If you think movie studios are threatened by online video services such as Netflix, iTunes and Amazon, you can’t imagine how they feel about Zediva. Netflix, iTunes and Amazon all pay licensing fees so they can legally rent, stream or sell each studio’s movies but Zediva, which launched last month, does not. Instead, it avoids paying licensing fees by pretending that it’s an offsite DVD rental store and, because of that, is exempt. The studios don’t agree. Disney, Paramount, Warner Brothers and Twentieth Century Fox are among the studios who are suing Zediva for violating film copyrights and, if they win, Zediva will owe them $150,000 for each film that has been streamed. Ouch. There’s more information after the jump.

According to an Associated Press report, Zediva is based in Sunnyvale, California and experienced such traffic when it launched on March 16, the entire system crashed. Here’s what the lawyer for the Motion Picture Association of America had to say about the case:

Zediva’s mischaracterization of itself is a gimmick it hopes will enable it to evade the law and stream movies in violation of the studios’ exclusive rights. Courts have repeatedly seen through the facade of this type of copyright-avoidance scheme, and we are confident they will in this case too.

Video rental chains don’t pay licensing fees for DVDs or, in the old days, VHS tapes. They simply bought (or rented themselves) the tapes from a distributor. Paying for the tapes upfront was basically their fee because each individual tape went to an individual making piracy or mass consumption more difficult. Zediva is pretending they’re a simple rental store when, in theory, they could only pay for one copy of a movie and then stream it to million of different people. For a rental store to show a movie to a million people, they’d need to pay for a million copies of a movie. That’s the difference between renting movies and streaming them.

So, for example, Netflix probably didn’t have to pay any fees when it was strictly a movie rental service because it paid for each and every disc. Once it started streaming content, that changed. Zediva is trying to tow the line in the middle and, chances are, it’s not going to work out.

Have you used Zediva? Do you like it? Do you think it’ll survive?

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