Audio Video News

Size is definitely an advantage in commodity retailing. In an antitrust suit begun in mid-June, the7800-store chain Blockbuster, Inc.—the world's largest video retailer—admitted that it has an advantage over its smaller competitors, but claimed no wrongdoing in the process of negotiating favorable revenue-sharing deals with Hollywood studios.

The June 14 admission from Viacom, Inc. chairman Sumner Redstone was the first volley fired in the trial, filed with the US District Court for the Western District of Texas, in San Antonio. (Viacom, Blockbuster's parent company, also encompasses CBS Television, Paramount Pictures, Paramount Home Entertainment, MTV, Black Entertainment Television, and radio powerhouse Infinity Broadcasting.) A group of independent video retailers—Ronald Cleveland of San Antonio, Phoenix-Merchant Investments of Sacramento, CA, and Big Picture Video, Inc. of Syracuse, NY—has accused Blockbuster of attempting to drive them out of business by arranging deals that let the chain stock an exceptional number of copies of popular movies.

Blockbuster pays a lower price per video in exchange for sharing the rental revenue with the studios. Redstone testified that the practice is perfectly legal and isn't exclusive to Blockbuster. He admitted, however, that the revenue-sharing plan which works for his immense chain might not work for smaller retailers. Blockbuster's share of the video rental market has grown from 24% to 40% in the four years the policy has been in effect, according to plaintiff's lawyers.

In many industries, large-volume retailers are able to arrange bulk discounts, co-op advertising deals, delayed payment schedules, and subsidized shipping charges—perks not available to independent stores, which usually must go through distributors rather than directly to manufacturers. The nature of the video rental business has changed significantly since the Blockbuster suit was originally launched. DVDs were not part of the rental picture when Blockbuster made its revenue-sharing deals in 1997. The discs are cheaper than videotapes, and more likely to be purchased rather than rented.

Redstone told attorney Stephen Hackerman that at least one aspect of Blockbuster's arrangement with the studios would not have worked for smaller retailers. That was the agreement to stock all releases from the participating studios, even movies that tanked in the theater. He also said that revenue sharing wasn't the only cause of his company's recent growth, which he attributed to an increase in advertising and the addition of new stores. The day before Redstone's testimony, Blockbuster CEO John Antioco told reporters that the trial wouldn't have much effect on Blockbuster regardless of its outcome. "We're competing . . . in a fair and honest way," he asserted.