updated 2/23/2010 7:05:27 PM ET 2010-02-24T00:05:27

It looks like Wal-Mart may bring some of its retail magic to the online video streaming. The big-box behemoth will buy VUDU, an on-demand video service that sells and rents movies and TV shows over the Internet. The deal is expected to close within the next few weeks.

Good voodoo
Haven't heard of VUDU? It's one of several online movie services competing for what's bound to be a very competitive market in the coming years, particularly as home broadband speeds increase. With the FCC intent on seeing 100-megabit connections in 100 million U.S. homes, more consumers will likely stream movies online rather than trekking down to Blockbuster or waiting for Netflix discs to arrive.

Today, VUDU is a small fish in a big pond, one filled with well-funded sharks such as Netflix, Amazon Video On Demand, and Apple TV/iTunes. Best Buy and Blockbuster, both of which have teamed with online movie service Roxio CinemaNow, are making an online play too. By merging with Wal-Mart, VUDU will have the means to stay competitive in a market that's bound to get even more crowded.

What Wal-Mart gets
With VUDU, Wal-Mart gets a video service with top-notch streaming technology. Recently I had the opportunity to test VUDU alongside CinemaNow and Netflix. VUDU's picture quality was vastly superior to Netflix's, and slightly better than CinemaNow's, even over a poky DSL connection.

Unlike industry-leader Netflix, VUDU can stream movies in 1080p, provided you have at least a 4.5-megabit connection. Of course, you'd probably want a much faster connection, particularly if you're also using a broadband link for a home network, Internet (VoIP) phone line, and so on. Naturally, VUDU's competitors will soon offer 1080p content too. (Netflix has a limited amount of content in 720p high-def, but says 1080p support is "not on the books for this year.")

VUDU has licensing agreements with almost every major movie studio, in addition to independent and international distributors. That amounts to about 16,000 movies. But in VUDU, Wal-Mart is also getting something it probably doesn't want: Porn. VUDU offers the AVN After Dark Channel, which features more than 1,800 adult titles. Certainly, VUDU's porn-friendly business model won't mesh with Wal-Mart's family-friendly image. Bye bye, porn.

Big box bonanza
By integrating VUDU software into Blu-ray players, Internet-connected HDTVs, and other media-streaming devices it sells at retail, Wal-Mart has an excellent opportunity to become a major player in the online movie market. (About 50 devices currently support Netflix, and that number could double by year's end). I suspect Wal-Mart will match or surpass Netflix's $9-a-month subscription plan, which allows subscribers to watch all the online movies and TV shows they want each month — and rent one DVD at a time.

Certainly, Wal-Mart's online movie play shows just how hot the video streaming market is becoming. So the next questions are: Who'll buy Netflix? Recent rumors say Amazon is an interested suitor. And what's going to happen with YouTube? Google wants to turn its online video service into a money-making enterprise. Well, now may be a good time to get started.


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