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THE MORNING BUZZ: Antitrust Trial Opens Soon, But Expect Settlements

30 May, 2002 By: Kurt Indvik

Barring a flurry of last-minute settlements or some court-ordered stay, the opening gavel will sound in two weeks in San Antonio, Texas, in the antitrust cases that independent video retailers brought against major movie studios and Blockbuster.

Warner Home Video and MGM Home Entertainment have made their deals and have been dismissed from the suit, although terms of their settlements have not been disclosed.

We may yet have news of more settlements in the days between now and June 12 when the trial is set to begin, but odds are we can expect a trial to begin with some of the remaining five studios and Blockbuster as defendants.

At that point, the stakes on the outcome grow as the trial continues without settlements.

This is not the space to discuss the merits of the suit. However, it is the place to wonder what impact it may have on the future of the business, should it culminate in a verdict, or multiple verdicts, in favor of the retailers.

Let's recall that the two lawsuits stem from the assertion that revenue-sharing deals and other pricing agreements between Blockbuster and the studios beginning in 1997 (outside the normal volume-discount practice) were not made available to independent retailers. The plaintiffs have charged that the pricing deals were illegal and allowed Blockbuster to stock vast quantities of new-release titles and build market share, creating an environment where independents could not compete.

In 1997, however, DVD came along and has, in its five-year stretch, changed the nature of the business. While studio revenue-sharing deals are not extinct, DVD has made that model almost obsolete. (However, we have recently reported revenue-sharing is on some studios' agenda.)

Be that as it may, there are still revenue-sharing agreements in place that could be affected by a ruling for the retailers; some might need to be overhauled. Such an outcome also would cause studios and major retailers to carefully consider any pricing deals they strike to avoid potential future liability. And there are other industry lawsuits pending that might be impacted by the rulings and verdicts of this case.

Of course, this assumes a verdict, and the likelihood of that is low, given the expsoure defendants would be under. A verdict favorable to plaintiffs in a civil antitrust case can sometimes lead to criminal charges. Damages can be trebled in any formal judicial outcome. And a recent ruling requiring that all executives subpoenaed would have to give testimony in person means studio chiefs will be loathe to put themselves in that position (Viacom's Sumner Redstone is slated as one of the first witnesses). Put it all together and we'll likely see settlements before we ever get to a verdict.

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