Starz sues Disney over downloads
Says release of movies online same day as DVD release is breach of contract
By Jennifer Netherby -- Video Business, 3/22/2007
MARCH 22 | Challenging the major studios’ inclusion of Internet downloads in the DVD window, pay TV service Starz Entertainment filed suit today against the Walt Disney Co.’s Buena Vista Television for copyright infringement and breach of contract over the studio’s deals with iTunes, Wal-Mart and other video download services that offer movie downloads the same day a film debuts on DVD.
Starz says it has an exclusive license period to distribute Disney movies through TV and electronic delivery, under terms of a deal first signed in 1993 and extended in 2005. That deal, according to Starz, prohibits Disney from selling movies over the Internet before Starz’s exclusive license period is over. Starz offers movies through its subscription TV service and online through Vongo, a subscription Internet movie service launched last year.
As part of Starz’s deal with Disney, the studio is allowed to distribute films via pay-per-view or video-on-demand to other companies for a limited period of time and on home video, which according to the contract covers a “motion picture embodied in a video device which is a physical entity.” Aside from that, Starz says in the suit, Disney is prohibited from licensing films for “exhibition in any form of TV or electronic delivery.”
In a statement Buena Vista Television disputed Starz claims in the suit, which was filed this morning in the U.S. District Court for the Central District of California.
"We believe Starz misreads its agreement with Buena Vista Television and that its claim is without merit. BVT retained and has the right to sell its motion pictures in a wide range of mediums," BVT's statement read.
Starz is seeking to stop Disney from selling the movies online and to recoup lost revenue from those download sales.
Starz says in the suit that over the life of its contract with Disney, Starz has paid Disney more than $1 billion for those rights.
Impediment to downloads
Wedbush Morgan analyst Michael Pachter said that if Starz were to win the suit, it would be an impediment to downloads. But he speculated that Starz might instead use the suit as a way to negotiate a shorter window for Disney films to debut on Vongo and its pay-TV channel.
The lawsuit comes days after Apple began shipping its Apple TV, which allows users to transfer iTunes movies from their computer to the TV.In the suit, Starz refers to Apple TV as a “modern-day cable TV box with the ability to directly compete with and supplant Starz pay-TV services during the very periods expressly prohibited by the license agreements.”
Disney’s deal with Starz lasts through 2010, when the studio has the option of renewing it for three more years, Southwick said.
Issue is copyright
Saying Starz would like to continue working with Disney, Starz Entertainment CEO and chairman Robert B. Clasen said in a statement that at issue is copyright, noting the studios have fought hard on that front recently.
“If Disney is permitted to violate our contract in this manner, it will undermine the integrity of copyright in general, which is a cornerstone of our industry,” Clasen said.
“It is especially disappointing to see one of the largest studios ignore so blatantly its own contractual obligations to protect the copyrights it has licensed to Starz,” he said.
Starz sued Disney in 2004 in a similar suit over the company’s deal with MovieBeam, an over-the-air movie rental service that was previously owned by Disney. That suit was ultimately dropped.
Starz also has a licensing deal with Sony for its movies, however, Starz senior VP Tom Southwick said that deal differs from the one with Disney.
Southwick said Starz isn't opposed to Internet-delivery of movies but views Internet delivery as similar to TV delivery and not similar to a DVD release.
"It's much more akin to broadcast TV. It's over the Internet, rather than over the airwaves," he said.
Studios began offering movies as a permanent download the same day they are released on DVD last April, treating permanent downloads similar to a DVD release.
Disney signed its first download-to-own deal with CinemaNow in May followed by a deal with iTunes in September. Studios have only offered movie rentals via download during the limited pay-per-view window.
