Wal-Mart Stores Inc will buy the fledgling Vudu online movie on-demand service, in a deal expected to close within weeks and pit the world's largest retailer against the likes of Netflix Inc.
Wal-Mart hopes to combine Vudu's technology with its own scale and expertise to get into a burgeoning market staked out by Netflix and other digital movie distributors, as viewers migrate to the Internet away from traditional movie rentals.
Santa Clara, California-based start-up Vudu, which operates a library of 16,000 movies, is already built into a growing number of televisions from LG Electronics Inc and Mitsubishi Electric Corp, among other manufacturers.
The start-up's investors include Greylock Partners, Benchmark Capital, Artis Capital and other institutional firms.
Wal-Mart and Vudu confirmed on Monday a deal first reported by the New York Times, but neither would disclose financial terms.
Customers use a broadband Internet connection to rent or buy movie titles through Vudu, which Wal-Mart said in a statement operated one of the largest high-definition movie libraries and watch them instantly.
Vudu's services and apps platform will give Walmart a powerful new vehicle to offer customers the content they want, said Edward Lichty, Vudu executive vice president.
Wal-Mart is getting into a market that is attracting high-powered entrants. In November, Best Buy Co Inc reached a deal with Sonic Solutions to license its Roxio CinemaNow movie download service.
They had hoped to compete with companies with already established footprints in the market, including Amazon.com Inc and Apple Inc's iTunes store.
Wal-Mart said Vudu will become a wholly-owned subsidiary when the deal closes within the next few weeks.
Movie rental chains such as Blockbuster Inc have stagnated as consumers increasingly choose convenience, interactive capacity and the instant gratification of on-demand video over a trip to the store.
Netflix, which offers Web streaming of about 12,000 titles through its Watch Instantly service, has benefited from that trend and now hosts some 12 million subscribers -- and is growing.
But most of its offerings are older Hollywood titles, because major studios have been reluctant to make new releases available for digital streaming.
(Reporting by Alex Dobuzinskis; editing by Andre Grenon)