The slow pace of change in distribution channels

BusinessWeek reports that Apple is readying release of move downloads from its iTunes site, pitched at $14.99 for new movies and $9.99 for back catalogue. At the same time, it says, WalMart is actively lobbying Hollywood studios not to allow Apple to provide these downloads. Wal-Mart’s actions are said to have included threatening not to sell Disney’s High School Musical for a period, subsequent to Disney releasing it initially exclusively on iTunes. Disney is apparently the only studio signed up for the iTunes movie releases, with the others on the sidelines for now. Wal-Mart has clout with the studios, since it accounts for 40% of DVD sales in the US, which is one of their most important revenue sources.

This is an oft-told tale, in which the shift to new and more efficient distribution channels is blocked by incumbents who have the power to slow progress. In this case Wal-Mart’s actions seem to be on the border of US anti-trust legislation. However its ability to generate revenue for their wholesale providers gives it enormous power to influence. Notably, Wal-Mart is also said to be readying its own movie download site, so it recognizes that the shift to the new distribution channel is inevitable. It just wants that shift to happen on its own terms. Of course Apple and Wal-Mart are hardly the only players in this market, with an array of pretenders to the online movie distribution market, notably Amazon.com. The primary bottleneck here is that any distribution rights have to be approved by the studios, and it really has to be all of them for a download site to become predominant. Apple has the Disney relationship and access to a ready market of buyers, Wal-Mart has existing distribution channels, others have different offers. As in so many other cases, the incumbent will try to shape change to its favor. Yet there is little reason to think that Wal-Mart has what it takes to be a big success in the online distribution market. One other thing to note is that Wal-Mart only stocks the very top selling DVDs, so studios can gain revenue from their hits but nothing else. Online distribution, such as on iTunes, enables them to generate revenue from their entire list. As the Long Tail story tells, there is gold beyond the hits.