M&A Alert - February 24, 2010
Walmart Purchases Online Video Distribution Service Vudu
Transaction Overview
On February 22nd, 2010 retail giant Walmart Stores, Inc. (NYSE: WMT), announced its planned acquisition of Vudu, Inc. for a reported $100mm.
Target Description
Vudu, Inc. delivers digital content, on-demand, to consumers’ HDTV’s. Vudu’s technology leverages existing broadband internet connections at home to stream content via either Vudu’s own box (Vudu Box and Vudu XL,) or more recently via capabilities directly integrated into HDTV’s or Blue-ray Players. Vudu has licensed its technology to many major HDTV/Blue-ray player manufacturers including LG, Samsung, Sharp, Toshiba and VIZIO. Vudu competes against internet connected streaming services such as Amazon, Blockbuster, Netflix, Apple, Boxee, TiVo, Roku and Hulu as well as the traditional cable and satellite services from Comcast , AT&T Cable, DirecTV and Dish Networks. Vudu has received $36mm in funding, including $21mm in series A funding in June 2005 from Benchmark Capital, Greylock Partners, and individual investors Roger Evans, David Sze, Pejman Nozad, and Bill Gurley. Their series B funding came in April 2007, with an additional $15mm in funding from Benchmark Capital and Greylock Partners. Vudu was founded in 2004 by Tony Miranz and Alain Rossman and is headquartered in Santa Clara, CA.
Buyer Description
Walmart Stores, Inc. (NYSE: WMT), founded in 1962 by Sam Walton in Bentonville, Arkansas is a global chain of discount department stores. With over 8,000 retail stores 15 countries, and fiscal year 2009 sales of $401 billion, Walmart has had a fundamental impact on the retail industry and beyond by aggressively lowering prices, which it can afford with an extremely efficient pricing and distribution system. Over the past two years, Walmart has aggressively expanded its consumer electronics efforts including digital cameras, MP3 players, gaming systems, phones, blue-ray DVD players, and HDTVs.
Financial terms of the agreement were not disclosed, however, the WSJ reports a purchase price in excess of $100mm.
Strategic Rationale
Walmart’s rationale behind the Vudu acquisition is multifaceted. First, Walmart is one of the largest retailers of movies, TV programming, music and games on physical media such as DVD’s. Physical media are very quickly being supplanted by streaming and download services. Vudu brings Walmart important steaming/download technology enabling Walmart to navigate this transition and retain its position as a major retailer of digital entertainment. Second, Walmart is one of the largest retailers of HDTV’s and Blue-ray Players. Its distribution power enables Walmart to “convince” consumer electronic manufacturers to integrate Vudu as a featured digital entertainment virtual storefront for movies, television programming, music, and games. Third, the Vudu storefront on the TV could eventually expand beyond digital entertainment content to include physical goods sold in the stores. Essentially the “big box store” accessible from your couch. And finally, Vudu creates the potential for a recurring revenue stream for Walmart via subscription services without the customer ever walking into a physical store.
Architect Partners’ Observations
Several years ago Walmart introduced a movie and television programming download service which was quickly shut down. It was too early to achieve commercial momentum but things have changed. The success of on-demand services from the major cable and satellite companies, Netflix and Amazon’s movie streaming services and Roku’s momentum are sure signs. In a crowded market Vudu has been struggling on it’s own, although its recently announced licensing agreements with HDTV manufacturers was a very important milestone. We see this as an extremely strategic and important acquisition for Walmart. It will also likely accelerate the transition to digital distribution of entertainment product and has broad ramifications across a broad array of entertainment, consumer electronics and internet companies.