Streaming service to compete with Netflix, local players

Walmart-owned streaming video service Vudu has plans for an aggressive international expansion, according to sources, which could spell trouble for Netflix and other competitors.

The U.S. retail behemoth is expected to make Mexico the first overseas home for Vudu in June ahead of a bigger deployment across Latin America that could encompass over 30 countries. Vudu will also enter parts of Europe and Asia later in the year.

A Walmart spokeswoman declined to address Vudu’s international strategy. “We’re always looking at ways to expand our offerings but we have nothing new to share at this time,” she said.

Vudu is the latest entrant into the increasingly competitive international market for broadband-delivered TV and movies. Earlier this year, Netflix kicked off its own expansion into 45 countries that largely mirror Vudu’s plan of attack, with a high concentration of activity in Latin America and targeted European forays including United Kingdom and Ireland.

But while Netflix strives to build its brand outside the U.S., Vudu will enter the international arena with a competitive edge: cross-promotion through its stores. While the retailer may be best known for its massive footprint stateside, the company owns over 5,000 stores across 26 countries. Walmart has a particularly heavy presence in Latin America and Mexico, which was the site of the retailer’s first international expansion starting in 1991.

Another edge: Vudu is expected to allow consumers to make purchases off of pre-paid cards. Services like Netflix that can only handle credit cards, which aren’t as ubiquitous abroad as they are in the U.S., have found that can be an obstacle to subscriber growth.

New competition abroad for Netflix will likely concern analysts who have deemed its international performance crucial to the company’s health. Overseas subscriber growth could offset any slowdowns in its domestic customer base, ensuring the company will be able to afford its skyrocketing content costs.

Walmart is about to demonstrate its in-store synergy savvy with Vudu on the domestic front next week when the retailer starts promoting its Disc-to-Digital program, which allows consumers to get digital copies of DVDs they already own. Vudu will be the place where Disc-to-Digital customers can retrieve their digital copies, which will be a boost the streaming service’s profile.

After a few false starts over the years to extend its dominance in the home video market to digital platforms, Walmart has been off and running with Vudu since acquiring the service two years ago. Aggressive development of the platform has paid off in the U.S., where Vudu managed to top Sony and Amazon for market share of digital video distribution according to IHS ScreenDigest Media Research last year, though it is still well behind Apple’s iTunes.

Vudu offers both rental and purchase options on an a la carte basis with heavy emphasis on new releases in the home video window, a business model different than Netflix, which is a subscription VOD service concentrating purely on rentals of library TV and film content. Vudu isn’t expected to change its model internationally.

But while the two companies aren’t direct competitors, they are both major players in a nascent free-for-all playing out across the globe to attract video consumers in markets where pay TV isn’t nearly as well-penetrated as it is in the U.S.

Vudu’s offering is most similar to what tech juggernauts like Apple, Sony and Microsoft make available via virtual storefronts embedded in their various devices, though none of those companies have seen the kind of traction abroad that they enjoy in the U.S.

Incumbent multichannel services including satcasters and telcos aren’t taking all these new market entrants lying down either, beefing up their own VOD offerings to protect their market share.

Then there’s upstarts like Amazon-owned Lovefilm, which is sure to give Netflix a run for its money in the U.K.

Netflix first launched internationally two years ago in Canada, and the results emboldened the company to keep expanding into Latin America and select European markets beginning last September. But in a research note Thursday, Sterne Agee analyst Arvind Bhatia warned Netflix could be challenged beyond Canada.

“The success Netflix has had so far in Canada is impressive but it’s not necessarily indicative of how UK and Latin America will perform,” he said. “UK has a lot more competition while Latin America has issues of low broadband penetration and credit-card usage.”

While the Los Gatos, Calif.-based company has racked up 24.4 million subs as of the fourth quarter of 2011, about 1.9 million of those subs come from outside the U.S.

Netflix doesn’t break out how many subs come from each territory, so it’s unclear how the company is faring outside of North America in the early going. CEO Reed Hastings initially pledged Netflix would reach break-even on its overseas investments within two years, which Bhatia has since deemed doubtful.

Netflix will announce subscribers numbers for the first quarter of 2012 on Monday. Analyst Jiang Zhang projects modest international growth, reaching 2.2 million subs.

Unclear is how much content Vudu will be able to launch with outside the U.S., where it will have to strike a whole new set of deals to get the rights to content it already has stateside. Dubbing and subtitling can also be an onerous process.

Latin America is home to nearly two dozen so-called over-the-top (OTT) services. IMS Research projected OTT transactions via connected in-home devices in that region would grow 88% from 2011 to 2016. Latin America could reach nearly 13 million OTT subs by 2016, according to research firm Dataxis.

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