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UPDATE: Buena Vista Accuses Blockbuster of Cheating

3 Jan, 2003 By: Holly J. Wagner

Blockbuster Video short-changed Buena Vista Home Entertainment (BVHE) by as much as $120 million on a revenue-sharing deal struck in 1997 by improperly deducting “promotional” and “operational” credits and selling off videocassettes earlier and in greater number than the deal allowed, BVHE alleges in a lawsuit.

But Blockbuster EVP and general counsel Ed Stead called the charges bogus and a “desperate” ploy for negotiating leverage.

Buena Vista claims in the U.S. District Court suit that Blockbuster improperly:

  • deducted credits for promotions like “rent one, get one free” and operational credits like customer refunds before calculating Buena Vista's share of revenue;

  • failed to account for “hundreds of thousands” of “missing” videos that were not available on shelves for rental; and

  • sold off 200,000 pre-viewed cassettes prematurely under the terms of the agreement and 45,000 more cassettes than the deal allowed Blockbuster to sell at all;

    Blockbuster terminated the rev-sharing deal last year after executives on both sides were unable to resolve their differences, according to the complaint.

    “Unfortunately we weren't able to and filed the suit to protect our rights,” a Disney spokesman said.

    Blockbuster came back hard with a statement dismissing the allegations.

    "We have been told by the financial press that Disney sued Blockbuster yesterday making claims concerning the revenue sharing agreement between Blockbuster and Disney. Although we have not yet seen the complaint, Blockbuster states that the claims, as described to us by the financial press, are without merit,” Stead said. “In conversations between senior Disney executives and several Blockbuster executives, Disney has acknowledged that the heart of these claims is bogus. It appears that Disney has resorted to this desperate action in an effort to gain contract negotiation leverage or to deflect attention away from Disney's well-publicized corporate difficulties. This is a unique Disney problem that is inexplicable to us."

    Before 1997, Blockbuster paid $60 per cassette. After cutting rev-sharing deal, the chain paid just $7 upfront and the balance came from actual rental turns, Buena Vista contends in the complaint filed Dec. 31. For its part of the deal, Blockbuster agreed to promote the titles, make all its copies available on shelves and to “compensate BVHE if it lost or could not reasonably account for any BVHE videocassette,” according to the complaint, which also refers to output deals.

    “Unfortunately, Blockbuster repeatedly, consistently and deliberately breached its promises,” the complaint alleges. “As a result, Blockbuster now owes BVHE more than $120 million.”

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