Wal-Mart ends online movie business

In yet another sign that the online video market remains in flux, Wal-Mart says that it's pulled the plug on its movie download service as of December 21, 2007. As we end 2007 and look forward to developments in 2008, it's worth reviewing some of the key events from the online video space - along with a couple of predictions for next year:

• The Movies-only Services Have Underperformed: Movielink was sold to Blockbuster for $6.6 million, Moviebeam was sold to Movie Gallery for about $10 (and subsequently shuttered), CinemaNow’s CEO told us that “In the worst nightmarish predictions, nobody would have predicted that digital distribution wouldn’t be a mainstream business. It still remains a very small piece of the overall home video entertainment pie.” Parks Associates’ estimate for electronic movie rentals and downloads is $99 million in 2007, growing to $372 million in 2008.
• Major Shift from User-paid to Ad-supported Models: Both Google and AOL introduce new ad-supported strategies and shutter their fee-based video download services.
• Movie Rental Services Complement Offerings with Broadband Video: Both Netflix and Blockbuster have online video offerings – look for both to unveil go-to-TV strategies in 2008.
• Consumers are Buying More Broadband Video: The iPod has helped spur sales of video downloads – we estimate that nearly 12 million U.S. households buy online videos at least monthly, spending – on average - $8 per month.
• Broadcast Networks Have Had Good Success with their Online Experiments: The airing of primetime TV shows online has not led to cannibalization (as of yet). Network executives report high advertising returns and solid viewer retention of advertisers.
• A New Push for Alternative VoD Services: VUDU rolls out $399 set-top box with higher-quality VoD service. Video is upscaled to be of higher quality as displayed on high-definition displays.
• Internet TV Goes High-end: Joost and Veoh Networks provide higher-quality content (including studio-created content and better quality), along with key advertisers.
• CE Manufacturers to Engage with Online Video Providers: Look for major deals to be announced in 2008, where broadband video portals are included on CE devices.
• Download-to-burn to Pick Up in 2008: Licensing agreement reached in late 2007 will allow download-to-burn services to grow. In-store kiosks and manufacturing-on-demand will see significant growth.