Shrewsbury Jukebox Dealer Sues Industry Group
If a recently filed lawsuit has any truth to it, the jukebox business is decidedly cutthroat.
Lease America — a Shrewsbury company that sells and leases jukeboxes and other equipment to restaurants and bars — has filed suit in Worcester District Court, alleging that an industry association engaged in anticompetitive behavior by pressuring one of the largest jukebox makers to cancel its supplier relationship with Lease America.
The alleged collaboration effectively drove Lease America out of business," the suit said. The reason for the alleged squeeze? Lease America sold jukeboxes direct to venues, which is less profitable.
The Ownership Model
Venues that own instead of leasing a jukebox have more control over pricing and content and generally save money, the Jan. 22 suit says.
Timothy Sanford, executive editor of the Vending Times, a New York-based trade publication, said the coin machine industry developed in the post-World War II years as a “concession model” in which manufacturers sell to distributors, who sell to regional operators who place the machines in various venues. The venue owner would not have to purchase or maintain the machine, but would get a cut of the profits for allowing it to be placed on his or her property.
The model makes sense, Sanford said, because the machines require maintenance, and the operators could turn to the distributors for parts or repair advice.
Buying a jukebox has always been possible, he said, but distributors have been reluctant to sell the machines because local operators might resent it and prefer to do business with a different distributor. Additionally, the arrangement may cause headaches: A venue owner who cancels his operator's contract, buys a jukebox and then realizes it needs more maintenance than expected may end up calling the operator and asking for the contract to be reinstated.
“This is where the existing prejudice against 'location-owned equipment' comes from, and it was not an irrational prejudice,” Sanford said. “The extent to which that three-tiered service model applies today is, perhaps, arguable. But businesses in general tend to suppose that the conditions that prevailed during their formative years are, somehow, part of the natural law.”
The Accusation
Founded in 2007, Lease America said AMI Entertainment Network and its subsidiary, Rowe International Corp., cancelled their supplier relationship with Lease America after being pressured by the Amusement and Music Operations Association (AMOA), a Texas-based trade group that represents manufacturers and distributors of jukeboxes, vending machines and other devices.
The suit claims AMOA told Rowe that AMOA members would boycott the jukebox manufacturer if it continued to allow Lease America to sell jukeboxes directly to end users.
Announcement Raised Hackles
After announcing his plans to direct sell, Lease America's owner, Charles Pietrewicz, was allegedly approached by a fellow jukebox operator at an industry conference in Las Vegas who told him: “The hole is already dug for you.”
The suit alleges that AMOA leadership convened a meeting in early 2009 at which it hatched a plan to threaten to boycott Rowe unless it terminated its arrangement with Lease America. The suit states that an attendee at the meeting later told Pietrewicz about it.
Rowe allegedly gave in to AMOA's demand, remotely shutting off Lease America's jukeboxes in March 2009 with no prior warning, the suit states.
The suit describes the arrangement between the trade association and Rowe as “brazenly anticompetitive” and said it impacted consumers' ability to obtain digital jukeboxes under better terms.
Calls seeking comments from AMOA and from Rowe and AMI's attorney were not returned.
Pietrewicz deferred comment to his Los Angeles-based attorney, Jordan Ludwig of Blecher & Collins.
Ludwig said Rowe's decision to shut off Lease America's jukeboxes “crippled” the business, which the suit said had been growing until that moment.
“What customers are going to buy a jukebox that doesn't work, or stay with Lease America when they can't get working jukeboxes?” Ludwig said.
The company's website contains an announcement about the lawsuit.
The suit claims Pietrewicz received permission for the direct-sell arrangement from a top AMI executive on the condition that neither would disclose it to other parties.
“The typical operator community and trade associations frown very heavily on it,” Ludwig said of direct selling.
Lease America estimates its “loss of going concern” value exceeds $10 million. The company has requested a jury trial.
AMI, Rowe and AMOA have until late March to file official responses to the suit, according to court records.
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