Does Court Ruling Give Wal-Mart’s Vudu Access to Netflix’s Streaming Subscribers?

Take it from Wal-Mart: Losing can be winning, as the company stands to get some major benefits from a class action lawsuit filed by angry consumers regarding its somewhat shady agreement with Netflix.

A new court ruling last week gives Wal-Mart a big boost in its efforts to zero in on Netflix's streaming subscribers. A federal court in California approved the lawsuit requiring that Wal-Mart pay out $27.5 million as a settlement.

Here's the best part: Wal-Mart will be allowed to pay the approximately 40 million Netflix subscribers by using gift cards for walmart.com, where there is big advertising for Vudu, an online movie service that offers high-quality streams of first-run movies at a la carte pricing!

The court ruling ended up being an unfavorable blow to Netflix that earlier said the settlement was the equivalent of a marketing campaign that costs Wal-Mart only 68 cents per potential customer.

So how did Wal-Mart twist its courtroom losses into market grand prizes?

Here's how it went down (and be careful who you dine with): The class action was a response to a rumored dinner meeting in 2005, when the chief executive officers of Netflix and Wal-Mart sat down to dinner and allegedly negotiated to divide up the DVD market. Wal-Mart had allegedly agreed to stop renting DVDs online and Netflix promised never to sell DVDs. Well, Blockbuster was always ready to capture the movie world.

Fast forward about five years later to Blockbuster being bankrupt (a judge approved the sale this year); Netflix ticking off customers and having them pulling up lint with higher prices (and fewer movies); Wal-Mart ended up having the fastest-growing movie download site on the Internet.

Hello Vudu. And BAM! Consumers filed a class action lawsuit against both companies in 2009.

A settlement was reached in July with a court ruling last week, giving tentative approval.

Current Netflix users in the U.S. and Puerto Rico will be notified via e-mail about their entitlement to redeem an online settlement card at walmart.com, paidContent.org reported. That report also noted that members of the class action can also choose to receive a check in the mail.

According to paidContent.org, Netflix argued in the court filings that the settlement effectively hands over its customer list to Wal-Mart at a time when the retail giant is trying to expand its online video offerings.

And in response to that, the court has approved for an arrangement of a third party, not Wal-Mart, to manage the payouts, according the paidContent.org article, and Wal-Mart is required to not keep track of who are class action claimants when they register their gift cards on the site.

Still the loss is a brilliant win for Wal-Mart, as Vudu will gain more exposure as an alternative to Netflix, as it figures out how to reel in those angry streaming consumers it lost through the price hike.

If you remember, Netflix customers got upset back in July when the company raised pricing on unlimited DVDs by mail and streaming services by 60 percent. Those customers are now getting the last laugh as Wal-Mart and their liking for low prices have been readying Vudu for wider use.

A recent report from IHS Screen Digest Media Research shows that Wal-Mart's Vudu has passed by both Amazon and the Sony PlayStation Store in the U.S. in online movie store rankings.

In the first half of 2010, Vudu accounted for only 1 percent of the online movie market in the U.S. based on revenue percentage. But in the first half of 2011, Vudu has claimed 5.3 percent of the market, according to IHS Screen Digest Research, as of August 2011.

Vudu came in third place in the rankings behind Apple's iTunes and Microsoft's Zune Video Marketplace.