buy a DRMed movie that, throughout its entire life, can only be played on one computer, and cannot be backed up, clipped, or transferred elsewhere. DVDs sport a crude form of DRM in CSS, of course, but they are not tied to one computer for life.
Yesterday, we reported that peer-to-peer filesharing applications are present on a significant portion of the world’s computers. I suspect that those people aren’t all just swapping Linux ISOs and public domain literature. The message here is very clear: draconian DRM and unrealistic pricing are turning consumers away from legitimate retail channels and giving them a big incentive to adopt underground file sharing.