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Price-fixing Trial Off To A Whirlwind Start

13 Jun, 2002 By: Joan Villa

SAN ANTONIO -- Three independent retailers are finally getting their day in court after years of alleging Blockbuster enjoyed favorable pricing terms on videos the indies claim movie studios did not make available to all retailers.

A dozen high-level studio and Blockbuster executives filed into U.S. District Court on the opening day of the antitrust trial, while Judge Edward Prado moved swiftly to empanel eight jurors and complete opening arguments.

Blockbuster chairman John Antioco and Viacom chief Sumner Redstone, set to take the stand tomorrow as the first plaintiff witnesses, are defending charges of price-fixing and vertical conspiracy. Studio defendants are also fighting claims of horizontal conspiracy to set prices.

Most of the executives in the courtroom, including Robin Russell, EVP of Columbia TriStar Home Entertainment, Paramount Home Video president Eric Doctorow and 20th Century Fox Home Entertainment SVP of sales Don Jeffries, are listed as potential witnesses.

"Nobody broke any laws here, we just worked hard" for Blockbuster's success, argued attorney Ricardo Cedillo in opening arguments representing Blockbuster, Paramount and parent Viacom Inc. While revenue-sharing was "an innovation" on the part of Blockbuster, the agreements that will be presented in court were reached independently and contained different terms for each studio, he said.

"Antitrust laws are designed to protect competition, not the competitors," Cedillo concluded. "Just because you've got a winner doesn't mean someone who came in second or third or last has to be conspired against."

But plaintiff attorney Steve Hackerman noted that Blockbuster's climbing market share -- from 24 percent in 1997 to about 40 percent today -- represents more than $1 billion in revenue he says was taken "out of the pocket" of independent retailers.

"In 1998 the world changed," he told the five female and three male jurors. "After entering into these deals with the studios, Blockbuster all of a sudden began taking huge business from independents."

In meeting with studios in summer 1997 to suggest the new revenue-sharing model, Hackerman alleged, Redstone needed "more than a new deal, he needed an advantage" of low pricing that would enable Blockbuster to purchase vast quantities of new releases and satisfy customer demand. "He needed a deal the independents didn't get and the evidence will show that's what he got," Hackerman contended.

According to internal documents the plaintiffs intend to produce during trial, various studios had competitors' pricing terms in their files, he said. A memo to Disney chief Michael Eisner outlined the studio's plan "to give Blockbuster a new model" that would be rolled out only to a handful of larger chains.

A Warner Home Video summary of a Redstone meeting warned that "what Mr. Redstone is requesting could spur a government investigation into the video rental industry," Hackerman said. "Studio by studio we're going to show you the evidence. They knew exactly what they were doing -- that was the plan." Defense attorney Lee Godfrey, representing Columbia TriStar but delivering opening statements on behalf of the other studios as well, argued the alleged conspiracy "makes absolutely no sense."

He also countered plaintiffs' charges that Blockbuster pays an average of $23 per movie versus independents' $65 as "a false comparison" because revenue-sharing and flat-out purchase are "totally different" pricing mechanisms.

"In the three years leading up to 'new model' revenue-sharing, [plaintiff] Lonestar Video lost money," he said. "Whatever was happening with that store had nothing to do with some alleged conspiracy that was supposed to have happened in 1998."

Warner and MGM Home Entertainment reached a settlement with plaintiffs and are no longer defendants in this trial or a similar case pending in Los Angeles Superior Court. Plaintiffs are Ron Cleveland of Lonestar Video in San Antonio, David Stevenson of The Big Picture Video in Syracuse, N.Y., and John Merchant of 49'er Video in Sacramento, Calif.

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