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Antitrust Trial Update: 'Midnight Deal' Alerted Indies To Dire Straits

21 Jun, 2002 By: Loydean Thomas

SAN ANTONIO – Independent video retailer John Caesar's 11 Dollar Video stores in Illinois were “beating” area Blockbuster stores at copy-depth in 1997, but the rentailer's fortunes changed with the January 1998 release The Game, he testified in the revenue-sharing antitrust trial today.

Blockbuster was stonewalling supplier PolyGram to force it into revenue-sharing and Caesar bought heavily into the title to support the supplier.

“The message we were trying to send to the studio was that the indies are viable. They are an important part of this business," he said. "Work with us and we'll work with you."

Suddenly Blockbuster had endless copy-depth on the title.

“A midnight deal was struck,” Caesar said. “Blockbuster was able to bring in vastly more copies than we were able to do. We took a bloodbath on that title.”

Meanwhile, Blockbuster was trying to strongarm 20th Century Fox Home Entertainment into revenue-sharing as well, but Fox executives told Caesar they were trying to hold out, he testified.

Caesar met with colleagues Bob Webb and Chuck Grachan to try to sort out why their market share was shrinking and what to do about it, he testified, and they ultimately founded the Independent Video Retailers Group.

“We felt that time that we were on an uneven playing field,” Caesar said. “We needed to get power so the studio would listen to us. Nobody would talk to us until we started threatening legal action.”

After trying to work with sympathetic but powerless distributors, the trio decided their options were to appeal to the studios, complain to the Federal Trade Commission or hire a lawyer and sue. Though some independents ultimately did sue Blockbuster and the studios – resulting in the trial at hand -- Caesar said he and his colleagues didn't because of cost and time.

“It would take be three to five years to get to court and a lot of us would be out of business by then,” Caesar testified.

Following Caesar's testimony, Pat Wyatt, president of Fox Consumer Products, testified about the pre- and post-revenue-sharing video market and how the studio arrived at the deal it ultimately cut with Blockbuster.

Earlier in the day, defense expert witness Jeffrey Leitzinger gave his estimate of what the three plaintiff independents should receive in damages if they prevail. Part of that testimony included assessing the business impact of the Blockbuster revenue sharing program for those Blockbuster stores in a three-mile radius of the plaintiffs.

San Antonio-based Lonestar Video's revenues dropped by 54 percent during a three-year period following 1997. Sacramento, Calif.-based 49'er Video saw its revenues drop 52 percent, while The Big Picture Video, in Syracuse, New York, saw revenues plunge 47 percent. Conversely, those Blockbuster stores in the three mile radius of Lonestar increased business by 78 percent; within the radius of 49'er Video it increased 97 percent; and within three miles of The Big Picture, Blockbuster stores enjoyed a 38 percent increase in business.

The trial is expected to resume Tuesday with taped testimony from Laura Cook, head of legal support at Fox.

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