Walmart may pay as much as $40 million in store gift cards to members of a class-action lawsuit alleging the retail giant colluded with Netflix to reduce competition in the DVD business (via paidContent).
The suit was originally filed in a Washington federal court in 2009 by a Seattle-area Netflix subscriber. It is now in a federal court in Oakland, Calif., where presiding judge Phyllis J. Hamilton granted class-action certification to the plaintiffs (via the Los Angeles Times/Bloomberg).
The suit claims that Netflix and Walmart ran afoul of antitrust laws in 2005 when they agreed to steer clear of each otherâ€™s DVD business as part of a cross-promotion deal. Netflix stopped selling previously viewed discs, while Walmart ended its own DVDs-by-mail rental service (which, according to estimates at the time, had attracted as many as 200,000 subscribers). The agreement, according to the suit, effectively eliminated downward price pressures on DVD sales and rental services, to the detriment of DVD consumers.
Interestingly, reports of the Netflix-Walmart agreement voiced no collusion concerns when the deal was announced: see, e.g., the New York Timesâ€™ write-up from May 2005. But current market conditions â€” a soaring stock valuation for Netflix, as Blockbuster plods through bankruptcy â€” have seemingly thrown the 2005 deal into an antitrust relief for the press. The Huffington Post, for example, headlines the deal as a â€śconspiracy.â€ť
Todayâ€™s market is more nuanced than disc rentals and sales. Retailers from Walmart itself (through its Vudu subsidiary) to Sears (through a new unit called Alphaline Entertainment, via The Atlantic) aim to compete against Netflix in streaming movies and videos direct to home computers and TVs.
Netflix, for its part, reportedly plans to continue defending itself in the class-action suit despite Walmartâ€™s settlement.Â The case is Magee v. Netflix Inc. et al., 4:09-cv-01793, U.S. District Court, Northern District of California (Oakland).