Market Watch

Tesco Launches Movies Digital Locker, Pre-Empts UV

December 09, 2011

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UK retail giant Tesco and Blinkbox, the online TV and movie service which it acquired in April 2011, have launched the UK's first digital locker scheme, pre-empting the forthcoming UK launch of UltraViolet (UV) by three weeks. From 2 December, members of Tesco's Clubcard loyalty scheme who purchase DVD or BD copies of participating titles have automatically had a digital copy of the title added to a Blinkbox digital locker linked to their Clubcard account. The first 25 eligible titles will include Warner's Harry Potter and the Deathly Hallows - Part 2, The Hangover Part 2, Crazy Stupid Love and Final Destination 5, as well as Disney's Cars 2 and The Lion King. Tesco says it has agreements in place with a further three US majors and is in discussions with two more, reported to be Universal and Fox.

A key feature of the scheme is that regular Tesco customers do not have to do anything to set up their Blinkbox account - each time they purchase a participating film on DVD or BD in a Tesco store or from Tesco.com and use their Clubcard, a digital version of the film will automatically appear in a Blinkbox digital movie library linked to their Clubcard account, ready for when they decide to view it. Digital films may be accessed through the Blinkbox website using computers, tablets, connected devices such as LG and Samsung smart TVs, Sony PlayStation3 game console and - soon - Xbox 360s. Tesco has stated that although specific details vary by studio, movies in the Blinkbox digital library will not carry an expiry date but are meant to be there 'in perpetuity'. The only restriction is that any movie may only be streamed to a single device at any one time.

Analysis
Tesco is the second largest video retailer in the UK, accounting for 15.4 per cent of video unit sales last year. Home entertainment is an important element of Tesco's non-food category and the chain has long used aggressive price promotions on DVD to drive footfall. However, in recent years it has reduced the shelf-space devoted to video, with DVDs ceding space to 'more profitable' products such as video games. At present, Tesco's in-store video offer tends to focus on current blockbuster movies on DVD and BD while the retailer sells a broader range through its online store, which also host a Tesco-branded online video subscription service powered by LoveFilm. Through its Clubcard loyalty scheme Tesco has direct access to 16m UK consumers, over half of whom regularly purchase films at its stores - in line with the UK population according to research carried out for the British Video Association, which found that 56 per cent of the UK population purchased one or more DVDs in 2010.

Like UltraViolet, Tesco's move to provide digital versions of movies at no extra cost with the purchase of a physical disc is about adding value to physical video discs by giving consumers the means to access movie content across multiple devices. The aim is to prolong consumer purchasing of physical home entertainment, not replace it with digital alternatives. Tesco is a member of the DECE consortium that has developed UV and the retailer has stated its commitment to launching a UV-compatible service. It says launching its own digital locker service is not incompatible with this commitment, but points out that this is exclusively available to Tesco Clubcard holders, while UV is by definition not limited to any one retailer. In other words, by going it alone Tesco argues that far from snubbing UV, it is simply positioning the Tesco brand as a independent digital video provider to its own customers.

We expect that in due course, once UV - and, more specifically, its common download file format - is launched and fully operational, the Tesco system will be integrated with UV, enabling its Clubcard holders to add UV-titles to their existing Blinkbox movie libraries. If by that stage Tesco has managed to convince a proportion of the 8m+ home entertainment buyers in its Clubcard network of the joys of cloud-based movie storage, that can only be good news for UV.

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