U.S. Probes Studios’ Net Ventures

The Justice Department has begun an antitrust probe into online video-on-demand ventures backed by major Hollywood studios aimed at delivering movies to consumers in their homes at their convenience, people familiar with the investigation said Friday.

The probe, said to be in its early stages, is focusing predominantly on MovieFly and Movies.com, two ventures the studios formed to harness the Internet and to fend off unauthorized copying of movies from the Web.

“The probes are focusing on issues of pricing and exclusivity,” said one executive familiar with the investigation.

Officials at the Justice Department declined to comment.

Although several sources close to the major studios said they had not yet received any formal subpoenas or civil investigative demands requesting information, executives said there have been informal discussions between the studios and the Justice Department. Those discussions began at least two months ago, after News Corp. and Walt Disney Co. sought the department’s clearance for their Movies.com venture.

Several smaller companies in the sector, such as video-on-demand provider Intertainer, had received civil investigative demands from the Justice Department asking whether the studio joint ventures may substantially lessen competition in the still-emerging market, the sources said.

Intertainer declined to comment, although other potential competitors to the joint venture services, such as Viacom Inc.’s majority-owned Blockbuster Inc., also had been approached by Justice Department investigators, the sources said.

A spokesman for Blockbuster had no comment.

Like a similar probe into Pressplay and MusicNet, online music ventures backed by major recording companies, the Justice Department is trying to determine whether the studios are refusing to let smaller competitors license their content--movies, in this case--or whether they are trying to push up the fees they can demand as a result of the ventures.

Executives at several studios have said they hoped the online ventures would give them more leverage in negotiating video-on-demand licenses with the cable TV industry. And one source said the studios, which used to collect about 50% of the revenue from video on demand, now are demanding and collecting about 60%

MovieFly has been having informal talks with the Justice Department, said Sony Corp. spokesman Don Levy. Sony is a partner in the venture and developed its technology, which will allow users to download movies from the Web to their personal computers, where they can be viewed for a fee.

Levy said MovieFly, whose other partners include AOL Time Warner Inc., Vivendi Universal, Viacom’s Paramount and Metro-Goldwyn-Mayer Inc., has tried to be proactive by meeting with the Justice Department soon after the venture was announced in August.

“We have had only informal requests for information,” he said. “We have not received any [civil investigative demands]. An investigation is part of the standard operating review process.”

Disney declined to comment, and a News Corp. spokeswoman was not available.

Industry insiders said they were not surprised that the Justice Department was looking into the ventures, because they involve the biggest entertainment firms.

“Of course they’re looking at this,” a digital media executive said. The Justice Department “wouldn’t be doing their job if they weren’t.”

During the 1980s, the Justice Department blocked a joint venture that involved several major studios and aimed to provide a pay television service to compete with HBO just weeks before it was scheduled to start.

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Times staff writer Jon Healey contributed to this report.