Direct Revenue Sharing Adjustable License Agreement

Exhibit 10.9


DIRECT REVENUE SHARING ADJUSTABLE LICENSE AGREEMENT


THIS AGREEMENT (the "Agreement") is made the 13th day of October, 1998 (the "Effective Date").


BETWEEN:


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


(2) UNIVERSAL STUDIOS HOME VIDEO whose principal place of business is at 100 Universal City Plaza, Universal City, California 91608 (hereinafter referred to as "USHV," which shall be deemed to include its permitted assigns once assigned).


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


(C) USHV and Blockbuster are willing to enter into this Agreement under which Blockbuster licenses, and has the option to purchase at the end of the Revenue Sharing Period from USHV, the specified number of Copies of each Rental Picture set forth herein;


(D) Blockbuster is willing 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 D, 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 USHV, all companies which are controlled by or in which USHV has a controlling interest or which have a common direct or indirect parent; and (ii) in the case of Blockbuster, all companies which are controlled by or in which Blockbuster has a controlling interest or which have a common direct or indirect parent.


b. "Agreement Year" shall mean a twelve (12) month period commencing on the Effective Date of this Agreement. Each year in the Term may be referred to as an "Agreement Year" or "Agreement Year One" or "Agreement Year Two."


c. "Bad Debt" shall mean *


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


e. "Copy(ies)" shall mean English language and Spanish sub-titled VHS videocassettes of the Rental Pictures licensed by Blockbuster from USHV for Home Video Distribution. All other formats, including laserdisc, digital, divx and DVD are not included under this Agreement.


f. "Damaged Copies" shall mean those Copies which become materially damaged by Participating Store personnel, customers, or otherwise, during the first ninety (90) calendar days of the Revenue Sharing Period.


g. "Defective Copies" shall mean those Copies that are mechanically defective, mispackaged or contain extraneous material. Such extraneous material may include, without limitation, pornographic, obscene or scenes of an inappropriate nature placed on Copies, provided, however, that such extraneous material shall not include the actual feature motion


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under an application for confidential treatment.


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picture content or trailers so long as such content is not altered in any way and is in compliance with the MPAA rating and the definition of Rental Pictures.


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


i. "Dreamworks Pictures" shall mean all pictures, whether theatrical-length or otherwise, for which USHV provides fulfillment services under its Dreamworks deal agreement.


j. "Franchise Stores" shall mean Blockbuster franchise stores designated by Blockbuster from time to time as ordering Copies through Blockbuster. If a Franchise Store elects to participate hereunder and is therefore designated by Blockbuster pursuant to this Paragraph, it shall be deemed a Participating Store.


k. "Gross Box Office" or "GBO" shall mean the box office gross receipts earned by a Rental Picture in the United States and Canada measured from the Rental Picture's initial theatrical release in the Territory until the date licensed by Blockbuster, as reported by HOLLYWOOD REPORTER or VARIETY.


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


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


n. "Non-Theatrical Rental Pictures" shall mean each and every non-theatrical feature motion picture for which USHV owns or controls Home Video Distribution Rights in the Territory except for Dreamworks Pictures, 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 either not rated or which have a rating of NC17 or more restrictive); (3) is not a sports event, concert film, stage play, foreign film, (with the exception of foreign produced films in the English language), documentary, video or theatrical re-release, or library film; and (4) is initially distributed by USHV via a medium other than theatrical release (e.g., via home video, cable, pay or free television exhibition) which when released on videocassette is priced and distributed by USHV at the then current "wholesale price for rental" now estimated at Fifty-eight Dollars (US$58.00) (as opposed to a "sell-through price"), and is intended by USHV to be rented rather than sold to consumers. If USHV and a third party execute a direct


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revenue sharing agreement which contains more favorable compensation terms than the terms of this Agreement (the "New Output Agreement"), then Blockbuster shall have the option to substitute all, but not less than all, of the terms of the New Output Agreement for the terms of this Agreement during the remainder of the Term of this Agreement. Further, USHV shall exercise practices relating to the acquisition and distribution of Rental Pictures throughout the Term of this Agreement substantially similar to those in which it engages at the time of entering this Agreement, and to the extent such practices deviate, it shall be a basis for Blockbuster to refuse any Rental Picture.


o. "Participating Store" shall mean (i) any Video Store in the United States, which at any time during the Term of this Agreement, is wholly owned and/or operated by Blockbuster 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 any time during the Term of this Agreement, is wholly owned and/or operated by Blockbuster or its Affiliates not under the Blockbuster trademarks; and (iii) Franchise Store. With regard to Blockbuster stores in Canada, it shall mean those stores designated by Blockbuster or an Affiliate from time to time as ordering Copies through Blockbuster. For Copy quantity allocation purposes, Kiosks and Video Vending Machines (the "Special Formats") shall not be included in the definition of "Participating Stores." Blockbuster will continue to test various Special Formats and at the time of general adoption by Blockbuster of a Special Format following completion of a test, the parties shall discuss the results of the test and mutually develop a matrix to facilitate the license of Copies for such Special Formats.


p. "Promotional and Operational Credits" shall mean *


q. "Rental Picture" and "Theatrical Rental Picture" shall mean each and every feature motion picture for which USHV owns or controls Home Video Distribution Rights in the Territory except for Dreamworks Pictures, 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 either not rated or which have a rating of NC17 or more restrictive); (3) is not a sports event, concert film, stage play, foreign film (with the exception of foreign produced films in the English language), documentary, video or theatrical re-release, or library film; and (4) is distributed by USHV when initially released on videocassette, is


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


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priced and priced by USHV at the then current "wholesale price for rental" now estimated at Fifty-eight Dollars (US$58.00) (as opposed to a "sell-through price"), and is intended by USHV to be rented rather than sold to consumers. If USHV and a third party execute a direct revenue sharing output agreement which contains more favorable compensation terms than the terms of this Agreement (the "New Output Agreement"), then Blockbuster shall have the option to substitute all, but not less than all, of the terms of the New Output Agreement for the terms of this Agreement during the remainder of the Term of this Agreement. Further, USHV shall exercise practices relating to the acquisition and distribution of Rental Pictures throughout the Term of this Agreement substantially similar to those in which it engages at the time of entering this Agreement, and to the extent such practices deviate, it shall be a basis for Blockbuster to refuse any Rental Picture.


r. "Rental Revenue" shall mean the *


s. "Rental Transaction" shall mean that period of time that a title is rented to a customer, including any extended viewing period, as defined by Blockbuster's then current practices across all videocassettes available for rental from all videocassettes suppliers.


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


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


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


2. AGREEMENT TERM:


The term of this Agreement shall be for two (2) years (the "Term"), commencing as of the Effective Date.


3. TERRITORY:


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under an application for confidential treatment.


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The territory for purposes of this Agreement with respect to each Rental Picture shall be the United States, its territories and possessions, if and to the extent USHV owns or controls such rights to territories and possessions of the United States (the "Territory"). Blockbuster and USHV 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.


4. BLOCKBUSTER COMMITMENTS:


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


a. License: The following terms shall apply to Rental Pictures:


(1) REVENUE SHARES COPIES: For each and every * licensed pursuant
to this Agreement, Blockbuster agrees to license, and USHV agrees to
license to Blockbuster, * the Base Units number of Copies set forth in
the Matrices attached hereto as EXHIBIT A and EXHIBIT B ( * ), and made
a part hereof. For each and every * licensed by Blockbuster pursuant to
this Agreement, Blockbuster agrees to license from USHV, and USHV
agrees to license to Blockbuster a quantity of not less than the * Base
Units number of Copies as set forth on the Matrix multiplied by * and
up to, in Blockbuster's discretion, an aggregate of * the Base Units
number of Copies as set forth in EXHIBIT A and EXHIBIT B. The total
number of Copies licensed by Blockbuster pursuant to this subparagraph
may hereinafter be referred to as the "Revenue Share Copies."
Blockbuster may retain up to * of the Revenue Share Copies at its
Distribution Center for replenishment, new Participating Stores and
unexpected spikes in product performance (the "Excess Copies").
Blockbuster and USHV acknowledge that the * equal to or greater than *
and therefore, the parties shall negotiate in good faith with respect
to each * which shall be for terms * than the terms of this Agreement.


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under an application for confidential treatment.


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(2) RENTAL REVENUE: The percentage of Rental Revenue on all
Revenue Share Copies (excluding * ) paid by Blockbuster to USHV shall
be as follows, unless USHV * under Paragraph 4.c., in which event
Paragraph 4.a.(2)(b) shall apply:


(a) If USHV * under Paragraph 4.c. below:


(1) * Pictures


(i) For each and every * with a GBO of *
released by USHV in the Territory, the * per Base
Units Copy of each Rental Picture * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing Period,
unless such Copy is purchased sooner by Blockbuster
according to Paragraph 4.c.


(ii) For each and every * , and * (as provided
in subparagraph * below) to be selected * by the
parties, all of which shall have a GBO of * and be
released by USHV in the Territory, the * per Base
Units Copy of each Rental Picture * of the Rental
Revenue derived from the Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing
Period, unless such Copy is purchased sooner by
Blockbuster according to Paragraph 4.c.


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


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(iii) For each and every * with a GBO of *
released by USHV in the Territory * of the Rental
Revenue derived from the Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing
Period, unless such Copy is purchased sooner by
Blockbuster according to Paragraph 4.c.


(iv) There shall be no cross collaterization of
any kind under the Agreement including, without
limitation, between Rental Pictures.


(2) * Pictures: For each and every * of the Rental
Revenue derived from Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the Revenue Sharing Period, unless
such Copy is purchased sooner by Blockbuster
according to Paragraph 4.c.


(b) If USHV * under Paragraph 4.c. below:


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under an application for confidential treatment.


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(1) * Pictures:


(i) For each and every * with a GBO of * or
more released by USHV in the Territory, * of the
Rental Revenue derived from the Revenue Share Copies
of each Rental Picture during the * of the applicable
Revenue Share Period and * of the Rental Revenue
derived from the Revenue Share Copies of each Rental
Picture * of the applicable Revenue Share Period.


(ii) For each and every * and * (as provided in
subparagraph * below) to be selected and mutually
agreed upon by the parties, all of which shall have a
GBO of * and be released by USHV in the Territory, *
of the Rental Revenue derived from the Revenue Share
Copies of each Rental Picture during the * of the
applicable Revenue Share Period and * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the * of the applicable Revenue
Share Period.


(iii) For each and every * with a GBO of *
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