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In January, Peter Kafka broke the news about rumors circulating that Walmart (NYSE:WMT) might acquire VUDU, and it appears a deal has now been reached. Updated: Here is the official release from Walmart.

While we don't know the terms of the deal or how VUDU made out, it's a really bad business for Walmart to try to get into. This would be Walmart's third or fourth attempt to get into the digital media space after trying to compete with Netflix (NASDAQ:NFLX) and trying a movie download and kiosk service that they killed within a year.

While I like VUDU, Walmart will not know what to do with them. I know some will say that this is Walmart showing that they understand digital and that it is the future, but that's not what this means at all. Walmart does not own any content or hardware which means the success or failure of any offering will be dependent on the studios and hardware vendors.

In order for any video on demand service to take off it has to have scale. And while Walmart sells a lot of CE devices that they could get the VUDU platform onto, the price would still be too high for any type of mass market adoption. Considering you can rent DVDs for $1 from Redbox and Blockbuster Express, why would I want to purchase a device to access movies at four or five times that cost? Maybe Walmart plans to sell content and compete with iTunes, but they won't get the reach Apple (NASDAQ:AAPL) has since they don't have any devices of their own.

If Walmart really wanted to get into the space and was serious, they would buy Netflix and hit the ground running. While they would have to spend a lot more money for Netflix than they did for VUDU, they would have something to show for it. With VUDU, all they get is technology and some studio relationships. VUDU has less than 100,000 stand-alone devices in the market and Walmart now has to find a way to get enough devices in the market that have their platform on it. While VUDU has been cutting deals with CE manufactures and moving away from the hardware business, they still don't have enough deals in place to give Walmart any sizeable footprint today or anytime soon.

Yes, Walmart has a huge reach and physical presence with consumers, but that does not automatically translate over to success with regards to digital media, especially when the media is being consumed without the need for having to go anywhere, like to a physical Walmart store. For VUDU, they had to sell at some point as they could not survive long in the current state they were in and if they got a lot of money from Walmart, good for them. But I think whatever Walmart spent on this acquisition will be shown to be a complete waste of money and time on their part, sooner than they think.

Does anyone see an upside to Walmart from this?

Added: While some are suggesting that Walmart bought VUDU for the deals that VUDU has in place with seven TV manufactures to carry VUDU's platform, four of those manufactures don't even have TV sets out in the market. And if you look at the number of total Internet connected TVs expected to be sold in 2010, most analysts put that number around seven million. Out of that seven million, analysts predict about 25% will be connected to the Internet. That's not a lot of TVs.

Disclosure: No positions

Source: Wal-Mart to Acquire VUDU: Get Ready for Another Failed VOD Offering