It's amazing to see everyone trying to mimic Apple's success in one form or another, often with a boneheaded twist - Wal-Mart is the latest in that long line of bozos...
'Disc to Digital' is a brilliant concept that few companies can effectively tackle better than Wal-Mart. The underlying issue of transferring previously purchased content from physical to cloud storage is a problem anyone over the age of 10 is dealing with - after all, if I want to read a book I bought physically in 2005 on my Kindle, better be willing to pony up for a new copy - Amazon has not yet figured out a way to verify consumer's physical book ownership to add it to their Kindle library, but no doubt they're thinking about it. On video/DVD its actually much more complex - consumers are not copying them to their local hard drives like they did with Music CDs, and a consumer's full DVD catalog can require massive cloud storage.
But Apple offered a solution for music with iTunes Match- a smart music cloud-based locker system that keeps a copy of your collection (often in better quality than your original) for $25/year. True, using iTunes Match further locks you into the iTunes/iOS ecosystem, but its a small price to pay for a clean and easy interface to consume music across devices (although it sucks that I cannot use iTunes Match on my PS3, XBOX 360 or Android devices).
Seemingly, Wal-Mart could build a similar offering, identifying the movies you own in digital or DVD format, and instantly add them to your collection on Vudu. If they made the process simple and easy, Vudu could lock-in with anyone who converts their collection.
As Dorothy Pomerantz notes in the Forbes piece, there are tremendous problems with the Wal-Mart approach here.
Verification Process - Few people back up DVDs onto storage devices (I did a few years back for my Windows Media Center, but the storage requirement, 6 TB, is nothing to sneeze at), but there's still must be a way to automate the verification process of DVD ownership. Wal-mart's approach involves the consumer bringing in the physical DVD, having it verified in a store by a client service rep, and then having it manually added to their Vudu account. Cumbersome process, difficult to scale on both the consumer and business side, and in essence designed to fail.
Again, in context of iTunes Match, the Wal-Mart approach is much more akin to the pain on using the Amazon Music locker service. Given the proliferation of DVD types (for older popular films, there were 10-15 different versions of the movie sold at retail outlets, as part of bundles, with or without directors commentary, etc), the task of verification by Wal-Mart employees will be extremely mistake-prone and customer-service weak (especially for consumers who didn't keep the original DVD boxes).
Clearly, there's got to be a better way to verify DVD ownership. Given the complexity and time consuming nature of checking each DVD for legitimacy, the industry may allow some latitude in claimed ownership, particularly for DVDs purchased before digital versions were included (about 2009) - maybe allowing users to claim ownership, but have to verify 10 or 20% of the collection with the physical DVDs, ideally scanned on a local PC.
A combination of automated tools a consumer can manage on their own and a solution consumers would go through once (a la "iTunes Match") would work and give Vudu a big win here.
Business Model - iTunes Match is brilliant because it allows people to take their current collection, ripped over the course of the last 15 years at various levels of quality, metadata, etc. and get a fresh collection at a low fixed cost. The consumer thus doesn't think about which tracks to add based on price, but rather puts it all in the queue for match/upload.
Apple can do this, because they know the lock-in to iTunes will lead to more music sales, iOS devices, etc. down the road. Walmart by contrast is charging $2-5 per disc, making the consumer make the tough call on which movies are worth 're-buying' or adding to this new collection.
Fighting to get revenues from consumers through the horrible verification process in place will be a losing proposition. They've got to model the ramifications of a consumer household storing their purchased DVDs on Vudu, and how that impacts the ARPU over time - my guess is Wal-Mart can afford to eat the conversion costs for the bigger pie over time.