TRIAL: No Special Deals for Blockbuster, Paramount and Warner Execs Testify25 Jun, 2002 By: Joan Villa
SAN ANTONIO--Two more studio chiefs today denied that Blockbuster asked for or received exclusive pricing deals, but were less certain whether their studios offered equal pricing to independent video retailers.
Like other defendants in the antitrust trial alleging the major studios and Blockbuster engaged in price fixing, Paramount Home Entertainment president Eric Doctorow insisted that Paramount did not have exclusive deals with Blockbuster nor were there any agreements to deny Blockbuster's pricing terms to other retailers. Since Paramount and Blockbuster are both owned by parent and co-defendant Viacom Inc., the trio of companies could not have conspired with one another, U.S. District Judge Edward Prado has ruled, but stand accused of conspiring with co-defendants 20th Century Fox Home Entertainment, Columbia TriStar Home Entertainment, Buena Vista Home Entertainment and Universal Studios Home Video to deny equal pricing to three retailer plaintiffs in the late 1990s.
"Blockbuster asked all the studios to think 'outside the box' and come up with a new way to try to satisfy consumer demand," recalled Doctorow regarding meetings held with Viacom chief Sumner Redstone and newly hired Blockbuster CEO John Antioco in mid 1997.
Paramount tested revenue-sharing with Blockbuster for 15 months beginning in late 1997 and "eventually came to believe that output strategy would be the best model for us" and signed an agreement in May 1999, he said. However, Paramount did not offer revenue-sharing terms to independents through distributors, he explained, but provided "copy-depth" alternatives that brought average per-unit costs to the "$40 to $45 range."
Just prior to initiating the test, Paramount's former EVP of sales and marketing, Jack Kanne, wrote a memo to Doctorow recommending against "going down the official 'revenue-sharing' path so we still have deniability with other retailers."
On the witness stand, Doctorow said he didn't agree with Kanne's assessment and disputed that Paramount needed deniability since the studio had not yet "officially committed" to revenue-sharing with Blockbuster. Paramount later entered into a revenue-sharing deal for independents through distributor Rentrak beginning in June 1999. When all terms are considered from the two revenue-sharing deals, Paramount receives about 49 percent of revenue from the Rentrak contract versus 52 percent from Blockbuster, he testified.
In the process of negotiating revenue-sharing terms, Blockbuster provided terms of its deals with other studios to Paramount – a common video industry practice, Doctorow acknowledged.
"They often play one supplier off another," he said. "We often hear about deals, whether it's Blockbuster or another retailer, so they can say, 'Paramount, you're too high' [on prices]."
However, pricing information would "never, ever, ever" come from other studios, he insisted.
Warner Home Video EVP James Cardwell took a similar hard line that Blockbuster was not granted exclusive terms.
"Mr. Redstone never asked for a pricing advantage and he never asked for any form of exclusivity," he testified. "There was no difference between the deal we gave Blockbuster and the deal we gave every other retailer."
In a line of questioning intended to show the studio was not offering similar pricing to independents, plaintiffs' attorney Stephen Hackerman asked Cardwell about a memo from then SVP of sales John Quinn dated Jan. 26, 1998, outlining "risks and consequences" of revenue-sharing with Blockbuster.
"It is likely the trade will know there's a difference in the revenue split between Blockbuster and everyone else and give additional support to studios who had not made such a deal with their largest competitor," Quinn wrote.
But Cardwell insisted Quinn was referring to retailers' "perception" as opposed to the actual deals, and Warner ultimately "handled the risk" referred to in the memo by making sure pricing offered to independents was the same as the Blockbuster agreement. He said "output" deals requiring retailers to take all of Warner's releases, which was part of Blockbuster's terms, were never offered through distribution because "no retailer expressed any interest in being on output terms with us."
Warner Home Video and MGM Home Entertainment settled with plaintiffs in this and a similar action in Los Angeles Superior Court and are no longer defendants in either case.