Wal-Mart to iTunes: How dare you undercut our prices

RETAIL-IATION: Wal-Mart warns studios over DVD downloads

Worried about its massive DVD sales, retail behemoth Wal-Mart has told some of Hollywood’s biggest players it will retaliate against them for selling movies on Apple’s iTunes.

Those who know me personally (and even some of those who only know me online) are aware of my particular dislike for Wal-Mart. I refuse to shop there if I have any alternative, and I use my disapproving glare and tone of voice upon discovering that any of my friends or family have shopped there recently. I have many reasons for this, some personal, some political, upon which I’ll try not to pontificate too much. The above article should give me enough fodder for this bitchfest I call a blog.

This article illustrates Wal-Mart’s anticompetitive behavior better than I could ever try to explain it to someone. As the world’s largest retailer of just about everything, they have a pretty strong hold on how the market for most products flows. Take music, for example, since it’s a subject I’m really familiar with: Wal-Mart refuses to carry any album that bears a Parental Advisory label. Rather than risk lower sales because of significantly less distribution (Wal-Mart is the top music retailer), record companies will either encourage its artists to tone it down a bit, or barring that, release a cleaned-up version of the album for sale in Wal-Mart stores. Believe it or not, Wal-Mart also has a say in what album cover art looks like. One band had to manufacture cardboard slipcovers for the jewelcases of their already-manufactured album because the retail giant refused to carry it unless the cover featured a picture of the band.

Given that background, I can’t say that it particularly surprised me to discover that Wal-Mart sent cases of DVDs back to Disney upon the studio’s release of Desperate Housewives and Lost episodes to iTunes. Nor did it surprise me that they’re threatening to do the same to any other studio that releases movies for download through the service. Just becuase it didn’t surprise me, though, doesn’t make it ok. I’ve got a pretty low opinion of Wal-Mart, so when they do something boneheaded and anti-competitive like this, my non-surprise is just the result of really low expectations. But on to the meat of things.

Wal-Mart’s big complaint is that studios are selling movies to iTunes at a wholesale price that is less than what studios charge them for wholesale DVDs. This would, in turn, allow iTunes to sell the movies for download at a lower price than Wal-Mart sells the DVD of the same movie, while still making the same (or greater) amount of profit. From a practical, economic standpoint, this makes perfect sense. When movie studios sell a movie to iTunes, the price is for the movie and the movie alone. There is no physical disc, no packaging, no shipping costs — just a digital file, possibly transferred over the internet, or possibly delivered on a single physical disc that can be used to make thousands, if not millions, of digital copies for distribution. Either way, this is going to cost a lot less than manufacturing, shipping and delivering millions of physical DVDs in physical cases with printed artwork. If anything, I’d say iTunes is still getting the short end of the stick here, as they’re only paying a wholesale price that’s three dollars and some change less than Wal-Mart.

The saddest part of all of this is that because Wal-Mart is so big, its refusal to carry as many titles from a given movie studio will hurt the studio more than them. This means that if a studio doesn’t want to lose a significant chunk of change from distribution, they’ll probably buckle under Wal-Mart’s threats. That’s how big Wal-Mart is: they can influence the market decisions of an industry that’s got half of U.S. lawmakers’ balls in a vice. (Broadcast flag and DMCA, anyone?) The really vindictive part of me says that they should just duke it out and destroy each other (they’re both pretty evil), but the reasonable part of me says that it’s a good idea to back the movie studios on this one — after all, they’re making a pretty reasonable attempt here to be progressive, only to be hindered by the single force bigger than they are.

Invisible hand of the market, my ass.

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