Zediva is nuked, Hollywood rejoices

A federal court has issued a preliminary injunction [PDF] against Santa Clara–based Zediva, essentially ordering a shutdown of its low-cost streaming-movie-rental service. The decision comes less than six months after the launch of the service, which aimed to curtail streaming licensing fees by renting and streaming DVDs over the Internet.

Zediva launched in March, hoping to build a business from what it saw as a loophole in the way that DVDs are rented and how streaming-video-on-demand services license content. It built out a data center that housed numerous DVD players, which were hooked up to servers to deliver streaming “rentals” of those DVDs over the Internet.

As a result, Zediva was able to offer streaming rentals at a much lower price than competing services that licensed the content for streaming. While most new releases on online VOD services like iTunes (s AAPL) or Vudu (s WMT) are priced at around $5 each, Zediva was offering rentals for $1.99 or a package of 10 rentals for $10. It was also able to offer new releases sooner than competing subscription VOD services like Netflix,(s NFLX) which must wait for titles to hit a certain distribution window before they’re available for streaming. Because it was buying the DVDs, it could offer new titles as soon as new releases were available for sale in stores.

It didn’t take long before Zediva was sued by a group of Hollywood studios that were unhappy with the startup’s interpretation of the law and its attempt to avoid streaming licensing fees. In April, a group of studios that included Warner Bros.,(s TWX) Columbia Pictures,(s SNE) Disney Enterprises,(s DIS) Paramount,(s VIA) 20th Century Fox (s NWS) and Universal (s CMCSA) took Zediva to court, arguing that the startup was relying on “technical gimmicks” to avoid complying with U.S. copyright law.

On Monday, U.S. District Judge John Walter sided with the studios, granting a preliminary injunction against the service that will essentially shut it down. The judge’s decision shoots down Zediva’s arguments that its rentals were not being displayed to the public as determined by copyright law and also argues that Zediva’s own comparison of its service to Cablevision’s landmark network DVR case (s CVC) were invalid.

But ultimately, all loopholes aside, the court’s decision comes down to the fact that the studios should have the rights to negotiate their own deals. From the court’s filing:

As the copyright holders, Plaintiffs have the exclusive right to decide when, where, to whom, and for how much they will authorize transmission of their Copyrighted Works to the public . . . However, because Defendants operate in violation of Plaintiffs’ copyrights and without any license, they have and will perform works during these negotiated exclusivity periods. Thus, Defendants interfere with Plaintiffs’ grants of exclusivity to their licensees, Plaintiffs’ ability to negotiate similar agreements in the future (because potential licensees will not be willing to pay a premium for a non-exclusive period), Plaintiffs’ relationships, including the goodwill developed with their licensees, and Plaintiffs’ overall ability to control the use and transmission of their Copyrighted Works.

Zediva says it’s not giving up without a fight and plans to appeal the decision. In a statement, it wrote:

Today’s ruling represents a setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services. Zediva intends to appeal, and will keep fighting for consumers’ right to watch a DVD they’ve rented, whether that rental is at the corner store or by mail or over the Internet.