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TRIAL UPDATE: Antioco: 'We Didn't Have to Cheat to Win...'

26 Jun, 2002 By: Joan Villa

SAN ANTONIO--Confronting charges of improper pricing deals and alleged conspiracy between Blockbuster and four studios to deny profitable revenue-sharing terms to independent retailers has been "very painful," acknowledged Blockbuster chairman and CEO John Antioco, the plaintiff's final witness in an antitrust trial in U.S. District Court.

"I've been working for 30 years to build up a reputation," he said. "We didn't have to cheat to win and I didn't."

After plaintiffs rested their case, defense attorneys immediately entered several motions pleading for a "directed verdict" to dismiss price fixing, price discrimination and conspiracy charges based on lack of evidence, as is common procedure in an antitrust trial. Paramount Home Entertainment attorney Ken Logan argued an "absence of proof" of conspiracy.

"There was no agreement, no discussion on the subject, no actions taken whatsoever to give Blockbuster an exclusive deal," he contended.

But plaintiff counsel David Warden countered that evidence shows studios did not offer comparable pricing terms to independents."We have motive, we have opportunity and we have dead bodies, the independents who have gone out of business," he noted.

Judge Edward Prado took the motions under advisement and is expected to rule tomorrow.

Under plaintiff and defense questioning, Antioco again denied claims that the retailer asked for exclusive deals or engaged in a conspiracy with studio defendants for preferential pricing in 1997 and 1998 in order to create an unfair market advantage.

"We never talked to one studio about another studio's deals and gave them the specific terms of another studio," Antioco said.

Studio negotiations to implement revenue-sharing agreements were "in some cases contentious and in some cases businesslike," he noted. Far from engaging in conspiracy, the studios "were all trying to get a leg up on their competitors," he said.

Blockbuster utilized several techniques to turn the company around from sliding revenues in 1996 and 1997 including revenue-sharing, store refurbishment, a focus on "core" video product and marketing and advertising that cost Blockbuster $50 million in 1996 on up to $129.2 million in 2000, he explained.

He tried to dispel industry "rumors" that Blockbuster was getting better deals in a speech at the national convention of the Video Software Dealers Association in 1998 where he told independent retailers Blockbuster had "no favored nation clauses" in its contracts, he testified.

The deals were kept confidential as a matter of good business practice, he said, "but also from Blockbuster's standpoint, in trying to do the best deal I could with every studio, I didn't want to start negotiating with a studio knowing exactly what our terms were" with other suppliers.

Despite previous testimony that Blockbuster forced the last studio-- 20th Century Fox Home Entertainment--into pricing deals by cutting back purchases of Fox product, Antioco said Blockbuster "cut our buys across the board to all studios" at the time due to weak rental volume. After a year of negotiations, Blockbuster signed with revenue-sharing distributor Rentrak to receive Fox product before the studio finally agreed to a deal, he said. Even many of Blockbuster's franchisees passed on revenue-sharing plans because they had a small base of stores and couldn't handle stocking all the studios' output, as was required under Blockbuster's "new model" of revenue sharing.

For example, Blockbuster's "buy matrix" in its pricing contract with Buena Vista Home Entertainment required the retailer to take 51 copies per U.S. store for a movie that grossed $40 million at the box office and then Blockbuster could choose how to allocate them. The company relies on tools such as a "multi-million dollar" computer system that allocates copies "based on 50 different variables" and a shipping facility to prepare and ship product to stores--advantages that enabled Blockbuster to be profitable under output revenue sharing.Under those deals, Blockbuster's margins declined from about 65 percent to 59 percent, "so we knew we had to significantly increase revenues to make up that margin," he noted.

Following Judge Prado's rulings on the directed verdicts, the defense will begin calling its first witnesses tomorrow.

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