India: CCI Finds No Evidence Of Cartelization Between Top Multiplex Cinema Theatre Groups On VPF And Other Issues

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

By way of order dated 24.07.2019, the Competition Commission of India ("CCI/Commission") has dismissed allegations of cartelization , under the aegis of FICCI Multiplex Association of India ("FICCI") against 4 top multiplex cinema theatre Groups viz. PVR Ltd. ("PVR"), Inox Leasure Ltd ("INOX"), Cinepolis India Pvt Ltd ("Cinepolis") and Carnival Motion Pictures Ltd ("Carnival").

Background and Allegations

The information was filed by Unilazer Ventures Private Ltd ("Unilazer/Informant") through its division- RSVP, which is an independent film content creation company which self-finances creation and production of its films and has released six films till date including the latest super hit Uri: The surgical strike. PVR, Inox, Cinepolis and Carnival are inter alia engaged in the business of operating multiplex cinema theatres which, as per the information, collectively control 60% of the entire multiplex film exhibition business in India. All the above mentioned multiplex cinema theatres are members of FICCI which promotes their interest in the film industry.

As mentioned in the information, once the production stage of a film is complete and the film is ready for release, the producer approaches the distributor ( in some cases distributes himself) for release through exhibitors like PVR, INOX, Cinepolis, Carnival for making the film available to the consumers through various distribution channels. Distribution channels may refer to different platforms and media via which the film can be exploited for the benefit of a consumer which includes the 'traditional platform'- theatrical distribution through movie theatres, television, home video (CD, DVD etc.) and the 'new age platform'- internet, digital, mobile etc. The Commercial understanding between the producers and the distributors vary in the form of revenue sharing, minimum guarantee, fixed fee etc.

The informant mentioned that since the Indian film industry has been prone to several issues related to theatrical distribution of films such as piracy, exorbitant costs for creating and transportation of physical prints, lack of durability of physical prints etc., the producers and distributors have decided to release their films through digital projections systems.

The Allegations were with respect to the following aspects:

(1) Undue imposition of Virtual Print Fee ("VPF") - VPF is a fee paid by the film producer/distributor to the film exhibitor (single screen/multiplex) to recoup part of purchase price of digital projection equipment by exhibitors for use in the screening of the film. The informant alleged that VPF was agreed upon by the producers/distributors with a sunset period (to cover the cost of equipment) which had lapsed long ago and should have ceased to be payable, however the multiplexes continue to charge VPF. It was also alleged that since there was hardly any replacement cost for old equipment, VPF should have never been imposed by the opposite parties. The informant also cited a scenario where an Indian film is released on the same weekend as a Hollywood film. In these cases, the Hollywood film incurs zero cost per print as they are not charged any VPF in India, however, the Indian film studios have to pay INR 20,000/- per print per multiplex as VPF to the exhibitor as a result of which the Hollywood films are able to release more prints in more cinema theatres as compared to the Indian production houses. The informant alleged that PVR, INOX, Cinepolis and Carnival do not negotiate on the VPF individually, but owing to an anti-competitive agreement, collude in charging the same.

(2) Arbitrary standard non-negotiable Revenue Sharing Agreements- The informant alleged that PVR, Cinepolis, Carnival and INOX under the aegis of FICCI have been colluding and putting forth a standard non-negotiable revenue sharing agreement. As per the non-negotiable agreement, the exhibitors will receive 50% of the revenue in week one of the release, 42.5% in week two, 37.5% in week three and 30% for collections thereafter as distributor's share.

(3) Delay in payments to content creators- It was alleged that the multiplexes, as a result of a concerted action, are not remitting the revenue share collected by them through sale of tickets, in time to the content creators/producers. As per the informant, the multiplexes hold these booking advances at their ends and delay payments to the content creators by 45-60 days.

(4) Lack of transparency in exhibition of trailers and promotions during intervals: The informants alleged that the lack of transparency in advertising policy followed by the multiplexes sabotages the interest of the content creators as the revenue that is generated out of such promotions/advertisements and trailers needs to be equally shared with the producers/distributors. It was alleged that the effort of a producer while editing and during the post production process to curtail the length of a films is sabotaged due to these practices. Furthermore, multiplexes earn revenue from the food and beverage sales, advertising revenues, car parking etc. because of the content created by the producers and the exhibitors instead of sharing this revenue with the producers demand a huge chunk of revenue from the producers for exhibition of films.

(5) Instances of victimization, abuse and discrimination- The informant alleged that it faced discrimination at the hands of multiplexes when it tried to release its film titled 'Love per Square Foot'. Since it was low-budget film, the imposition of VPF as a standard charge without any scope for negotiations, did not allow it to be released on multiplexes. Resultantly, the informant had to approach 'Netflix' to release the same and whenever the informant engaged PVR for publicity and promotions of the concerned film for its premier, its booking was cancelled a few days before the show as they were averse to any content being released nationwide on a digital platform like Netflix.

Apart from the above-mentioned allegations against the multiplexes, the allegations against FICCI was that, owing to its position of strength, it only prescribes terms which are suitable to the multiplexes and do not allow any multiplex to independently negotiate the revenue sharing terms with any producer/distributor.

It is pertinent to note that , as per media reports, tilted as "VPF is an expense that hurts producers ....." published in March 2019 , Mr. Ronnie Screwvala , noted film producer of Bollywood was the person responsible behind this complaint to CCI, being the first one to take a stand against VPF being charged by multiplexes for screening films. Subsequently a number of other film producers and distributors such as Ramesh Taurani (Producer), Jayantilal Gada (Producer), Hansal Mehta (Producer-Director) and Rajesh Thadani (independent distributor) also voiced their support. As per Mr. Screwvala, VPF was introduced to make multiplexes compliant with DCI- a technology which helps in reducing cost, curbs piracy and enhancing the movie viewing experience. As the technology was costly, it was agreed that the multiplex chains will charge INR 20,000/- per screen for each movie for a period of 5 years from 2010, in order to recover the cost. However , these multiplexes even after 3 years of expiry, of the 5-year sunset period, continue to charge such hefty VPF which affects the success ratio of films in a big way. Mr Rajesh Thadani, supporting the stand, stated the example of the southern film industry which stood united against the imposition of the hefty VPF and termed Mr. Ronnie Screwvala as a lone warrior.

CCI Prima facie

At the outset, the Commission noted that no indication /evidence of any agreement or arrangement or understanding between PVR, Cinepolis, INOX and Carnival was placed on record by the informant and to establish a prima facie case for cartelization, it is important that the evidence on record demonstrates some meeting of minds or active coordination . The Commission further noted that although the informant has alleged that the multiplexes have indulged in parallel conduct and under the garb of standard industry practices , acted in an anti-competitive manner, however, it is a settled principle that, in the absence of some "plus factors" to corroborate some kind of coordination, mere parallel behavior, by itself, does not amount to a an anti-competitive agreement /cartel or "concerted practice " . As per CCI, the informant failed to adduce any such "plus factors" .

Further, with respect to the particular allegations raised in the Information, the Commission noted the following-

VPF

The Commission observed that the informant had not alleged that VPF is anti-competitive per se and instead the allegation pertained to the undue imposition after the 'sunset period', however, no formal/written agreement, pertaining to the imposition of VPF amongst the informant and the multiplexes, was submitted either along with the information or during the preliminary conference. Moreover, it was also an agreed fact that the whole process of imposition of VPF is a practice which originated in Hollywood and adopted in Indian cinema without any formal/written agreement to back it, and , therefore, in the absence of a written agreement the question of formal arrangement of 'sunset clause' did not arise. CCI also observed that there was no evidence to indicate that PVR, INOX, Cinepolis and Carnival met under the aegis of FICCI or used its platform to arrive at a common VPF to be charged from the producers.

The Commission further held that as long as the fee is not the result of a concerted activity and has been independently arrived at, the Commission may not delve into the same to determine as to what should be the appropriate fee and till what time it may be equitable to charge the same, as it does not fall within the domain of the Commission.

Revenue Sharing Agreement

As regards the allegation of the standard non-negotiable revenue sharing model, the Commission referred to its earlier decision in Re: FICCI- Multiplex Association of India v United Producers Distributors Forum and Ors.¹ in which the CCI had observed that prior to 2009 the average revenue sharing ratio between producers and exhibitors was that film producers were paid (i) 40% to 48% in the first week; (ii) 30% to 38% in the second week; (iii) 30% in the third week; and (iv) 25%- 30% in the fourth and subsequent weeks. In 2009, the film producers under the aegis of United Producers Distributors Forum ('UPDF') had collectively boycotted the exhibition of films through the multiplexes in order to negotiate a better ratio of revenue sharing arrangement between producers and exhibitors. Aggrieved of the act by UPDF, the multiplexes had filed the abovementioned information with the Commission. During the pendency of the information, as a result of joint pressure from the UPDF, a new revenue sharing arrangement was formulated whereby the revenue sharing was fixed as (i) 50% in the first week; (ii) 42.5% in the second week; (iii) 37.5% in the third week; and (iv) 30% for collections thereafter, as the film producer/distributor's share.

Accordingly, CCI observed that the revenue sharing arrangement was adopted with the consent and due deliberations between the producers and multiplex owners and the informant has not put anything before the CCI which demonstrate that the arrangement is a result of any anti-competitive agreement between PVR, INOX, Cinepolis and Carnival.

Delay in payments

Again the Commission noted that the informant has not placed on record any evidence which substantiated its claim that PVR, INOX, Cinepolis and Carnival have acted in concert for delaying payments to the producers out of the revenue collected. Moreover, CCI also acknowledged the submission of Cinepolis that multiplexes are obligated to pay interest at the rate of 18% p.a. to the producers for delay in such payments, and therefore, the allegation of the informant did not have any merit.

Lack of transparency in exhibition of trailers and promotions during intervals

The Commission held that the general allegations including lack of transparency in exhibition of trailers and promotions do not fall within the ambit of the provisions of the Competition Act, 2002 ("the Act").

Accordingly, the Commission closed the case under Section 26(2) of the Act.

Comment: The present complaint filed by some noted film producers of Bollywood is indicative of the growing clout of the Multiplex Owners in Bollywood . It is somewhat strange that the CCI did not find even a prima facie case to refer the matter for investigation since it was too much to expect from the Film producers to look for a ""smoking gun" by themselves given that such agreements or understandings are made in secrecy . Moreover , to expect the complainants to provide "Plus factors" at the stage of filing an Information is also raising the standards of proof rather too high although in many similar allegations , CCI had , in the past, gone with its often-repeated theory of "preponderance of probability" .

Note : This article was first published in the Antitrust & Competition Law Blog on 28 July 2019.

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