Movie Rental Risk… Wal-Mart & Vudu (WMT, NFLX, BBI, CSTR, TIVO)

February 22, 2010 by Douglas A. McIntyre

Deciding who wins and who loses in movie rentals has proven to be a difficult task other than stating the obvious…. Online distribution and delivery distribution have major benefits over being a brick and mortar movie rental destination.  But the war of movie deliveries for rentals or ownership is about to get closer  to home regardless of whether this is movie rental via the mail or via download.  Wal-Mart Stores Inc. (NYSE: WMT) is said to be buying Vudu.  This now has put some pressure on shares of Netflix, Inc. (NASDAQ: NFLX) and other movie distribution outlets.

The New York Times has reported that Wal-Mart is acquiring Vudu and provided some details.  We have some thoughts here of our own as well.  After having personally used most movie products and after being a Vudu customer myself, there are some simple winners and losers here.

Vudu is a subscriber service where retail consumers buy the Vudu device at a retail outlet that they go home and connect to the television just like a DVD player.  But Vudu is also connected to the internet for movie rental downloads.

Some investors must be hoping that Blockbuster, Inc. (NYSE: BBI) will be worth more to an outside company.  Its shares have risen 5.5% to $0.39… The problem is that Blockbuster keeps contracting and closing its stores.  It has delivery as well to compete in the movie rental business, but its business seems to be a downward trajectory year after year after year.

Coinstar Inc. (NASDAQ: CSTR) is perhaps the targeted loser here.  Its shares have dropped over 2% to $29.00 in mid-afternoon trading.  This would just be a far more formidable competitor for its Red Box.  It has the advantage that it is located at many grocery stores and recently got some of its new release licensing worked out.  The Red Box has many locations, but unfortunately it is located at many Wal-Mart locations.  That translates to retail destination customer risk.

TiVo Inc. (NASDAQ: TIVO) would also be more and more at-risk.  Still, its shares have managed to hang on far better than many would have guessed.  Its stock is down 2.3% at $9.76.