Wal-Mart Stores Inc.(NYSE: WMT), the world's largest retailer, is joining Hollywood's effort to increase physical video sales in the face of increased competition from video streaming sites by allowing customers to convert discs to digital files.

Bentonville, Ark.-based Wal-Mart, the biggest source of DVDs sales, will allow customers to turn DVDs and Blu-ray discs to digital starting April 16, the company said Wednesday. The company has an exclusive agreement with major studios to market films through its Vudu.com video website, giving it an advantage over rival Best Buy Co. (NYSE: BBY)'s CinemaNow.

The service will be offered in 3,500 stores and cost $2 to convert a disc. Normal DVDs can also be converted to high-definition digital files for $5.

If this actually is the trigger and consumers start seeking the UltraViolet rights, this is a huge win for Wal- Mart depending on how long exclusivity lasts, Scott Smyers, an analyst with Sunrise Digital Technologies and a former Sony executive, told Bloomberg.

UltraViolet's backers include media giants Viacom Inc. (NASDAQ: VIAB)’s Paramount, News Corp. (NASDAQ: NWSA)’s Twentieth Century Fox, Comcast Corp. (NASDAQ: CMCSA)’s Universal and Time Warner Inc. (NYSE: TWX)’s Warner Bros. and Sony Corp.

Physical DVD and Blu-ray sales been challenged the increased popularity of Netflix Inc. (NASDAQ: NFLC) and Apple Inc. (NASDAQ: AAPL)'s iTunes. Such digital sales generate smaller profit margins compared to physical sales for studios.

Digital spending on home entertainment was up 50 percent in 2011, while blue-ray discs saw 20 percent growth, according to research firm Digital Entertainment Group.

Shares of Wal-Mart were up three cents to $61.03 in mid-Wednesday trading.