The Alphaline Entertainment service joins an increasingly crowded marketplace, with connected device platforms being served by a growing number of online video services. Not only that, the Sears' store will be competing directly with other Sonic Solutions-powered online video services with identical content offerings.

But more importantly, the economics of the transactional online video business are stacked against traditional retailers. Sears follows several other major retailers into the digital business, hoping to leverage its brand online to mitigate decline in packaged video business. But even for the likes of Wal-Mart - which acquired online video service and apps platform provider VUDU in February 2010 - and Best Buy, the number one and two DVD retailers in the US, it will be very difficult to replicate success with the physical video format in the digital business.

As outlined in a report published earlier this year (see link below) Screen Digest believes that while digital music and video have a proven track record of helping to sell devices, there is a corresponding absence of a 'halo effect' to boost other areas of e-commerce or bricks and mortar retail. So for consumer electronics (CE) vendors, like Apple for example, which make their money from hardware or software sales, online services complement the core business. However, for conventional retailers there is significantly less opportunity to use digital to help drive store traffic or increase total e-commerce basket values.

In fact, the absence of a positive halo effect is exacerbated in the context of loss leader pricing in the online movie business, where the CE companies behind the device-based services that dominate the market (Apple's iTunes Store, Sony's PlayStation Network video store and the Zune video marketplace for Microsoft's Xbox 360 console) have set a precedent of wholesale prices being 110 percent of the consumer price in order to secure new releases from the studios.

Nevertheless, for Sonic Solutions, the deal expands its white-label business and extends its cloud-based online video streaming service. The company is a member of the Digital Entertainment Content Ecosystem (DECE) consortium, which is seeking to develop standards addressing the lack of interoperability across services and devices that has hampered the transactional online video business, but Sonic is not waiting for DECE: all the services powered by Sonic Solutions enable content that consumers rent or buy to be played back on compatible connected devices from a range of hardware partners.