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Online DVD Rental Settlement: Why Walmart Is Sending Netflix Customers $12 Gift Cards

Close to 750,000 U.S. consumers received a strange-looking email Thursday, offering them a Walmart gift card for $12.32. The sender: an ominous entity called Online DVD Rental Settlement.

The seemingly unsolicited cash offer raised suspicions with quite a few consumers who expected it to be some sort of phishing scam, initiated by bad actors looking to spread viruses or trick them into revealing personal information. But unlike those emails from dethroned royalties that promise large cash payments, this one is real, and has its roots in a failed attempt by Walmart to take on Netflix.

Back in 2002, Walmart was realizing that its DVD sales were being cannibalized by Netflix’s DVD subscription service. That’s why in the fall of that year, Walmart launched its own DVD subscription service, promising consumers unlimited monthly rentals for $18.86 a month.

As the obscure price point indicates: It was a test, and one that didn’t fare so well. Walmart gained just 60,000 subscribers, and in 2005, it decided to shutter the service and transfer those customers to Netflix. In exchange, Netflix agreed to pay Walmart a 10% share of revenue plus a bounty for each subscriber. Netflix also agreed to promote Walmart’s DVD sales.

That deal drew the ire of some Netflix customers, who mounted class-action lawsuits against both companies in 2009. Their allegation: that the pact between both companies prevented competition and thus led to higher prices for Netflix’s DVD rental plans.

Netflix fought the lawsuit, and eventually won. Walmart instead agreed to settle and distribute a total of $27 million to eligible Netflix customers who could have been harmed by the deal. The company informed a total of 35 million consumers who had at one point subscribed to Netflix’s DVD subscription service.

Consumers had to submit their claims by March 2012, and more than 1.1 million actually did so. Many of them opted to receive an emailed coupon instead of a check for sheer convenience — and also because they probably didn’t expect the lawsuit to continue until early 2015, when a court threw out final challenges against the settlement, paving the way for Walmart to send out its coupons this week.

The irony of it all is that the entertainment landscape has changed radically since the 2005 pact between Netflix and Walmart. There are only 5 million DVD subscribers left at Netflix — down from 20 million at the end of 2010 — whereas close to 70 million people around the world now subscribe to Netflix’s streaming service.

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