Independent Retailers Take on Blockbuster

About 200 independent video store owners from around the country have filed a lawsuit against Blockbuster Video alleging the company, through illegal business practices, is effectively driving them out of business.

The lawsuit filed in Los Angeles Superior Court on Wednesday is similar to another filed in 1999 in San Antonio, Texas, by two video store owners. Both lawsuits allege that Dallas-based Blockbuster, owned by media giant Viacom Inc., has entered into illegal purchasing agreements with major movie studios. These studios include Metro-Goldwyn-Mayer Inc., AOL Time Warner Inc., Sony Corp.’s Columbia TriStar, Walt Disney Co.’s Buena Vista Home Entertainment and Fox Entertainment Group Inc.

The agreements made in 1997 and 1998 between Blockbuster and the studios to share video rental income allow the movie rental chain to purchase larger quantities of movies at discounted prices and advertise their large quantities of new releases to consumers.

The plaintiffs claim the arrangements violate antitrust and price-fixing laws.

Plaintiff John Merchant at one time owned five video stores. Now, the man who is in the forefront of the charge against Blockbuster in Texas and here, is down to only one, 49’er Video in Davis, Calif. He said that shortly after Blockbuster made its deal, he and a group of about 100 store owners went to Hollywood in an attempt to get a “comparable deal.” They were turned away, he said.

Independent retailers, who often have a bigger selection of genre films, claim they can and have competed effectively against Blockbuster when the rules were fair. But when they have only two or three copies of a new release and Blockbuster has an entire wall devoted to one film, Merchant says they feel powerless.

“On an average cost per video, we are paying as much as three or four times as much as Blockbuster was,” Merchant said. “Our frustration is not getting a competitive deal. We are asking for damages for what they have done to independent retailers and we want the courts to fix the problem. We feel that the only way we are going to get any relief from this is from the court to mandate that they treat us fairly.”

A spokesman for Blockbuster called the latest filing “another desperate court maneuver” and said the company will defend its actions as pro-consumer and pro-competitive.

“We think the new case and the one in Texas lack merit,” said Randy Hargrove, the company spokesman. “We believe these arrangements have greatly benefited the consumers and the industry.”

The plaintiffs are seeking a class-action lawsuit for the estimated 27,000 independently operated video retailers in the U.S.

Blockbuster Video is the leading video rental chain in the world with about 7,500 stores. Since 1998, about 10%, or 2,500 video stores in the U.S., went out of business, according to the Video Software Dealers Assn.