×

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.

Popular on Variety

More Digital

  • T.J. Dillashaw, right, kicks Cody Garbrandt

    Disney Plans UFC Broadcast for FX

    UFC matches will return to FX  – but not on a permanent basis. ESPN has been showing preliminary bouts to UFC pay-per-view events for the last while on ESPN and ESPN2, and then showing the main card on its ESPN+ subscription video service. In September, the early lineup will air on FX, which the UFC [...]

  • fundo logo

    Google‘s Area 120 Is Testing Fundo, a Crowdfunding Service for Creators (EXCLUSIVE)

    Google’s skunkworks lab Area 120 has been quietly testing an events-centric crowdfunding service for YouTubers, Variety has learned. Called Fundo, the service allows creators to invite their fans to virtual meet & greet sessions and other paid online events. A Google spokesperson confirmed the testing in a statement provided to Variety: “One of the many [...]

  • Telling Lies - Logan Marshall-Green

    Sam Barlow's 'Telling Lies' Government-Surveillance Thriller Game Sets Release Date

    After more than two years in the works, “Telling Lies” — the investigative thriller from acclaimed game creator Sam Barlow — is ready to take the stage. The game, produced with and released by Annapurna Interactive, will be available next Friday, Aug. 23, via Steam and Apple’s Mac and iOS app stores. “Telling Lies” will [...]

  • YouTube logo

    YouTube Will Stop Letting Copyright Holders Seize Revenue via Manual Claims on Very Short Music Clips

    YouTube is pushing back against overzealous copyright policing by music companies. Starting in mid-September, the video giant will forbid copyright holders from making manual claims to commandeer revenue generated by YouTube videos that include very short music clips (e.g., five seconds of a song) or “unintentional” music (like music from passing cars). “One concerning trend [...]

  • Chelsea Handler memoir book buy online

    Chelsea Handler Bonds With Alexa in iHeartRadio Smart Speaker Promo

    iHeartRadio has teamed up with Amazon to promote Chelsea Handler’s podcast “Life Will Be The Death Of Me.” Beginning this Thursday, users of Amazon’s Echo smart speaker and other devices with Alexa built-in can opt to get their mornings started with Handler cracking jokes and exchanging banter with the smart assistant. Users simply have to [...]

  • David Messinger, Activision Blizzard

    Activision Blizzard Hires CAA Veteran David Messinger as CMO

    Activision Blizzard tapped David Messinger, a former 15-plus-year veteran of CAA, as its first corporate-wide chief marketing officer. Messinger, based in Santa Monica, reports to Coddy Johnson, Activision Blizzard’s president and COO. It’s the first time the video-game company has appointed a CMO who will oversee the global marketing operations across all of Activision Blizzard [...]

More From Our Brands

Access exclusive content