Friday, September 29, 2006

Walmart and hubris

Variety reports on WalMart's demand that Apple share a part of the download pie.

Conventional wisdom is that no manufacturer can afford to ignore WalMart. After all who can say no to 20% of their sales revenue? Actually many well run companies can and do, particularly when they are selling bits rather than atoms.

A maker of baked beans or breakfast cereal has fixed capital costs. The sudden loss of 20% of their revenues goes straight to the bottom line.

The same is sometimes true of digital content. A shopper who does not pick up Pirates of the Caribean next to the till at WalMart may not buy it at all. But the convenience of buying at WalMart cannot possibly compare to the convenience of having the film available for viewing whenever and wherever the consumer decides they might want to watch it.

If Disney Studios was owned by a baked bean company it might make sense for them to capitulate to WalMart's demands. As Disney Studios is part of a much larger and diverse media empire, building its place in the next generation distribution channel is much more important for the company than short term profits on the small number of blockbusters that WalMart deigns to sell.

No comments: