Why Walmart entered the streaming wars

Walmart, the Arkansas-based retail giant known more for value than flare, made a splash in Hollywood this week upon the announcement of a deal with streaming service Paramount+.

The retailer will provide the video content free of charge to Walmart+ subscribers, who pay $98 a year or $12.95 a month for a membership package that includes gas discounts, free two-day shipping on online purchases, and member-only deals, the company said in a statement on Monday.

The move marks a major departure for Walmart, which appears to have weathered sky-high inflation with better-than-expected earnings in the second quarter, as revenue climbed 8.4% compared to the same three-month period a year prior. However, the company had cut its second-quarter forecast just weeks earlier.

The new streaming content will help the retailer retain current Walmart+ subscribers and attract new ones, as the company vies with rival Amazon and continues to grow beyond its telltale big box stores with an e-commerce offering that gained emphasis during the pandemic, retail analysts told ABC News.

While the move highlights the digital value of Walmart's subscription service, the company's effort to improve the in-store experience exclusive to subscribers could translate the potential influx of members into more brick-and-mortar business, they added.

An assessment of the deal with Paramount+ — and its capacity to strengthen Walmart's subscription service — should take into account the customer base that the company has already built, Steph Wissink, a retail analyst at Jefferies, told ABC News. Ninety percent of Americans shop at Walmart each year, the company said in March, adding that more than 150 million people shop with the company each week either in-store or online.

As Walmart strengthens its subscription service, that customer base affords it a wide pool of prospective members, enhancing the potential value of the Paramount+ offering for the company, Wissink said.

"That touch point element is meaningfully higher than what we would see for other retailers," she said, acknowledging that "some portion of their household income distribution is not going to be able to afford" the subscription.

By comparison, as of last April, Amazon boasted more than 200 million Amazon Prime subscribers worldwide. Walmart has not released subscriber totals for Walmart+, but the expected figure is much lower, analysts said.

The deal with Paramount+, therefore, comes down to competition with Amazon, Joe Feldman, a retail analyst for Telsey Advisory, told ABC News.

"This is an effort to be more competitive with Amazon as a membership provider," he said. "You've seen both companies increasingly compete with one another and almost mirror one another."

The entry of Walmart into streaming parallels Amazon's decision to jump into the in-store grocery business that Walmart had participated in for years, Feldman said.

Even though brick-and-mortar shopping has bounced back since the early months of the pandemic, e-commerce remains a key focus for Walmart, Wissink, said.

"Digital fluency went up substantially in 2020 because stores were closed," she said. "Even your granny was ordering things online and having them delivered to the front door."

But the focus on Walmart's subscription service, brought to the attention of many by the partnership with Paramount+, also points to an advantage for Walmart that sets it apart from Amazon: the vast network of stores, Wissink said. Down the road, if Walmart improves the subscription service with further in-store benefits, it could compound the revenue from new digital subscribers with enticements for in-store shopping.

"Let's say it's my birthday and I go to Walmart, Walmart+ on mobile can prompt me with a free coffee or free cupcake at the bakery," Wissink said. "Those are benefits for a Walmart+ member."

"The partnership with Paramount+ isn't a signal that Walmart thinks its stores are no longer relevant," she added. "It's the exact opposite."

Looking ahead, Walmart could even form partnerships with additional streaming services to improve its subscription offering, Feldman and Wissink said.

"Walmart is likely to explore lots of different options," Feldman said.