Note: I wrote and first published the following column on Sunday, August 14, before the rumors came true the following day: Walmart had signed an agreement with Paramount. You can find a review of that news here. However, nothing about the news changes my argument that Walmart is missing a bigger opportunity, which is the topic of what follows.
The original column…
We heard rumors last week that the retail giant wants to add a subscription to a streaming service to its Walmart+ rival to Amazon Prime. Walmart needs to think bigger.
We humans are cognitive misers, which is a term psychologists use to describe how we think as little as possible about the things we don’t want to think about. When behavioral economist Daniel Kahneman talks about System 1 and System 2 in his famous book Thinking, Fast & Slow, nimble System 1 is the cognitive miser side of the mind. It uses shortcuts to get at the fastest answer rather than the best answer to a question.
I suspect that only about 10% of advertising depends on System 2, the lazy-but-methodical, data-driven side of the mind that sifts data, builds pros and cons lists, and makes good decisions but not fast ones. That first 10% (System 2) hacks its way into our awareness, and then the remaining 90% (System 1) works to automate that awareness into reflexive, routine use and purchase. Brands, as I’ve discussed before, exists to excuse people from thinking.
Amazon is unparalleled at creating no-brainer value propositions. Amazon Prime encourage us not to think about the $139 annual subscription cost: the service provides so much value (two-day shipping, a video service, a music service, free books and magazines and videogames, discounts at Whole Foods) that it repels thinking like a forcefield. Plus, for just about any individual purchase you know that—even if it’s not the best price—Amazon will have a fair price, and you don’t have to worry that it will take too long for your purchase to get there.
Walmart’s missed opportunity
Last week brought a flurry of press around Walmart’s interest in adding to its Prime-rival Walmart+ service a subscription to one of the newer streaming services from Disney (Disney+, Hulu, ESPN+), Comcast (Peacock), or Paramount (Paramount+ and Showtime). (See the WSJ coverage here and the NYT coverage here.)
The problem? This is a brainer when it needs to be a no brainer.
Walmart+ costs $12.95 per month or $98 per year, so it’s cheaper than Prime. It has lots of features like free shipping for online orders and gasoline discounts (a big plus with high gas prices lately), and a six month subscription to Spotify as a perk.
That Spotify subscription helps me to get at what’s wrong with Walmart’s strategy: it’s a semi-free trial rather than an ongoing benefit. While subscribers might be grateful to Walmart for the opportunity, they won’t think of it as an intrinsic part of the service. When it comes time to renew Walmart+, the subscriber has either long-since canceled Spotify or started paying for it (and maybe resenting Walmart a little).
Even if Walmart were to make a subscription to one of the streaming services a permanent benefit of Walmart+, it’s still asking subscribers to do a cost/benefit analysis math problem (math = thinking = ick). The subscriber has to weigh the $12.95 per month for a Walmart+ subscription against the cost of a streaming service they can get elsewhere: $4.99 per month for Paramount+ (with ads), $7.99 per month for Disney+ (soon to be with ads), or $4.99 per month for Peacock Premium (with ads).
Instead of one annual fee for an indispensable service (like Prime for its subscribers), Walmart+ has set up a monthly test of its value proposition.
What should Walmart do instead?
Walmart should buy Paramount outright
At the moment I’m writing this piece, Walmart’s market cap is more than $362B. Paramount’s market cap is a smidge over $17B. According to Macrotrends, Walmart’s cash reserves in April were $11.8B, so the retail giant couldn’t buy Paramount out of petty cash. However, Walmart is more than 21 times the size of Paramount: an acquisition is achievable.
If Walmart purchased Paramount, it would then be able to make Paramount+ onlyavailable through a Walmart+ subscription. (This would be the ad-supported, cheaper tier of Paramount+; going ad-free would cost more just like today.)
For just one example, following this strategy after the acquisition the only way to stream any of the Star Trek shows (new and old) would be to subscribe to Walmart+. There are 16 million current subscribers to Walmart+ (according to WSJ). I can’t find a reliable estimate for how many Star Trek fans are out there, but it’s certainly in the millions, and at least some of them make up the more than 43 million Paramount+ subscribers (according to Paramount’s latest revenue report).
Paramount+ has a lot more than Star Trek: it has original series (The Good Fight, iCarly, Halo), first access to movies from Paramount (Sonic the Hedgehog 2, and coming soon Top Gun: Maverick), plus an immense library.
Yes, some of the Paramount+ subscribers will churn away if Walmart forces them to subscribe to Walmart+ in order to see those shows, but a lot won’t. Moreover, other folks who haven’t pulled the trigger to join Walmart+ will have an extra incentive to subscribe (System 2) and then automatically stay subscribed (System 1).
Acquiring Paramount helps Walmart to make Walmart+ a no brainer, just like Amazon Prime.
But wait, there’s more… a lot more…
By acquiring Paramount, Walmart would suddenly own a huge and venerable collection of assets far beyond a shiny new streaming service. It would also own Paramount Studios, the Showtime cable network (with its streaming service), Pluto TV (another streaming service), MTV, Nickelodeon, Noggin, BET (with yet another streaming service), and the Tiffany Network itself: CBS.
Some people would subscribe to Walmart+ just to get CBS Sports alone.
Data, Data, Everywhere… (and I’m not talking about the android)
With the exception of Showtime, all the Paramount properties have ads.
Think about the data! Just because Google decided to keep the third party cookie on death row for another couple of years doesn’t mean that it will be around forever.
Retail giants like Walmart have been investing heavily in their retail media businesses where they use their immense data about their customers to help advertisers put their messages in the right place at the right time. Walmart’s retail media arm is called Walmart Connect, with the tag line, “We connect you more meaningfully to Walmart customers.”
Adding the viewing data from all of Paramount’s ad-supported properties to Walmart Connect would make Walmart a powerhouse advertising property… just like Amazon where its ad business hit $31B in 2021 and is third behind Google and Facebook.
Outside of retail media, a Paramount acquisition would enable Walmart to move itself into the consideration sets of millions of shoppers who don’t already shop at Walmart. It would have geo-targetable and maybe even individually addressable house ads before the start of streaming shows, millions of new email addresses, and “only at Walmart” merchandise for its popular shows. Doing this would put Walmart+ head-to-head against Amazon Prime. Over time, after lots of steady messaging, it might even coax Whole Foods shoppers to think about wandering over to Walmart instead.
It’s a no brainer.
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