OPINION: Trust’s worth
By Paul Sweeting -- Video Business, 7/6/2007
JULY 6 | WHAT IS IT about Blu-ray backers that they can’t seem to shake the interest of anti-trust investigators?
Paul Sweeting is editor of Content Agenda
Right before the July 4th holiday in the U.S., the Wall Street Journal broke the news that investigators for the European Commission, the executive arm of the European Union, have stepped up their probe of Blu-ray and HD DVD.
According to the report, the investigators sent letters in mid-June to the Hollywood studios seeking files, e-mails and phone records relating to their decisions to back one or the other of the new high-def disc formats. The companies were given until July 6 to reply.
The latest request for information comes roughly a year after the EC first started fishing around about Blu-ray and HD DVD.
In July 2006, investigators also sent letters to the studios seeking information on how they came to decide to back one format or the other. That inquiry seemed to go quiet for awhile, but clearly hasn’t gone away completely.
In fact, investigators’ interest seems to have grown keener and to have narrowed its focus to Blu-ray.
According to sources “familiar with the situation,” cited by the Journal, investigators seem particularly interested in statements made by some Blu-ray executives at the Consumer Electronics Show in January regarding certain studios’ exclusivity to Blu-ray.
In their formal request to one studio, the Journal reports, investigators sought information about the studios’ decision to release movies exclusively on Blu-ray and not on HD DVD. The request also asked for records of any communications regarding both formats with certain “individuals associated with Blu-ray.”
IF THE EUROPEAN Commission’s interest has indeed narrowed to Blu-ray, it would not be the first time those behind that format have attracted attention from anti-trust investigators.
Back in 2004, the U.S. Department of Justice made preliminary inquiries into purported efforts by members of the Blu-ray group to use their voting power in the DVD Forum collectively to thwart development of the HD DVD format.
At the time, there were widespread reports that Sony, Matsushita and Panasonic, in particular, used their positions on the DVD Forum steering committee to deny HD DVD-developer Toshiba the absolute majority it needed to pass resolutions, by abstaining from voting.
In fact, the Justice Department’s interest in the actions of the Blu-ray group likely predated the information request in 2004, largely thanks to the efforts of Warner Home Video, which at the time was a strong supporter of the HD DVD format and had complained to Justice officials about Blu-ray’s actions as early as 2002.
Warner ultimately dropped those complaints, and the department’s investigation fizzled out.
But even that investigation was not the first time some of the same Blu-ray companies drew scrutiny from anti-trust regulators.
Back when the original DVD format was being developed, two rival systems were also vying to become the industry standard, in a competition that also pitted Sony and Philips against Toshiba and Time Warner.
The Sony/Philips entry was called Multimedia CD (MMCD), and relied on the same physical disc format as an audio CD, for which Sony and Philips controlled the majority of patents.
Investigators wanted to know whether Sony and Philips were misusing their dominant patent portfolio in the CD arena to induce other companies to support MMCD over the Toshiba/Time Warner system.
The investigation only ended when Sony’s then-new president Noboyuki Idei decided to throw in the towel on the physical format rather than face an escalation in the case.
IT’S HARD TO know what—if anything—to make of this history. No regulatory authority has ever charged any of the companies involved with wrongdoing, and it’s certainly not unheard of for companies to push the edge of the competitive envelope.
But the constant scrutiny can certainly complicate matters for companies trying to do business with the targets of government probes.
The studios have no doubt already spent considerable sums on lawyers to collect and review all the documents requested by the EU investigators, and they can’t be certain that the latest round of requests will be the last.
Those unbudgeted costs are also being incurred at a time when the revenue coming in from high-def releases is tiny.
So far, the studios seem to be treating the added burden as an acceptable cost of doing business in anticipation of a bigger payoff down the road.
That could change, though, if the EU investigators were to start taking depositions.
Much of the Blu-ray camp’s current spin regarding their format’s inevitable triumph would no doubt become the subject of long and painful questioning under oath, while piling up more legal fees and consuming executive’s time.
At that point, you’d better be doing enough business to justify the costs.
Paul Sweeting is editor of Content Agenda. Get more of Sweeting's analysis here.
