Wal-Mart gets a win out of Netflix settlement

The company gets approval to settle a class-action lawsuit by sending gift cards to current and former Netflix users.

By Kim Peterson Sep 7, 2011 3:59PM
Wal-Mart (WMT) and Netflix (NFLX) may have cut a secret deal in 2005 to divide up the DVD market. We're not sure, and the companies aren't saying.

But this allegation has suddenly turned into a marketing windfall for Wal-Mart -- and may allow it to steal some of Netflix's customers. Here's how it happened.

A class-action lawsuit was filed alleging that in 2005, Wal-Mart agreed to stop renting DVDs online if Netflix agreed it wouldn't sell physical DVDs. Wal-Mart denied the allegations, but agreed to pay $27.5 million to settle the case.

OK, sounds fairly standard. But Wal-Mart got permission to pay the money in the form of gift cards to 40 million current and former Netflix users, PaidContent reports. And what can people do with those gift cards? Rent online movies from Wal-Mart!

More and more people are choosing to get movies from Walmart.com's Vudu offering, in fact. Vudu has shot to 5.3% of the movie download market from 1% last year, The Wall Street Journal reports. Doesn't sound like much, but it was enough to put Wal-Mart in third place behind Apple (AAPL) iTunes and Microsoft's (MSFT) Zune Video Marketplace. Note: MSN Money is owned by Microsoft.

As a subscription service, Netflix was not included in that comparison.

So now, Wal-Mart not only gets to send out gift certificates as settlement, it also gets access to Netflix's customer database, The Atlantic notes. "The very premise of Wal-mart turning a class action lawsuit filed by customers who feel cheated into an opportunity to cheat their competitor is both abominable and brilliant," wrote Adam Clark Estes.

PaidContent takes the conspiracy theory a step further, wondering if Wal-Mart intentionally threw the lawsuit just to gain access to Netflix customers. Netflix hates the settlement, calling it "the equivalent of a marketing campaign that costs Wal-Mart only 68 cents per potential customer."

Don't look for those Wal-Mart gift cards anytime soon. Final approval of the settlement isn't expected until February of next year.
14Comments
Sep 7, 2011 5:31PM
avatar
Hey, this is American know-how at its best.  What do you expect?  We eat our young here!
Sep 7, 2011 6:43PM
avatar
As much as I dislike Wal-Mart, it is the judge that approved this terrible settlement that should be disbarred.
Sep 7, 2011 6:31PM
avatar
Hey, this is just plain excellent business.  Making lemonade out of lemons.  Like it or hate it, they didn't do anything illegal or dishonest, they just took a bad situation, found a solution outside the box, and ran with it.  Good job Walmart!
Sep 7, 2011 6:44PM
avatar
What ever happened to monopoly LAWS in this country?
Sep 7, 2011 7:51PM
avatar
The Plaintiffs, customers of Netflix and Blockbuster Inc., say the agreement between Wal-Mart and Netflix affected millions of customers who would have paid lower online DVD-rental fees had competition continued. Netflix will remain as a Defendant in the lawsuit. The Plaintiffs claim that Wal-Mart and Netflix came up with a scheme to drive up prices. According to the Complaint, Netflix CEO Reed Hastings and former Walmart.com CEO John Fleming met to discuss eliminating competition in the DVD rental and DVD sales markets in January 2005. This came about at a time when the two were direct competitors for online DVD rentals. The two allegedly reached an agreement under which Wal-Mart would withdraw from the online DVD rental market and Netflix would stop selling DVDs and promote Wal-Mart as a shopping destination for new DVDs.

Final settlement isn't expected until February of 2012.

Walmart is big, but they would not have market share unless people were shopping there.
In fact a lot of people shopping there. A lot of those shopping there need the price breaks. Others shop there because they think paying more for the exact same item elsewhere is just wasteful. But the fact remains that shop they do.
This is part of that "free market enterprise" stuff so critical to the American way.  Although it can be hard to understand when so many companies operating in the US are owned by companies from other countries.  Think Nestlé (Suiss), Trader Joe (German), 6 car manufacturers (Japanese & German).  Even Anheuser-Busch, America’s best-selling beer maker, is now owned by a Belgian company.

Sep 7, 2011 7:55PM
avatar
Monopoly = W.M. I just hate this company. They will never see me spending not even one cent on their stores. Not now, not EVER!
Sep 7, 2011 6:33PM
avatar

now if this doesnt say wally world is to big then  your not to bright

 

www. bloomberg.com/news/2010-09-27/wal-mart-offers-to-buy-south-africa-s-massmart-holdings-for-21-08-a-share. html

Sep 7, 2011 7:36PM
avatar

@ dale i don't shop at wally world after 10 years of seeking employment with them never being called for an interview and a  serious reaction to an incense they sold i dissolved my relations with them. i only go into  wally world to help my 62 year old mom shop getting the evil eye from all upper management in the store till i leave from the slip and fall suit that i filed on them for my mother because they had no wet floor sign where it was wet which cause her to slip and break her hip.

 

my local wally world is still in court over a shelf that fell on top of an elderly woman here this year killing her. wally world is one of the if not the hardest to get a settlement out of when they are at fault it took me a year to get our suit finalized.

Sep 7, 2011 6:44PM
avatar

Hey Stoopid. You might want to make sure you have used the word "to" correctly before you call people not too bright.

Sep 7, 2011 8:09PM
avatar

to the person who negged me over my post about my mom and the elderly woman here is the news storyabout the  woman being killed by the falling shelf

 

http://www .beaumontenterprise.com/news/article/Woman-sues-Walmart-over-towel-display-death-737195. php 

Sep 7, 2011 7:01PM
avatar
well for all you that say you don't like wal-mart i bet that more than half of the stuff in you home is from  wal-mart where are you going to fine one store that you can buy anything you want or need I don't like wal-mart but I go to the store so not to run all over town and spend more gas money so carry on 
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

104
104 rated 1
252
252 rated 2
457
457 rated 3
639
639 rated 4
495
495 rated 5
538
538 rated 6
704
704 rated 7
503
503 rated 8
350
350 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.