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Biz Blockbusted?

Studios, vid giant face price-fixing trial

An antitrust suit that charges several Hollywood majors with conspiring with Blockbuster against indie vidtailers and fixing wholesale vid rental prices is going to trial.

The studios’ final motions for summary judgment in the case, which was brought by independent vidtailers, was rejected by San Antonio federal district court judge Edward Prado. The May 17 ruling turned down eight of 10 defense motions to dismiss.

If Blockbuster loses, it can be forced to abandon its revenue sharing program, which helped it take over 40% of the rental market and improve its bottom line. All the defendants, however, risk a rash of similar suits in other states if they’re found to have fixed prices.

First witness expected to be called by the plaintiffs will be Viacom chairman Sumner Redstone. Viacom owns 82% of Blockbuster, as well as Paramount. Plaintiffs charge that Redstone was instrumental in persuading other studios to go along with Blockbuster’s rev-sharing plans.

Other defendants in the suit are Columbia TriStar Home Entertainment, Buena Vista Home Entertainment and Universal Studios Home Video. Two studios, Warner and MGM, have settled the claims against them and are expected to be officially excused from the case at a hearing today. Details of the settlements were not disclosed, but insiders put the dollar figure for the two studios combined at around $15 million.

In a statement, MGM Home Entertainment president David Bishop said: “We were previously able to satisfy plaintiffs that MGM will continue to deal fairly with them, and based on that we were able to reach a settlement that made sense to all parties in light of the substantial legal costs going forward.” Warner executives declined to comment.

Funds will be dispersed among three indie retailers named as plaintiffs in the Texas case, as well as about 200 more named as plaintiffs in a parallel case brought in California state court.

In another setback for the studios, judge also ruled that any witnesses the defendants plan to call for their own case will have to be made available to testify during the plaintiff’s presentation as well. Otherwise, both sides will have to rely on written or videotaped depositions to make their cases.

Sufficient evidence

In its ruling last week, court said the plaintiffs had presented sufficient evidence for trial on charges of a horizontal conspiracy among the studios to fix prices at the expense of indie vidtailers, and of a vertical conspiracy between the studios and Blockbuster to deny indies the same rev-sharing terms enjoyed by Blockbuster.

“Ultimately, Blockbuster paid a particular price for a video title, and the summary judgment evidence indicates that price was always significantly lower than the prices paid by others,” the judge wrote

The court also rejected the studios’ argument that any conspiracy among suppliers to favor Blockbuster would be economically irrational because it would only serve to increase Blockbuster’s market power.

“This theory is economically irrational only if the studios create a market advantage in Blockbuster without getting anything in return,” the judge wrote. “The studios, however, received a significant benefit from their revenue-sharing agreements with Blockbuster — the studios obtained a significant share of Blockbuster’s revenues from video rentals.”

Pressure on Fox

Prado took particular note of evidence that Blockbuster pressured at least one studio, Fox, to enter an exclusive agreement by reducing purchases of Fox titles.

“In particular, (retailer) Mick Blanken testified in his deposition that Pat Wyatt from Fox Studios stated during a meeting that Fox would not participate in revenue-sharing agreements because Blockbuster wanted a deal that was not available to the (independent vidtailers) … (Former Fox executive) William Mechanic’s deposition indicates that Blockbuster actually reduced its purchases of Fox videos to motivate Fox to offer an exclusive agreement.”

The court did grant Fox’s motion for summary judgment on charges of price discrimination. The studio still faces charges of conspiring the others to fix prices.

It also dismissed charges of a vertical conspiracy involving Paramount Home Entertainment and Blockbuster on the grounds that, as a matter of law, two subsidiaries of the same parent company could not engage in a conspiracy between themselves.