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TRIAL UPDATE: Blockbuster Got 12 Percent Advantage, Economist Testifies

26 Jun, 2002 By: Joan Villa

SAN ANTONIO – Video prices studios charged Blockbuster under revenue-sharing deals were significantly less than prices charged to distributors selling to independent retailers, a Stanford University economist appearing for retail plaintiffs testified today in an antitrust case in U.S. District court.

In testimony often peppered with defense objections, Prof. James Sweeney said he concluded from studying studio agreements that Blockbuster's average movie acquisition costs were about 12 percent less overall than pricing terms offered through wholesalers.

"That's big," he said. "It could make the difference between viability and bankruptcy" for independents.

Sweeney attributed the price difference to a "set of decisions" studios made to withhold competitive revenue-sharing terms from independents, rather than market conditions. Such "parallel activity" on the part of all studios, acting against individual self-interest but benefiting the group as a whole, is what economists look for in collusive behavior or conspiracy, he explained.

"The parallel activity was a failure to provide contracts to independents through distribution or any other means that would allow them to have a cost of goods nearly equivalent to Blockbuster," Sweeney said.

Pricing contracts often contained "subtle but very important differences" in terms between what a retailer might pay through revenue-sharing distributor Rentrak and what Blockbuster paid in output agreements with studios beginning in 1997, he said.

"The terms were different, the revenue split was different and that's why I conclude these were very different," he emphasized. "They're not the same deal."

For example, Rentrak required a minimum transaction fee of $1.20 to $1.40 per rental from independent retailers, while Blockbuster's transaction fees were applied to average purchases for a given title, he said. This meant that independents who offered free rental coupons or specials such as "rent two, get one free" would still be required to pay transaction revenue to Rentrak on the free rentals, while Blockbuster's fee would not include such offers, he testified.

Early in his cross-examination, defense attorney Lee Godfrey disputed many of Sweeney's findings and argued that Blockbuster's deals through Warner Home Video and MGM Home Entertainment actually produced higher cost of goods for Blockbuster than for wholesalers.

Godfrey also questioned that Sweeney's analysis looked at the overall market rather than the specific market areas, purchases or prices paid by the three individual plaintiffs in the case: John Merchant of 49'er Video in Sacramento, Ron Cleveland of Lonestar Video in San Antonio and David Stevenson of The Big Picture Video in Syracuse, N.Y.

After unexpectedly paring down their witness list, plaintiffs expect to conclude their case today after calling their final witness, Blockbuster CEO John Antioco. Cut from the list of scheduled witnesses was Ben Feingold, president of Columbia TriStar Home Entertainment, and taped depositions from Blockbuster executive Dean Wilson and distributor Ron Eisenberg of ETD.

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