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UPDATE: Studio Reported Near Settlement in Indie Retailer Lawsuits

15 Apr, 2002 By: Thomas K. Arnold

Warner Home Video has offered to settle a pair of retailer lawsuits against the studios and Blockbuster Inc. over alleged price-fixing and antitrust violations in relation to the sale of rental-priced VHS cassettes.

Houston attorney Jim Moriarty, representing the plaintiffs, confirmed studio-source reports that Warner Home Video offered $14.5 million to settle the suits, one filed three years ago in Texas and the other in January 2001 in California.

The settlement offer, sources say, covers both Warner titles and product from MGM Home Entertainment that the supplier distributed prior to the two companies' dissolving their distribution agreement in early 1999.

David Bishop, group president and COO for MGM Home Entertainment, said MGM “has not entered into any settlement offer and has not had any discussions with the plaintiffs regarding this reported settlement.”

At press time, Moriarty said the settlement offer could be signed within a matter of days.

“But you know how lawyers are,” he said. “We've got to take a look at all the paperwork.”

Warner executives could not be reached for comment.

Moriarty added that Warner and MGM “were the first studios to bail out of the scam” in which Blockbuster received allegedly preferential terms. Studios had argued that the same deals Blockbuster got were available to other retailers, but Moriarty disputes this.

“No independent retailer could get the same deal Blockbuster and the other big chains got until long after the suits were filed,” he said.

Both Warner and MGM still offer revenue-sharing to retailers. Warner's revenue-sharing deal with Blockbuster expired in February and was not renewed, sources say. Bishop confirmed that MGM still has its revenue-sharing deal with Blockbuster and similar deals are available to all retailers.

MGM has consistently been lauded by retailers and distributors for its copy-depth incentives, including revenue-sharing.

Moriarty said of all the defendants named in the two suits, only Warner and MGM have level playing fields for all their customers.

“[Warner Home Video president] Warren Lieberfarb is one smart guy who figured out they had created an 800-pound gorilla [with Blockbuster],” Moriarty said. “He worked to level the playing field.

“It's interesting that Warner was the first to go back to parity, and isnow first to put real money on the table.”

Moriarty noted that the settlement offer affects about 250 individual litigants in California and Texas representing about 500 stores, but not the class action portion of the lawsuit. However, he said “we're going to nonsuit” both Warner and MGM from the class action.

Moriarty would not comment further on the settlement offer, referring further questions to Warner counsel Linda Smith. Smith did not return phone calls.

The legal actions against the studios and Blockbuster stem from allegedly preferential revenue-sharing deals that were cut in secret beginning in late 1997. These deals, independent retailers charged, allowed Blockbuster to bring in vast quantities of newly released videocassettes at prices significantly lower than competitors had to pay.

This preferential pricing then allowed Blockbuster to build market share through such promotions as the guaranteed availability of new releases and extended rental periods -- promotions with which the independents could not compete.

The indies allege that, in turn, led to thousands of independent retailers going out of business.

The independent retailers sought both damages and court orders barring the practice under federal and California antitrust laws. Judges in Texas and California denied them class status, forcing those who wished to pursue the case to proceed on their own.

In addition to Warner and MGM, studio defendants in the suits are Buena Vista Home Entertainment, Columbia TriStar Home Entertainment, 20th Century Fox Home Entertainment, Universal Studios Home Video, Viacom Inc., Viacom chairman Sumner Redstone and Viacom units Paramount Home Entertainment and Blockbuster Inc.

No other studio executives would comment on the settlement offer. Retailers involved in the actions could either not be reached for comment or would not comment.

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