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Justice Investigation Likely to Delay Studio VOD

3 Jan, 2002 By: Holly J. Wagner

A federal Department of Justice (DOJ) investigation is likely to delay rollouts for studio video-on-demand (VOD) ventures, an analyst says.

Five studios—Sony Pictures Entertainment, Paramount Pictures, Universal Studios and Warner Bros.—announced a joint venture last August, tentatively titled MovieFly, that anticipated offering cable VOD by this summer; and movies.com, the Disney-News Corp. competitor, followed soon after with plans to roll out on cable and the Internet later this year.

"I don't expect those deadlines to be met, at least for those particular services," Forrester Research analyst Eric Schierer says.

The studio ventures were more important as a symbolic gesture than as a promise to consumers, Schierer says.

"It's an announcement of primarily political significance that they can all sit down across the table together and agree that VOD is a potentially profitable direction," Schierer says. "I think the action of sitting down at the table is what the DOJ is looking at."

DOJ has investigated proposed studio joint ventures in various arenas since the 1940s, he notes, adding the announced VOD joint ventures let the content players sort out the framework for issues like revenue-sharing, carriage fees and other practical aspects of delivering VOD.

"In reality I think the things they are doing are right," he says. "VOD is a political issue."

Apparently, DOJ agrees.

"The antitrust division is investigating the potential competitive effects of joint ventures on the digital distribution of movies directly to consumers," says DOJ spokeswoman Gina Talamona. She would not give details except to confirm the department has issued civil investigative demands—the first step in a formal investigation—to several participants in the proposed ventures.

Blockbuster Video senior v.p. of corporate communications Karen Raskopf confirms that company has received a DOJ demand, but says it is not clear what information the department wants.

"We're still waiting for a more specific request about what information they want," she says. Blockbuster General Counsel Ed Stead was out of town and not available for comment by press time.

Blockbuster had content rights from MGM, Universal, Lions Gate, Trimark, Artisan, as well as content it owns under the DEJ label, for its test VOD venture with Enron in early 2001. Raskopf is uncertain which, if any, of those agreements are still in force.

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