RealNetworks Settles Copyright Suit

Information Week

The Motion Picture Association of America had claimed that Real's software illegally circumvented anti-piracy technology embedded in DVDs. 

RealNetworks has agreed to kill its DVD-copying software and pay $4.5 million in settling a copyright-infringement lawsuit filed by Hollywood studios.

As part of the settlement announced Wednesday, the provider of online entertainment services also agreed to drop its appeal of a San Francisco federal court ruling that barred RealNetworks from distributing or supporting RealDVD or any other technology that enables the duplication of the studios' copyrighted content.

RealNetworks also agreed to turn off the metadata service that provides DVD cover art and movie information to the roughly 2,700 ReadDVD customers. The company said it was in the process of refunding the purchase price of the product.

Bob Kimball, president and acting chief executive of RealNetworks, said in a statement that the company was "pleased to put this litigation behind us."

"Until this dispute, Real had always enjoyed a productive working relationship with Hollywood," Kimball said. "With this litigation resolved, I hope that in the future we can find mutually beneficial ways to use Real technology to bring Hollywood's great work to consumers."

In August 2009, U.S. District Judge Marilyn Hall Patel barred RealNetworks from selling RealDVD, ruling the technology violated Hollywood studios' copyrights and the licensing agreement RealNetworks had with the studios' copyright-protection group.

The 2008 lawsuit filed by Viacom and the Motion Picture Association of America claimed that RealDVD illegally circumvented the anti-piracy technology embedded in DVDs. The DVD Copy Control Association, which licenses Hollywood-sanctioned copyright-protection technology, joined the suit later, claiming RealNetworks was also in violation of its DVD CCA license.

The settlement was announced less than two months after RealNetworks Chief Executive Rob Glaser stepped down, saying that after 16 years at the helm, it was time to hand over day-to-day operations to someone else. Glaser remains chairman of the company.

Glaser resigned his post shortly after the resignation of chief operating officer John Giamatteo.

Blockbuster Searching for Ways to Claw Back

Reuters

Blockbuster Inc has hired a law firm and an investment bank to explore how the video rental firm can cut its $1 billion debt load, the Wall Street Journal reported on Wednesday.

Law firm Weil, Gotshal & Manges and the bank, Rothschild Inc, will also look at other strategies, such as acquisitions or partnerships, the newspaper said, citing people familiar with the matter.

Bondholders have also begun talking with potential advisers to move towards reworking Blockbuster's capital structure, such as converting debt to equity, the WSJ said.

"We don't contemplate filing for bankruptcy," it quoted Chief Executive Jim Keynes as saying.

Blockbuster is struggling to pare huge debt it inherited a decade ago when it was spun off from Viacom Inc, while trying to handle the increasing challenge from Netflix Inc and Redbox as well as Apple, Amazon.com, Google, Hulu and cable companies that have expanded video-on-demand offerings.

Blockbuster has also been in talks with Hollywood Video rental chain Movie Gallery Inc MVGR.PK, which filed for bankruptcy the second time in three years earlier this month, about acquiring assets, the business daily said.

Last month, the once mighty U.S. video chain, said it had a weaker-than-expected holiday season, fueling concerns about its viability.

The company, which already has sold off most of its international operations and may shut as many as 20 percent of its U.S. stores this year, said it plans to further reduce costs in 2010 and to remain "conservative" in its spending.

However, the restructuring discussions are in early stages and no major actions appear imminent, the paper said.

Blockbuster could not be immediately reached for comment by Reuters outside of regular U.S. business hours.

Wal-Mart, Target Put Squeeze on Redbox

Business Week

DVD buying limits at the leading retailers hurt movie-rental vendors Redbox and NCR's ability to secure a large supply of discs

Wal-Mart is boxing out Redbox. Wal-Mart (WMT), the world's largest retailer, has imposed strict limits on the number of DVDs any one customer can buy at a time, making it harder for movie-rental kiosks such as Coinstar's (CSTR) Redbox to get their hands on large numbers of newly released discs.

The new rules took effect Feb. 1 and include a five-DVD cap on new releases, mirroring limits placed by Target (TGT) in December. Target's cap remains in effect for one week to several weeks after a movie is released to stores.

Redbox and NCR (NCR) are among the largest U.S. operators of DVD-rental kiosks, which rent movies for about $1 a day and, according to Adams Media Research, are the fastest-growing distributors of movie rentals. Kiosk rental sales are expected to rise 42% to $1.3 billion this year, Adams says, stepping up competition vs. other rental services, including Netflix (NFLX), iTunes owner Apple (AAPL), and rental stores such as Blockbuster Entertainment (BBI), which in 2008 reached an agreement to let NCR rent movies under the Blockbuster Express brand.

Limits at Wal-Mart and Target make it all the more urgent that Redbox and NCR find ways to buy DVDs directly from studios. "The more difficult it is for them to get product, the more motivation they have to reach an agreement with the studios," says Tom Adams, president of Adams Media Research. "It increases the pressure because it increases their costs."
 

Customer Rationale

Before the limits, Redbox got about 40% of its new DVDs from retailers, Adams estimates. It and NCR, which operates DVDPlay and Blockbuster Express kiosks, also purchase DVDs directly from some studios. Redbox is in a legal tussle with studios that have refused to make new releases available on the day they become available for sale in stores.

Retailers say they imposed the limits to avoid running short of new releases. "The idea is that our guests have access to the hot DVDs they want," says Target spokesman Joshua Thomas. Wal-Mart spokeswoman Melissa O'Brien says, "From time to time we have placed purchase limits on products at stores so that they can be accessible to as many customers as possible."

Redbox last year reached agreements to distribute new DVDs on their release date from Sony Pictures Home Entertainment and Lions Gate Entertainment (LGF). Paramount Home Entertainment currently offers titles on a limited basis through Redbox; in exchange, Redbox agrees to destroy the titles once they are removed from its kiosks.
 

Dispute with Studios

Redbox has sued Warner Home Video, Universal Studios Home Entertainment, and News Corp.'s (NWS) Twentieth Century Fox to try to force the studios to sell it new releases on the date the DVDs become available in stores. Limits by retailers may force Redbox to accept less favorable terms to resolve the disputes. "We understand that Wal-Mart was quoted as saying they would be implementing purchase restrictions," Coinstar and Redbox said in a statement. "We are currently evaluating this information." The company declined to elaborate, citing legal proceedings. Representatives of all three studios also declined to comment.

For its part, NCR said it's trying to reach agreements with studios by mid-year. "We have the same challenges in securing DVDs" as Redbox, says Alex Camara, a general manager at NCR. "We are working closely with the studios to find a solution. My intention is to have agreements by spring [or] early summer."

Redbox kiosks are located in more than 19,000 locations, including Wal-Mart, grocery stores, and McDonald's (MCD) restaurants. NCR's 4,000 kiosks are located in Safeway (SWY) and other stores.