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Zediva is nuked, Hollywood rejoices

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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.

9 Responses to “Zediva is nuked, Hollywood rejoices”

    • Look this is how it is big companies can’t stand to see people make money and when they feel threating they sue to stop they treat because they don’t want any one ealse making good money Pluse then actors make way to much anyway

  1. Apparently you forget Redbox tried using the First Sales Doctrine (as I assume Zediva did) and were sued just like Zediva was. Redbox then had to negotiate with the studios for their releases, just like Zediva will have to do if they want to continue their service.

    • Actually Dylan, your wrong about that, Redbox was the ones who sued the studios and the studios ultimately settled with Redbox. I suspect that they were concerned about what would happen if Redbox was actually able to set a precedent. Also now that Redbox is able to “infringe” via their settlement, they’ve become one of Hollywood’s biggest customers out there. I suspect Zediva would become a major purchaser too, if their service is allowed to grow.

      • You’re right, I stand corrected. However I’m sure the studios would’ve sued them eventually regardless.

        Zediva however doesn’t have much of a leg to stand on as the First Sale Doctrine doesn’t cover exhibition.

  2. It’s a shame that when huge companies are violating someone’s intellectual property rights that the courts consistently refuse to issue an injunction until all the appeals are over with, but when a newcomer takes on the establishment, they get shut down without even taking the time to have a trial first. It’s certainly a setup, but this isn’t over by a longshot. Remember, Cablevision lost their first round in court when they established the legality of the remote DVR. Once the judges get a chance to take a closer look at the service, I don’t see how they could rule it illegal.

      • Jensen Gadley

        Hey “guest”, show some balls and try signing your name before insulting someone else’s name and opinion. I also have to say your retort was surprisingly obtuse. How is anyone stealing anything, movies or music. Zediva buys the DVDs and the customer pays for the rentals, how is theft in any form involved? I personally think the courts are being very short sided here. One DVD is watched by one customer and only that one customer. Other than distance, how is that different than Redbox or any other type of movie rental. If multiple households could watch that DVD at the same time, I would agree with the courts. But, the transmission isn’t public, again, only one person can watch a DVD. If 10 different customers want the watch the same movie at the same time, Zedivia has to buy 10 copies of that DVD. I’ll ask again how is that different than Redbox? Again the courts show absolutely no understanding of technology.