New RewardZone Perks Hint of the Digital Battle Ahead
Andy Tarczon, Founding Partner
May 7, 2010
Best Buy recently added some new perks to their RewardZone Premier Silver program squarely focused on the digital media space. This includes free Napster streaming and download service and a free monthly video rental through CinemaNow. These changes signify that retailers are rapidly evolving to become more than just hardware sales channels as they look to digital media services as a strong growth opportunity.
Will this be their only move into the digital battlefield or is much more about to unfold?
In January 2009, I wrote about retailers' ability to provide OTT services. The piece pointed out not only the retailer opportunities, but several additional market possibilities that have since come to fruition. These include the acquisition of VUDU, the migration of Sony’s PSN service to the TV and other devices (Qriocity), and with this announcement, leveraging retailer’s affinity programs as a conduit for service acceptance. 
Best Buy is wisely tapping into one of their most valuable assets, an affinity program of ultra-loyal, high dollar shoppers. Premier Silver members spend at least $2500 every year - just over $200 per month.
From a personal perspective, these new perks mean I can replace both my Zune Pass ($180/yr) and a monthly digital movie rental ($48/yr). My annual savings is just over $200 - the equivalent of one month’s Best Buy spend. Woo hoo!
This is also a strong step towards building loyalty to these services, uber-important to Best Buy’s success in digital media. While there are myriad platforms available for OTT delivery, the two largest retailers have each chosen a different one. For Best Buy, CinemaNow, soon to be renamed RoxioNow, is their delivery platform. For Wal-Mart, a reported $100 million was spent to outright acquire VUDU.
This puts the retailers on a collision course. Both are vying to own the consumer experience, a move that will create some interesting channel dynamics as they exert pressure to have their respective OTT platforms included on new devices sold through their stores. This also means - as I’m hearing hints - pushing CE manufacturers to exclude certain other platforms.
We expect branded digital stores to evolve from both retailers soon. Currently, Best Buy’s CinemaNow store is merely an affiliate program, but a fully branded store has long been rumored. At the time of this writing, VUDU’s site has very little recognition of the Walmart brand. Walmart’s site, however, lists VUDU on the homepage. We’ll see how the aficionado cache of the VUDU brand plays out against the discount mentality of Walmart.
But having separate platforms also has implications.
As acceptance of these services grow, users will quickly understand they are locked into a specific ecosystem - an ecosystem that may be available from only a single retailer should platform exclusion be successful. The worst case scenario is that purchases from a retailer will only play on devices from that retailer.
Beyond the hardware availability, there are content issues. Consumers are simply not comfortable with limited content usage rights – thus efforts such as DECE. In physical media, a DVD is a DVD is a DVD. It plays in any DVD device. Not so in the digital media world, where universal access just doesn’t exist. Without portability, consumers will opt to rent digital content rather than outright purchase.
That is not a scenario Hollywood wants to see. If rentals begin to block content purchases, we can expect to see Netflix’s “28 days later” scenario (something I’ve taken to calling the “digital delay”) imposed on these retailers’ digital media efforts.
It's still early, but let’s hope the success of these services does not become their limitation.
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