Court OKs Film Rentals With Commercials

What home video fans have always feared--clusters of commercials on cassettes--is a step closer.

This time next year, you may have to fast forward through two or three ads on a rental cassette before you get to the movie.

A Kansas federal court apparently opened the floodgates recently with a stunning ruling in favor of Video Broadcasting Systems, a Wichita company that has been putting local ads on rental movies for the last two years.

Home video companies object to these local ads for two reasons: first, because an excess of local ads may turn off renters, and second, because these home video companies don’t get a penny of the local ad revenues.

Seeking to end the local-ad threat, Paramount Home Video sued Video Broadcasting Systems, claiming that company had added local commercials to Paramount videocassettes without authorization. The Paramount suit charged copyright infringement, asserting that the local ads spilled over onto coming attractions and the authorized national ads that Paramount had sold. The studio sought an injunction and $1 million in damages.

In a 38-page opinion, Judge Sam Crow of the U.S. District Court in Wichita denied a preliminary injunction, saying that the ads didn’t violate copyright, trademark or unfair competition laws and also did no damage to Paramount’s product or reputation.

“Had Paramount gotten the injunction, we would have been ruined,” Video Broadcasting Systems President Tim Mead said. “But now we can forge ahead.”

Though it lost this battle, Paramount hasn’t conceded the war. According to Deborah Rosen, the company’s senior vice president of corporate communication, Paramount will pursue further legal action.

The ruling was also a go-ahead signal for the other company peddling local commercials on cassettes, Video Air Time of Midland, Tex, which differs from Video Broadcasting Systems in one important way. While the latter puts the spots on the blank tape preceding the movie, Video Air Time places its ads on tape that is spliced onto the beginning of the cassette.

VBS and VAT get their revenues from advertisers who purchase spots on the cassettes. Then they pay video retailers a fee for the right to add the commercials to the cassettes.

What home video companies fear is that this favorable ruling will not only prompt these two companies to expand their activities but also will attract other entrepreneurs.

Said CBS-Fox executive Dave Goldstein: “This could be the tip of the iceberg. Right now these local ads are a factor in a few small places. But this whole thing could grow.”

Home video companies are worried that these local ads might discourage national advertisers, like Coca-Cola and Pepsi Cola, who make deals for their commercials to be on cassettes.

“National advertisers are concerned about this uncontrolled addition of local ads,” said Jim Davie, president of the Pepsi Cola Entertainment Group. “It’s not a big problem just yet, but it could become one. We want exclusivity. A national advertiser doesn’t want other ads involved. If companies like Paramount can’t guarantee exclusivity, then national advertisers won’t be as interested in making cassette deals in the future.”

What these extra ads do, Davie explained, is increase the likelihood of “zapping”: “The more ads on the cassette, the more likely people are to fast-forward and not even look at them.”

Acknowledging this concern, Mead said a survey is being conducted now to determine how many videocassette commercials people would tolerate.

Mead maintained that issues such as “zapping” are smoke-screens for the bottom-line: money.

“The big problem is that companies like Paramount aren’t getting revenues from local ads,” he said. “I’m prepared to work out deals with them so they’ll get a share of the profits.”

Mead also mentioned a compromise that might keep national advertisers interested in putting ads on cassettes. “We might work out a deal where we wouldn’t put local ads on cassettes until, say, 30-60 days after the movie is released.”

National advertisers haven’t turned their backs on the home-video market just yet, undoubtedly figuring that, right now, local ads are a factor in a small section of the national market. In an effort to discourage the local ads, meanwhile, Orion has eliminated most of the blank tape from the beginning of its cassettes.

Another possible solution for home video companies would require a drastic change in basic industry policy. Instead of selling tapes to retailers, home video companies might lease them. By leasing, the video companies would retain some control over the tapes and might be able to restrict local ads.