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The Associated Press reports that more than 25 million current and former Netflix subscribers are being offered what is described as a “sliver” of a $27.5 million settlement related to price fixing charges against Walmart and Netflix - less than one dollar apiece after lawyers’ fees of more than $7 million are taken out.

According to the story, the settlement offer comes from Walmart - which is not admitting any wrongdoing - and goes back to the company’s decision in 2005 to get out of the DVD rental business and outsource it to Netflix: “Wal-Mart's retreat from DVD rentals represented a David-versus-Goliath victory for Netflix. But another large company, Blockbuster, still loomed as an imposing threat. Netflix lowered its prices and prevailed in that clash too, culminating in Blockbuster's bankruptcy last year.

“As Wal-Mart and Blockbuster fell by the wayside, Netflix's growth rapidly accelerated ... Dozens of lawsuits filed in state and federal cases alleged Netflix wouldn't have done as well had it not secretly negotiated with Wal-Mart to divide up the DVD market. The lawsuits, which were eventually consolidated into the federal case in Oakland, contend the alleged agreement kept the prices to rent and buy DVDs much higher than they otherwise would have been. The suit points to internal Netflix documents indicating that Netflix was considering lowering the monthly price on its most popular subscription plan from $22 to $16 per month just before Wal-Mart dropped out.”

Netflix says that there was no price fixing, and that Walmart simply dropped out because it could not compete in the rental business.

AP writes that “most people covered by the agreement were notified when the details were sent in mass e-mails late Tuesday. A federal court judge gave tentative approval of the settlement in early September. A final hearing on the settlement's merits is scheduled March 14 before U.S. District Judge Phyllis Hamilton in Oakland, Calif.”
KC's View:
There is much about this story that does not make sense, at least not to me.

First of all, how come Walmart is writing a check and not Netflix? Am I missing something?

Second, maybe it is just me, but if I were Netflix and had planned to lower my prices to better compete with Walmart and Netflix ... and then Walmart decided to outsource its DVD rental business to me, and I thought that I had Blockbuster on the ropes ... then I might decide not to lower my prices, simply because I might not have to.

Is this price fixing? And besides - and I realize this exposes my stunning lack of legal knowledge - how come two partners in a business venture are not allowed to discuss how to price their product in a competitive way?

On the other hand, Walmart is willing to write a $27.5 million check...so there must be some fire somewhere, and not just smoke.