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The Battle of the 800-Pound Gorillas

6 Jan, 2003 By: Stephanie Prange

Buena Vista is suing Blockbuster over abuse of its revenue-sharing deals with the No. 1 U.S. rentailer. Who would've thunk it?

Not so long ago it seemed as if Blockbuster and the studios were comrades in arms with direct deals that sent many an independent rentailer out of business. Blockbuster gained market share and the studios seemed all too happy to assist in that endeavor.

Now, it appears the studios aren't so delighted with this 800-pound gorilla they've created. Even before the Buena Vista lawsuit, studio execs noted in public and in private that Blockbuster had too much power, that the chain called too many shots. Using sellthrough pricing on DVD as the club, the studios have tried to beat down the monster they helped create with competition from the mass merchants, most notably Wal-Mart, and the strategy seems to be having an effect. Blockbuster's stock has taken a hit on the realization that video sales are cannibalizing rental. Such influential publications as Forbes and Business Week are wondering if Blockbuster has the right stuff to take on the sellthrough goliaths, if Big Blue can compete on Wal-Mart's sellthrough turf as rentals flatten and fall.

The next financial report from Blockbuster will tell us whether the rental dip is an anomaly or a sea change in Big Blue's business, but one thing seems certain – the studio–Blockbuster relationship is on rocky ground. The studios have found a new retail star in Wal-Mart. But like your typical Hollywood marriage, this union seems shaky, The studios don't like any retailer calling the shots. They still yearn for the days when they controlled distribution of their content. Manipulating the retail customer is the next best thing.

How will they contain this new goliath? Video-on-demand and a rental window come to mind. In any case, it promises to be a wild ride in the years to come.

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