Wal-Mart, the world’s largest seller of DVDs (yes Wal-Mart, has about 40% market share) announced it’s moving to digital downloads, cutting a deal with all six top Hollywood studios for mass distribution of hit movie and TV content over the Internet.

Steve Sechrist
Senior Analyst and Editor
Projection Monthly

The new service, powered by HP Video Merchant Services makes new releases available for digital download the same day they are available in DVD media from $12.88 to 19.88. Older films will go for around half that price starting at $7.50 and new TV content, made available the day after airing, will sell for $1.96 (in classic Wal-Mart pricing, three cents less than at iTunes).

But there are trade-offs. Users will have the option to make 3 back-up copies of the content including some portable players and burning to a DVD, but the Microsoft digital rights system ties the DVD disc to the specific device that burned it and won’t play in a conventional DVD player. On top of portability restrictions, the download versions of films will not include any of the special features or other content now common on new DVD releases.

To mitigate these concerns, Wal-Mart’s divisional merchandise manager Kevin Swint is using a hybrid sales strategy. He said the company is offering physical/digital movie bundles for select movie titles throughout the year, such as last year’s Superman Returns bundle, in which customers purchase the physical DVD and have the option of downloading the same title for an additional price to use on portable devices and PCs. "This marks a significant step for Wal-Mart in home video, and enables us to better serve our customers as they begin to complement their DVD purchases with downloading of digital video content," Swint said.

For now, the site is still in Beta and does not support Apple or Linux-based operating systems. The Apple "walled-garden" also prevents new video iPod users from downloading films as well.

Our take, while this move puts the king of low-price retail squarely in the space of technology chic Apple or Microsoft’s recently announced download strategy Xbox Live Video - the story goes beyond technology early adopters and serves as a bellwether to the industry that IP content distribution is already mainstream.

Combining DVD disc sales with a download strategy for digital content distribution has just become table stakes for staying in the game. Think what you will about Wal-Mart, the company is the DVD distribution giant that sets the trend for all other US retailers and puts all conventional content providers on notice that the world has already gone IP.