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THE MORNING BUZZ: Where Does Competition End and Antitrust Begin?

14 Jun, 2002 By: Thomas K. Arnold

The industry's attention is squarely focused on the retailer-led antitrust lawsuit in San Antonio and its various tangents, from Sumner Redstone's testimony that Blockbuster never demanded exclusive deals to the judge shutting down the plaintiffs' attorney's Web site play-by-play of the controversial case.

What gets me is that back when the studios first began cutting revenue-sharing deals with Blockbuster in the summer of 1997, none of the Hollywood executives ever thought things would get to this point.

I remember the mood at the studios at that time. Rental revenues were slipping, sellthrough growth was slowing and there was the widespread panic studio executives are given to.

To be sure, studio executives spent a good deal of time pooh-poohing concerns that the industry was tanking. Warner Home Video even went on the road with a presentation tracing the business slowdown to a lack of theatrical hits coming to video, a presentation that ended with the upbeat assessment that the upcoming slate of potential theatrical hits would likely revitalize the business.

But privately, there was still a lot of head-scratching and soul-searching going on. “I have to answer to my shareholders, and my shareholders are concerned,” one home video studio executive told me that summer. “We're going to have to do something.”

Part of Hollywood's concern was triggered by the sagging fortunes of Blockbuster, which was reeling under the “one word, one world” approach of soon-to-be-ousted chief Bill Fields. Fields was trying to pattern Blockbuster after his retail alma mater, Wal-Mart, even though everyone was telling him the two operate under completely different business models.

When Fields got the boot, Blockbuster's Redstone and his new charge, John Antioco, played hardball – as any good retailer would who found himself in these gentlemen's shoes.

And that's where things get hazy. Was Blockbuster trying to save itself, or put the competition out of business? Were the studios seeking to revitalize their industry, or did they decide to cast their lot with Blockbuster?

Each question begets others. In a mature industry – which everyone concedes video was, at that point – the only way to grow is through market share, so it only follows that if Blockbuster was seeking to grow it would have to do so at other retailers' expense.

And the studios, well, that's even trickier. I honestly believe they were concerned about the state of the business and didn't want to see the industry leader fail. That's a bad sign for any business.

But was there a conscientious decision – a conspiracy, if you will – to put the independents out of business? And was this decision implemented through the notorious “Blockbuster deal?” I remember studio executives telling me this same deal was available to all retailers, but I also recall independent retailers telling me this deal was structured for a large chain like Blockbuster and was unworkable for everyone else.

The key to all these questions lies not so much in what the studios did and what has happened, but in motive.

The next few weeks should be most interesting.

Stay tuned to Hive4Media for the latest trial updates.

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