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Probes into regional DVD imperils studio strategy

WASHINGTON — Studio efforts to control the international distribution of DVDs are facing another possible setback, as antitrust regulators in Australia and the European Union look into whether the regional coding of discs violates trade laws in those territories.

The investigations are the second major challenge to the regional coding system, which is already under assault from sales of illegal “chip sets” in many overseas territories, which allow consumers to modify their DVD players to override the codes.

Under an agreement between the studios and hardware makers, the world is divided into six regions. Regional codes are applied to DVDs to try to prevent discs aimed at the U.S. market, where movies typically reach video first, from being shipped into other territories, where the movie may not have been officially released.

The studios’ main goal in using the codes is to try to protect the theatrical release of pics overseas, which are often slated for months after a movie has reached DVD in the U.S.

Regulators in Europe and Australia, however, are concerned that, by keeping generally cheaper U.S. discs out of those territories, the studios are able to charge local consumers higher prices for DVDs of the same movies.

In a statement issued March 14, the Directorate-General for Competition for the European Commission said that office is “examining the issue of DVD regional coding, and in particular whether this causes significant price differences to occur between DVDs from different regions. If any price differences cannot be explained by differing tax regimes, production costs, etc., but are instead facilitated by the regional coding system, it would be our intention to examine whether such a system was a violation of EC competition rules.”

The Australian Competition and Consumer Commission echoed those concerns.

Both Europe and Australia have laws against the import of U.S. discs for commercial distribution, but individual consumers in both territories are free to bring U.S. discs into the country for personal use. And thanks to Internet retailers like Amazon.com, U.S. discs are available to consumers anywhere in the world.

Under the regional coding system, however, U.S. discs won’t play on Australian or European DVD players unless the consumer has gone to the trouble of modifying his or her machine.

While modified players have been widespread in both Europe and Australia, hardware makers have recently tried to crack down on the practice by making it harder to override the regional codes, and by cancellation of warrantees on any machine found to be modified by the owner.

The studios argue that DVD prices in Australia are only marginally higher than in the U.S., and that the differences are in line with other products. DVDs typically retail in Oz for A$35 to A$45 ($20-$25).

The same discs in the U.S. would typically sell for $15-$20, after retail discounting.

In Europe, however, some studios have begun to experiment with higher DVD prices in an effort to protect rental dealers from DVD sales competition.

The real threat to the studios from the latest investigations, however, isn’t to the price of DVDs but rather to studios’ ability to protect the theatrical window overseas.

Historically, studios have followed a sequential release of pics around the world, often taking six to eight months to reach every territory.

With the international trade in DVDs, however, waiting to release a pic overseas can mean smaller grosses.

Since the DVD format was launched, studios have generally tightened up on international play dates, but such shorter time spans mean higher costs, in prints and upfront ad buys.

Any move by Europe or Australia to restrict the use of regional codes would make it that much harder to protect the theatrical window.

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