HOLLYWOOD — The plot reads like a bad spy novel: Video software dealers are worried that the latest studio code is a plan for taking control of the vid industry.

MPAA prexy Jack Valenti has agreed to meet with reps of the Video Software Dealers Assn. in June to discuss the retail org’s growing concerns about Sony’s MovieFly system, which will bow later this year and will feature pics from Sony, Warner and MGM.

The system will offer secure downloads of movies over the Internet for a fee.

While VSDA has no particular beef with MovieFly, the group is concerned that the studios plan to use new encryption technologies, backed up by the Digital Millennium Copyright Act, to freeze all middlemen — including retailers –out of the movie download business.

By encrypting movies sent over the Internet, the studios can control what happens to those pics on the other end. If a retailer like Blockbuster, for instance, wanted to buy downloads from all the studios to resell them to consumers — offering Web surfers a one-stop source for movie shopping — it would have to break the encryption codes.

And according to the studios’ interpretation of the new digital copyright law, that’s illegal.

But retailers argue the studios’ interp violates the First Sale Doctrine, and they’ve taken their concerns to the U.S. Copyright Office, which is preparing a report to Congress on the issue.

The report was slated to be released May 1 but has been delayed.

The First Sale Doctrine is a feature of analog copyright law, which says that once a copyright owner sells a copy of a work –a videocassette, for instance — the buyer can do pretty much what he wants with his new property, short of making another copy.

That doctrine lets vidtailers rent cassettes and DVDs without paying any additional royalty to the studio. (Under rev sharing, the retailer voluntarily shares revenue with the studio in exchange for lower upfront prices.)

The question for the Copyright Office, and ultimately for Congress, is whether a download is the same thing as a copy.

Retailers say it ought to be. But as the studios see it, transmitting a digital file from your own hard drive to someone else’s, a la Napster, leaves a copy in place on the sender’s hard drive as well.

That’s not re-selling a copy, as permitted by the First Sale Doctrine. It’s making a copy, which has always been illegal.

The VSDA, however, suspects that the studios’ real goal isn’t to uphold the traditions of copyright, but rather to monopolize the download business for themselves by cutting out the middleman.

Music retailers have similar concerns about the record labels’ intentions concerning the download business.

A representative of the National Assn. of Recording Merchandisers is expected to attend the meeting between VSDA and MPAA.

According to VSDA prexy Bo Andersen, the group is developing prospective business models for the download business, which it will present to the MPAA. Those models, he claims, will outline a role for middlemen in the download business without violating the law.

Should the Copyright Office report go against the vid software dealers, however, the org says it will go to Congress to seek changes in the digital copyright act. The studios have vowed to oppose any changes.

The purpose of meeting with the MPAA, Andersen says, is “to see where we have common ground and where we might diverge, before we go battle it out in Congress.”