Downloads hit big Wal

Retail giant accounts for about 40% of DVD sales

When Disney inked its download deal with Apple’s iTunes last month, the rest of the biz sat back and watched for Wal-Mart’s reaction.

When it heard that a deal was in the works, the retail behemoth demonstrated its power by threatening to cut its order of Disney’s “High School Musical.” It dispatched its entertainment czar David Porter to warn the studios that if it did a deal with Apple then Wal-Mart would expect the same terms.

That was enough to keep Paramount and DreamWorks Animation out of the iTunes equation. DreamWorks CEO Jeffrey Katzenberg has a close relationship with Bentonville and his studio depends disproportionately on its sales.

Ultimately Fox, Universal and Lions Gate pulled out as well. Wal-Mart accounts for about 40% of DVD sales, and with that kind of market share, the retailer can shave a few percentage points off an order and send sales plummeting.

But in the weeks since the deal,Apple CEO and Disney board member Steve Jobs has been on an all-out charm offensive to mend relations with Wal-Mart, which is also one of the world’s largest retailers of … iPods.

The result is a partnership that will allow the behemoth to profit from downloads. Wal-Mart is set to start selling iTunes coupons for film and music downloads, taking a cut of the sales.

Though still in early stages, talks are a sign that Wal-Mart is nervous about how it will translate its massive foot traffic into the digital business.

Wal-Mart and Comcast are expected to launch their own movie download services in the next few months and will need the studios to participate. The studios, meanwhile, are haggling with Jobs over price; one studio exec says they’re about 50¢ apart.

It’s a rift that could close quickly, but not before the end of the year.

Studios sell half of all their DVDs in the critical fourth quarter, and too many bonuses are tied to making quarterly numbers. For that, the studios can’t live without Wal-Mart.

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