Wal-Mart cedes DVD rental biz to Netflix for a plug

Dot-com conquers retail giant

Super, hyper, global, mega store Wal-Mart has given up on renting DVDs via the mail, deciding instead to form a partnership with upstart Netflix.

Wal-Mart will turn over its DVD rental customers to Netflix. In exchange, Netflix will plug DVDs that Wal-Mart has put up for sale on its web site. Existing Wal-Mart customers can become Netflix members at their current monthly rate of $12.97 (for two movies out at a time), if they sign up for a year's worth of the service. Most of Netflix's customers shell out $17.99 per month to have three movies out at a time.

In the requisite shared love quotation, Netflix CEO Reed Hastings said, "This agreement bolsters both Netflix's leadership in DVD movie rentals and Wal-Mart's strong movie sales business, while providing customers even more choices and convenience."

This is surely a blow for Wal-Mart which has tried hard to craft new online markets for selling items such as low-cost Linux PCs and songs. None of these businesses, however, seem to be doing terribly well. In our experience, Wal-Mart's DVD rental service suffered from a lack of efficiency, taking much longer than Netflix to send out new titles.

As word of the deal broke, shares of of Netflix jumped as much as 32 percent in pre-market trading. Investors, however, recoiled a bit after Netflix issued a statement saying the Wal-Mart customer infusion would not have a material impact on its business or subscriber growth.

Netflix ended the day up more than 4 percent at $16.13 - still well off its 52-week high of $36.57.

A number of reports pegged Wal-Mart's DVD rental subscriber count at close to 100,000 people. By contrast, Netflix has close to 3m subscribers.

Shared rival Blockbuster tried to counter Netflix's win by offering a deal to Walmart.com and Netflix subscribers of two free months of rentals and a free DVD if they'll switch stores. ®

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