Hollywood Video Rental Chain Is Accused of Fraud

Hollywood Entertainment Corp., the nation’s second-largest video rental chain, was accused by a unit of Fox Entertainment Group Inc. of defrauding film studios out of tens of millions of dollars in revenue by underreporting sales and rentals.

The accusation came in an amended complaint filed in Los Angeles County Superior Court last week by Twentieth Century Fox Home Entertainment Inc. Fox is seeking damages in excess of $5 million.

Fox filed a motion this week to force Hollywood to produce records relating to the lawsuit. In the motion, Fox alleges that Hollywood defrauded other studios that leased and sold movie videos to Hollywood through Rentrak Corp., a Portland, Ore.-based videocassette distributor.

“Hollywood was involved in a larger overall scheme to intentionally falsify transaction information on all videocassettes leased to Hollywood by Rentrak,” Fox alleged in court documents.

Fox said an audit last year found that Hollywood falsely reported transaction data on its films “Courage Under Fire” and “That Thing You Do.” It said the audit also found false reporting for three Walt Disney Co. films--”Ransom,” “The Preacher’s Wife” and “Scream”--as well as a Universal Studios Inc. film, “Daylight.” Universal is a unit of Seagram Co.

Hollywood executives were not immediately available for comment.

Last year, Rentrak sued Hollywood in Oregon Circuit Court in Portland for breach of contract, alleging that Hollywood breached an agreement to lease videos exclusively from Rentrak.

Both Fox and Rentrak allege that Hollywood cheated them by manipulating its rental-tracking computer system to avoid paying royalties on hundreds of thousands of movie rentals.