Revenue Sharing Agreement

Exhibit 10.8


REVENUE SHARING AGREEMENT


THIS AGREEMENT (the "Agreement") is made the 25th day of August, 1998 (the "Effective Date").


BETWEEN:


(1) BLOCKBUSTER VIDEOS, INC. whose principal place of business is at 1201 Elm Street, Dallas, Texas 75270 (hereinafter referred to as "Blockbuster," which following assignment shall include its actual assigns); and


(2) COLUMBIA TRISTAR HOME VIDEO, INC. whose principal place of business is at 10202 West Washington Boulevard, Culver City, California 90232-3195 (hereinafter referred to as "CTHV," which shall be deemed to include its permitted assigns).


WHEREAS:


(A) Blockbuster and certain of its Affiliates (the terms initially capitalized in this Agreement and not otherwise defined herein shall have the respective meanings set forth in Paragraph 1 of this Agreement) own, operate and franchise retail stores which, among other things, rent, sell and market pre-recorded videocassette tapes to the general public; and


(B) CTHV and certain of its Affiliates acquire, produce, license, market and sell motion pictures on pre-recorded videocassette tapes; and


(C) CTHV is willing to provide Copies of each Rental Picture and each * to Blockbuster; and


(D) Blockbuster is willing to obtain, on the terms and subject to the conditions hereinafter set forth, a specified number of Copies of each Rental Picture and each * distributed by CTHV during the Term; and


(E) Blockbuster is willing and has the operational capacity to report electronically on an ongoing basis during the Revenue Sharing Period information as to the rental of Copies per Rental Picture as set forth in Exhibit C, attached hereto and made a part hereof.


- ---------- * Pages where confidential treatment has been requested are stamped
"Confidential material omitted and separately filed with the Commission
under an application for confidential treatment", and the confidential
section has been marked with a star (*).


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NOW THEREFORE, based on the above premises and in consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


1. DEFINITIONS:


a. "Affiliate" shall mean (i) in the case of CTHV, Sony Pictures Entertainment Inc. ("SPE") and all entities controlled by SPE; and (ii) in the case of Blockbuster or Blockbuster Entertainment Inc., all companies which are controlled by Blockbuster and/or Blockbuster Entertainment Inc. or which have a common direct or indirect parent.


b. Bad Debt shall mean *


c. "Blockbuster Headquarters" shall mean the corporate office of Blockbuster located at 1201 Elm Street, Dallas, Texas 75270.


d. "Copy(ies)" shall mean VHS videocassettes of the Rental Pictures and * obtained by Blockbuster from CTHV for Home Video Distribution. Other formats, including, without limitation, laserdisc and DVD, are not included under this Agreement.


e. * shall mean each and every feature motion picture for which CTHV owns or controls Home Video Distribution Rights in the Territory, provided such picture: (1) is at least seventy (70) minutes in length; (2) is within Blockbuster's guidelines of the MPAA rating systems (i.e., Blockbuster does not make available for rental to its customers pictures which are not rated or which have a rating of NC17 or more restrictive); (3) is not a documentary, foreign language film (excepting those qualifying under subparagraph g. of this Paragraph 1), sports event, concert film, stage play, video or theatrical re-release, or library/category film; *


f. "Distribution Center" shall mean Blockbuster's distribution center that is currently in McKinney, Texas. Blockbuster may add an additional two (2) delivery points at its option.


g. * shall mean each and every * feature motion picture which is * for which CTHV owns or controls Home Video Distribution Rights in the Territory, provided such picture: (1) is at least seventy (70) minutes in length; (2) is within Blockbuster's guidelines of the MPAA rating system (i.e., Blockbuster does not make available for rental to its customers pictures which are not rated or which have a rating of NC17 or more restrictive); (3) is not a documentary, sports event, concert film, stage play, video or theatrical re-release, or library/category film; *


- ---------- * Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.


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Video Distribution Rights in the Territory that fails to satisfy the requirements set forth in this subparagraph shall not be subject to this Agreement.


h. "Franchise Stores" shall mean Blockbuster franchise stores that are operated pursuant to binding franchise agreements. If designated by Blockbuster as ordering Copies through Blockbuster, such Franchise Store shall become a Participating Store.


i. "Gross Box Office" or "GBO" shall mean the box office gross receipts, as reported by VARIETY, earned by a Rental Picture or * in the United States and Canada measured from the Rental Picture or * initial theatrical release in the Territory through the date ordered by Blockbuster.


j. "Home Video Distribution" or "Home Video Distribution Rights" shall mean the right to manufacture, record, sell and/or otherwise distribute a motion picture on videocassette.


k. The "Matrix" shall mean Exhibit A, attached hereto and made a part hereof, which sets forth the obligations for Rental Pictures, *. The Matrix is based on the following assumptions: *


l. "Missing Copies" shall mean those Copies of a particular Rental Picture that are unaccounted for due to theft or loss occurring outside of the ordinary course of business. Blockbuster, in its good faith discretion, will determine if a Copy is lost or stolen.


m. "Month" or "Monthly" shall mean Blockbuster's accounting cycle that is based upon a four week, four week, five week rotation as set forth in Exhibit B, attached hereto and made part hereof.


- ---------- * Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.


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n. "Participating Store" shall mean (i) any Video Store in the United States, which at the relevant time during the Term of this Agreement, is wholly owned and/or operated by Blockbuster and/or its Affiliates under the Blockbuster trademarks; (ii) if designated by Blockbuster as ordering Copies through Blockbuster, any Video Store in the United States, which at the relevant time during the Term of this Agreement, is wholly owned and/or operated by Blockbuster and/or its Affiliates not under the Blockbuster trademarks which elect to participate pursuant to the terms and conditions hereof; and (iii) Franchise Stores which elect to participate pursuant to the terms and conditions hereof. For Copy quantity allocation purposes, Kiosks and Video Vending Machines (the "Special Formats") shall not be included in the definition of "Participating Stores."


o. "Promotional Credits" shall mean *


p. "Rental Picture" shall mean each and every feature motion picture for which CTHV owns or controls Home Video Distribution Rights in the Territory, provided such picture: (1) is at least seventy (70) minutes in length; (2) is within Blockbuster's guidelines of the MPAA rating system (i.e., Blockbuster does not make available for rental to its customers pictures which are not rated or which have a rating of NC17 or more restrictive); (3) is not a documentary, foreign language film (excepting those qualifying under subparagraph g. of this Paragraph 1), sports event, concert film, stage play, video or theatrical re-release, or library/category film; and (4) is one theatrically distributed, which when initially released on videocassette is priced and distributed by CTHV at a "rental price" and no less than a "net effective unit price" of at least *, as such terms are generally understood in the home video industry in Los Angeles, California. "Net effective unit price" shall mean the price invoiced and accrued (before adjustment for any marketing support funds) for each Copy of a specific Rental Picture by the videocassette distributor, supplies and/or retail/rental outlet which purchases videocassettes directly from CTHV other than through leasing and/or "buy back" programs. *. Every other feature motion picture for which CTHV owns or controls Home Video Distribution Rights in the Territory that is priced and distributed by CTHV that fails to satisfy the requirements set forth in this subparagraph shall not be subject to this Agreement.


- ---------- * Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.


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q. "Rental Revenue" shall mean *


r. "Revenue Sharing Period" shall mean the period commencing on the Video Street Date of the relevant Rental Picture and running through the end of twenty-six (26) weeks immediately thereafter.


s. "Video Store" shall mean a retail outlet that has at least one thousand five hundred (1,500) square feet and that is primarily engaged in the rental of videocassettes to the public for home viewing entertainment purposes.


t. "Video Street Date" shall mean, with respect to any Rental Picture, the first date on which, in the Territory, both: (i) such Rental Picture is authorized by CTHV for Home Video Distribution, and (ii) Copies of such Rental Picture are actually available to the general public at Participating Stores.


2. AGREEMENT TERM:


The term of this Agreement shall be for four (4) years (the "Term"), commencing as of September 1, 1998.


3. TERRITORY:


The territory for purposes of this Agreement with respect to each Rental Picture shall be the United States, its territories and possessions, if any to the extent CTHV owns or controls such rights to territories and possessions of the United States (the "Territory"). Blockbuster and CTHV agree to discuss the inclusion of Canada, its provinces, territories and possessions in the Territory in accordance with the terms and conditions of this Agreement or comparable terms mutually agreed upon by the parties; provided however, that neither party shall have any obligation to agree to such inclusion.


- ---------- * "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".


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4. BLOCKBUSTER COMMITMENTS:


Beginning as of the date of this Agreement for Participating Stores, Blockbuster agrees as follows:


a. The following terms shall apply to Rental Pictures:


(1) Rental Pictures * . For each and every Rental Picture *
Blockbuster agrees to obtain from CTHV, and CTHV agrees to
provide to Blockbuster, a specified number of Copies of each
Rental Picture as mutually determined by Blockbuster and
CTHV, provided however, that if the parties cannot agree on
a quantity of Copies, Blockbuster agrees to obtain from CTHV,
and CTHV agrees to provide to Blockbuster, the number of
Revenue Share Copies of each Rental Picture as set forth in
the Matrix, EXHIBIT A.


(2) *


(3) *


Blockbuster may retain up to * of the Revenue Share Copies of each
Rental Picture (including * ) at its Distribution Center
for replenishment, new Participating Stores and unexpected spikes in
product performance (the "Replenishment Copies").


(4) Upfront Price: The price of each Revenue Share Copy shall be
an amount (the "Upfront Price") equal to * per Revenue Share
Copy per Rental Picture. * . See Exhibit D attached hereto
and made a part hereof, for illustration purposes only.


(5) *


- ---------- * Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.


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(6) * See Exhibit E, attached hereto and made a part hereof, for
illustration purposes only.


(7) *


(8) CTHV's Share of Rental Revenue: * the share of Rental
Revenue paid by Blockbuster to CTHV shall be:


(a) During the first * of the Revenue Sharing Period, * of
the Rental Revenue *


(b) During the * of the Revenue Sharing Period, *


(c) Two Dollars (US $2.00) of the Upfront Price shall be
deducted from CTHV's share of Rental Revenue for each Copy.


(9) Payment. Blockbuster shall pay: (i) the Upfront Price within
* calendar days following the end of the calendar month in
which the Copies are * ; (ii) CTHV's share of the Rental
Revenue * calendar days following the end of the relevant
Month, or portion thereof, in which revenue is received
during the Term; *


b. Participating Franchisees: Blockbuster may distribute Copies of the
Rental Pictures received under this Agreement to its Franchise Stores
which have elected to be governed by the terms and conditions of this
Agreement for all Rental Pictures whose


- ---------- * "Confidential material omitted and separately filed with the Commission
under an application for confidential treatment".


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Video Street Dates fall within a consecutive period of no less than six
(6) months, provided however, that if a Franchise Store elects to
discontinue participation hereunder, any Rental Pictures for which
orders have been placed or in its possession shall continue to be
subject to the terms of this Agreement for the applicable Revenue
Sharing Period until such Copies are returned to CTHV or sold by
Blockbuster (in accordance with Paragraph 4.c below) and all parties
shall remain obligated to perform their respective obligations with
respect thereto under this Agreement. Terms for implementation of this
Agreement at the franchise level and franchise payments thereunder will
be controlled and administered by Blockbuster. For purposes of this
Agreement and to the extent a Franchise Store elects to participate
under this Agreement, such Franchise Store shall be considered a
Participating Store. For the purposes of payment only and in the event
that a Franchise Store which has elected to participate hereunder is
unable to pay when due any amounts due and owing to CTHV, Blockbuster
shall pay CTHV any undisputed amount pursuant to Paragraph 4.a(9) of
this Agreement.


c. Sell-Off: Blockbuster agrees not to sell off any Copies of a Rental
Picture during the first * days of the applicable Revenue Sharing
Period. * , Blockbuster may sell up to * . At the expiration of the
relevant Revenue Sharing Period, Blockbuster may sell * Blockbuster
agrees not to sell and to use reasonable commercial business efforts to
prevent its Participating Stores from selling Copies other than
directly to consumers or Franchise Stores for home video use (i.e., no
bulk sales or sales to wholesalers or distributors). Notwithstanding
the preceding sentence, Blockbuster may sell "distressed" (i.e.,
broken-not capable of viewing) Copies of the Rental Pictures to
wholesalers and jobbers. Sell-off revenue is not included in Rental
Revenue.


d. Packing and Shipping: Blockbuster will be responsible for making the
Copies ready for consumer rental and for shipping the Copies for its
Distribution Center to its Participating Stores.


e. Missing Copies: During the first sixty (60) days of the applicable
Revenue Sharing Period, Blockbuster agrees to pay to CTHV * less the
Upfront Price and revenue share amounts already paid to CTHV for any
Missing Copy. Blockbuster shall notify CTHV of any theft or loss of any
Copy that occurs outside of the ordinary course of business at the time
Blockbuster discovers the same.


f. Damaged/Defective: "Damaged Copies" shall mean those videocassettes
which become materially damaged by Participating Store personnel,
customers, or otherwise, during the Revenue Sharing Period. "Defective
Copies" shall mean those Copies that are


- ---------- * Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.


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mechanically defective, mispackaged or contain "extraneous material"
(as defined in Paragraph 9(i) below). CTHV shall deliver to
Blockbuster, at no cost, additional Copies of each Rental Picture in
the amount of * of the Base Buy Copies as set forth on Exhibit A for
Blockbuster to retain at its Distribution Center and to use solely, in
its discretion, as replacement of Defective Copies and Damaged Copies;
provided however, that if any of these Copies are placed in the
Participating Stores, CTHV shall receive its share of the Rental
Revenue for the Copy used to replace the Damaged or Defective Copy
since no Rental Revenue will thereafter be generated from the Damaged
or Defective Copy.


g. *


5. CTHV COMMITMENTS:


a. Grant: CTHV grants Blockbuster the right, and Blockbuster hereby
obligates itself, to distribute the Revenue Share Copies of the Rental
Pictures (excluding Replenishment Copies) for placement on the shelves
of its Participating Stores during the applicable Revenue Sharing
Period, for the transfer of possession on a temporary or permanent
basis consistent with this Agreement to members of the general public
for home viewing purposes. CTHV is obligated to ship the Copies to
Blockbuster pursuant to the terms and conditions of this Agreement.


b. Marketing-Support: In lieu ...