Wal-Mart, Hollywood Partner to Save DVDs, but Is It Too Late?

By Julia Boorstin, CNBC Correspondent

NEW YORK ( CNBC) -- Wal-Mart and five of the six major Hollywood studios are hoping they can beat the odds and keep alive their dying cash cow - the DVD business.

On Tuesday Paramount ( VIA), Sony ( SNE), Warner Brothers ( TWX), Fox ( NWS) , and Universal ( CMCSA), along with Wal-Mart ( WMT), unveiled a service to allow consumers to access their DVD library wherever they are, from whatever gadget they happen to have, through Ultraviolet, the studios struggling digital locker system. Wal-Mart is launching a disk-to-digital service, aiming to drive adoption of Ultraviolet, and DVD purchases, rather than lower-margin rentals, and to prevent piracy.

Billions of dollars are at stake for the studios as well as the nation's largest DVD retailer. DVD and Blu-Ray sales declined 10% last year to $9 billion, and that's a 36% decline from the industry's 2004 peak, according to IHS Screen Digest. Wal-Mart wants to make money on the ten billion DVDs and Blu-Rays U.S. customers already own. And the studios want to make owning DVDs a valuable proposition, so people will keep buying them, instead of switching to a streaming-on-demand world.

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Here's how Wal-Mart's new system will work.

Consumers can bring in their DVDs to the photo counter at 3,500 Wal-Mart stores.

The retailer will charge $2 to register them, or $5 to register and upgrade standard DVDs into a high def format. (This may be a selling point for people with new HD gadgets). Wal-Mart will help customers create Ultraviolet accounts, so they can access their libraries through the cloud, through Vudu, Wal-Mart's digital locker and video player.

But will this sell new discs?

BTIG analyst Richard Greenfield is skeptical, writing: "We still believe it would be extremely difficult to encourage consumers to buy movies in the future." And putting aside the prospect of new DVD purchases which come with digital access, it remains to be seen whether people will be willing to cart their DVDs into Wal-Mart in order to access them from the cloud. For Ultra-Violet to become truly mainstream, it seems it'll need to be adopted from the moment a consumer pays for a DVD at checkout, not just at Wal-Mart, but at any retailer.

--Written by Julia Boorstin at CNBC.
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