Walmart Settles Class Action Netflix Lawsuit, Plaintiffs Can Now Afford That Cup Of Coffee

How many times have you walked around your neighborhood, running errands and generally being the baddest dude on the planet, when you suddenly realize that the freezing chill of winter has rendered you numb with cold.  “Oh wait,” you say, “a coffee shop in the distance, I’ll just pop in for a cup of joe to warm my body and spirit.”  But oh no!  Upon entering said café you find that you have no cash on hand.

Well now you can kiss that problem goodbye, because thanks to the latest class action settlement from Walmart you now have a chance to get enough money to buy that bottomless cup of coffee you were eyeing all along.  Oh, but actually you may want to seek a cheaper beverage because this isn’t the 1950s anymore and that whopping $1.50 you get for filing your claim can’t get you much of anything anymore.

Overly long, but amusing, introductory paragraphs aside, Walmart has just thrown in the towel on its latest class action lawsuit.  The company has agreed to payout a total of $27.25 million to Netflix DVD subscribers.  You may have already gotten an email about it and likely probably deleted thinking it was a Nigerian money scam.  It’s not, by the way.  So if you were a Netflix DVD subscriber between May 19, 2005 to September 2, 2011, you have until February 14, 2012 to file a claim on this website to get a piece of that settlement.

How much of a piece you ask?  Well, as it turns out, only about a $1.50 of that $27.25 million settlement.  The attorneys heading the class action have requested about $6.8 million of the settlement for legal fees and an additional $1.7 million for costs.  At last count, Netflix had about 23.6 million subscribers since last September, so with a little arithmetic and legal history, which states that usually only about half of all class action members ever file a claim, the typical payout per subscriber will only be a slightly over a buck per head.

But hey, money is money, right?  And it’s better that the actual claimants get some of it rather than let it all go to the attorneys.  The bigger head scratcher to most people is probably why they’re getting money in the first place and why Walmart, unlike Netflix, decided to call it quits before the case ever got to court.  Well my friends, it’s a funny tale to say the least.

For those of you following the case, you’ll know that the lawsuit was first filed in 2009 by a few angry Netflix DVD subscribers who didn’t like the sudden increase in Netflix’s monthly fees.  What happened was that back in early 2000s, Walmart launched an ill-fated mail-order DVD rental service á la Netflix.  The new program didn’t do well enough to be very profitable, but it did serve as a thorn in Netflix’s side because it funneled potential subscribers away from the internet DVD rental king and cut into their potential profits.

The two companies were at an impasse: if Walmart shuttered the program, they’d lose out on a potential revenue stream, but if they kept it going it would have taken a lot more investment to keep it afloat.  So the two companies instead decided to come to an agreement.  In exchange for bowing out of the DVD rental business, Netflix would promote Walmart’s DVD sales business and Walmart in turn would promote Netflix.  It was all hunky-dory except for the fact that what they did sounds a lot like collusion.  And thus a class action lawsuit was born.

“But wait!” you may be asking. “What’s wrong with companies promoting each other? Aren’t companies and people free to contract as they please?”

Well, yes and no.  Certainly everyone is free to enter into and set the terms of their contracts.  The problem is that even if the parties agree to a contract, it doesn’t necessarily make the contract itself legal.  For instance, an agreement to buy heroin is completely void because the subject matter of the contract is illegal.

However, the problem here isn’t that renting and selling DVDs is illegal, but rather the collusive nature in the way that the companies went about it.  Collusion is the name of the game.  It happens particularly often in cases where companies or people are the sole players in an industry, in other words when a monopoly or oligopoly is involved.  Netflix is the most dominant DVD rental provider in America today. By Walmart opting out of the market and working with Netflix to help further cement itself, Walmart gave Netflix not only an unfair advantage against other companies looking to jump into the same territory, but it also gave Netflix the ability to essentially dictate the price for online DVD rentals.  And that’s the harm.  Because when Netflix decided it needed to increase its fees, subscribers had few other options to turn to in order to get their DVD rental fix.

But did collusion happen here?  There certainly always some good arguments against it.  I mean, Dish Network’s Blockbuster company is arguably a viable alternative for consumers unwilling to pay Netflix’s fees.  However, the problem is that there isn’t much more competition out there other than Blockbuster.  So because of Netflix’s position in the industry, they still would be able to dictate the prices as their resources far outpaces that of the competition.  And because of this, I think Netflix is making the wrong move by continuing to wage their losing battle against this class action.  Walmart was smart to opt out when it did as they’ll probably save much more money in the long run.

Though in the end, all this legal mumbo jumbo probably won’t be much to calm all you cranky Netflix clients out there.  But hopefully you’ll get some pleasure out of that $1.50.  Maybe the payout will come soon enough before the price for a bag chips increases again.