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Who Created Video Rev-Sharing?

19 Jun, 2002 By: Joan Villa

SAN ANTONIO – Former Disney chief Michael Johnson took the stand in the fifth day of an antitrust trial against Blockbuster and five studios to explain how revenue-sharing originated at his studio, the first to sign a Blockbuster pricing deal.

Johnson was the architect of revenue-sharing, developed in 1997 to create copy depth to satisfy consumer demand, and that he had to “sell” the idea within his own studio as well as to the rest of the rental industry, he testified.

“By my estimate, copy depth turned the industry around,” he said. “People who invest in the risk should get the better return. That's the American way.”

Viacom chief Sumner Redstone claimed credit for applying the theatrical industry payment mechanism to video In testimony last week and in his book, A Passion to Win, which explained the turnaround of Blockbuster. In a taped deposition played for the court the same day, Warner Home Video president Warren Lieberfarb said Redstone did not suggest revenue-sharing in his initial four meetings with Warner in mid-1997, but rather the studio proposed the idea to Blockbuster.

Johnson speculated today that a copy of Disney's Blockbuster deal found in the files of 20th Century Fox Home Entertainment may have been provided to Fox by a former sales or marketing employee who had access to the terms.

“Obviously we've been victimized by someone who has taken confidential files to Fox,” he said.

Columbia TriStar attorney Lee Godfrey, speaking for the studio defendants, produced documents that showed Buena Vista offered pricing deals similar to Blockbuster's to other retailers primarily through pay-per-transaction distributor Rentrak, which returned to the studio an average $1.97 per rental transaction versus $2 paid on average by Blockbuster from 1997 to 2001.

“We would have no incentive to propose this deal to every single retailer,” Johnson explained. “We met with regional groups.”

In the afternoon, plaintiff David Stevenson of The Big Picture Video in Syracuse, N.Y. testified that Blockbuster's revenue-sharing deals were so devastating to his stores that he first expanded his selection of adult product to make up the difference and later closed three of his four locations, filing for bankruptcy.

However, Blockbuster attorney Ricardo Cedillo introduced a trade article from Sept. 1997 where Stevenson admitted he did a “terrific” business in adult, which represented about 40 percent of his revenues. “How bad can Blockbuster hurt me under those circumstances?” he asked at the time. Blockbuster does not carry adult product.

Defense attorneys also argued Stevenson's businesses were already suffering prior to Blockbuster's revenue-sharing deals and introduced records indicating he was paying COD terms with distributors in 1995 and 1996.

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