Author: VS Warrier
The Competition Commission of India in its order in the case filed by Ajay Devgn Films against Yash Raj Films Private Limited has held that there is no contravention of the provisions of the Competition Act (‘the Act’) by the alleged agreement between Yash Raj Films Private Limited and its various associated enterprises.
This is a case where, Ajay Devgn Films (‘the informant’) filed an information with the Competition Commission under Section 19(1)(a) of the Act against Yash Raj Films Private Limited & five Others (Opposite Parties) alleging inter-alia contravention of sections 3 and 4 of the Act.
As per the allegations, the opposite parties were dominant in the relevant market of ‘film industry in India’. The film business mainly involves three stages—production, distribution and exhibition. A producer spends money during the making of the film.
A film Distributor acquires distribution rights from the producer of the film. The distributor then makes copies of the film, spends money on publicity, advertising, marketing, cost of prints and other distribution costs.
The film distributors, either themselves or through sub-distributors, then enter into agreement with the exhibitors (owners of the single screen theaters and multiplexes) for screening of the films. The revenue generated at the exhibition stage is shared by the producers, distributors and exhibitors as per their respective revenue-sharing arrangements.
It was alleged by the informant that the opposite party released its mega starrer film Ek Tha Tiger on 15th August, 2012. At that time the opposite parties were contemplating to release another untitled film later named as Jab Tak Hai Jahan (JTHJ) at the time of Diwali.
The opposite parties before the release of Ek Tha Tiger had put a condition on single screen theatres that if they wanted to exhibit Ek Tha Tiger, they would have to simultaneously agree to exhibit the other film JTHJ at the time of Diwali.
Any single screen theatre who did not agree to booking of his theatre for both the films would not get the right to exhibit the single film. While some theatres entered into agreement with the opposite parties for exhibition of both the films, namely Ek Tha Tiger and JTHJ, some did not agree to this and did not enter into the agreement.
Ek Tha Tiger was released at the time of EID and JTHJ is to be released at the time of Diwali. It is contended by the informant that since Ek Tha Tiger was a big ticket film bound to be a block buster and its exhibition was profitable for the single screen theatres, majority of single screen theatres entered into agreement for exhibition of both the films because of the big name and dominance of opposite party.
Since there was a threat that the opposite parties would not allow exhibition of even Ek Tha Tiger if the contract for exhibition of other film was not entered simultaneously, it amounted to abuse of dominance. The single screen theatres under compulsion had to enter into this contract. The informant alleged that this was violation of section 3 as well as section 4 of the Competition Act.
This grievance of the informant arose because the informant feared that he would not get enough theatres for his own film Son of Sardar because of the agreement of single screen theatres with the opposite parties at the time of releasing Ek Tha Tiger.
Further it was contended that the agreement between the opposite parties and the film exhibitors for exhibition of the two films together amounted to contravention of section 3(4)(a), 3(4)(b) and 3(4)(d) as well as contravention of section 4(2)(a).
Dealing first with section 3(4), informant alleged that the agreements between the opposite parties and single screen theatres are undoubtedly vertical in nature. The distributors and exhibitors operate at different levels in the value chain of film business, and the impugned agreement between them is vertical.
The informant, inter alia, argued that this agreement is in the nature of a tie-in arrangement prohibited under section 3(4) (a) of the Act. However, the Commission is not convinced with the said allegation.
There is a tie-in arrangement in this case whereby the opposite parties tied its earlier release with its forthcoming release. However, as per the scheme of the Act, tie-in arrangements per se are not violative of section 3(4)(a) of the Act. Whether such an agreement is prohibited under the Act depends upon its actual or likely appreciable adverse effect on the competition in India.
The governing principle under section 3(4) is ‘appreciable adverse effect on Competition in India’. The guiding factors are stated under section 19(3) to assess whether any agreement is causing or likely to cause an appreciable adverse effect on competition. The factors are as follows:
- creation of barriers to new entrants in the market;
- driving existing competitors out of the market;
- foreclosure of competition by hindering entry into the market;
- accrual of benefits to consumers;
- improvements in production or distribution of goods or provision of services;
- promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
Commission is of the view that the impugned agreement is not affecting the competition in the Indian markets as such. The agreement has neither created entry barriers for new entrants nor drove existing competitors out of the market, nor is there any appreciable effect on the benefits accruing to the ultimate consumers’ viz. the viewers.
The single screen theaters were aware at the time of entering this agreement in July, 2012, that many other films were likely to be released during Diwali. At that particular time, the single screen theaters took a business decision to screen two films of opposite parties rather than screening any other film that may be released.
Some single screen theaters refused to enter into such an agreement and were free to screen any film they wished to, including that of the informant. This is also a competitive decision taken by the single screen theaters in their own interest. It was a legitimate commercial decision taken by the parties to the agreement at that particular time. Also, the agreements have not curtailed informant’s right to screen its film altogether.
Single screen theaters as per the earlier report of DG, contribute only 35% of revenue and multiplex theaters contribute about 65% of the revenue. The multiplexes are not constrained from exhibiting informant’s film. The Informant is free to exhibit its film on multiplexes and on those single screen theaters which did not enter into agreement with opposite parties.
Moreover, the release of film can be postponed as per the availability of screens by a distributor. The impugned agreement is purely commercial in nature between parties promoting their economic interests and as such does not affect any particular market. The impugned agreement, therefore, does not violate section 3(4) of the Act.
As far as section 4 is concerned, the informant alleged that the opposite parties were dominant in the relevant market of ‘film industry in India’. The informant however failed to substantiate how ‘film industry in India’ was the relevant market and how the opposite parties were dominant in this relevant market.
While inquiring whether an enterprise enjoys a dominant position or not under section 4, the Commission is required to consider all or any of the following factors stated under section 19(4), namely:
- • market share of the enterprise;
- • size and resources of the enterprise;
- • size and importance of the competitors;
- economic power of the enterprise including commercial advantages over competitors;
- vertical integration of the enterprises or sale or service network of such enterprises;
- dependence of consumers on the enterprise;
- monopoly or dominant position whether acquired as a result of any statute or by
- virtue of being a Government company or a public sector undertaking or otherwise;
- entry barriers including barriers such as regulatory barriers, financial risk, high
- capital cost of entry, marketing entry barriers, technical entry barriers, economies of
- scale, high cost of substitutable goods or service for consumers;
- countervailing buying power;
- market structure and size of market;
- social obligations and social costs;
- relative advantage, by way of the contribution to the economic development, by the
- enterprise enjoying a dominant position having or likely to have an appreciable adverse
- effect on competition;
- any other factor which the Commission may consider relevant for the inquiry
Further informant did not place on record data either of market share or of economic strength to show how the opposite parties were dominant in the proposed relevant market on the basis of above stated guiding factors. It was argued by the counsels for the informant that the opposite parties were dominant because Opposite Party was big banner production house and had big name and had given several block buster films.
No enterprise can be considered dominant on the basis of big name. Dominance has to be determined as per law on the basis of market share, economic strength and other relevant factors stated under section 19(4) of the Act. Therefore, Commission was of the opinion not to accept such a narrow approach while determining the relevant market.
A large number of movies are released in India every year. As per the information available in public domain, in Bollywood itself, 107 and 95 films were released in 2011 and 2012 (till now) respectively. Out of this, the opposite parties produced only 2-4 films each year. This cannot be said to amount to dominance even in the Bollywood industry, leave aside film industry in India.
Therefore, the claim of the informant that opposite parties were dominant players in the market ‘film industry in India’ was not accepted by the Commission. There is prima facie no contravention of section 4 of the Act.
In view of the above findings, the Commission was prima facie of the opinion that there is no contravention of the provisions of the Act in the present case.
Ajay Devgn appealed to the tribunal after the Competition Commission rejected his petition against YRF. Ajay Devgn accusing Yash Raj Films of using their dominant position to keep his film Son of Sardaar out of theaters in favour of their own film Jab Tak Hai Jaan, starring Shah Rukh Khan.
Both films are releasing on November 13. Now, the Competition Appellate Tribunal has ordered an inquiry into allegations by Ajay Devgn Films against Yash Raj Films but also decided that the release of Jab Tak Hai Jaan will not be stayed.
The tribunal said huge economic interests are at stake for both the parties’ films and there could be irreparable loss, if the release is stayed. Justice V S Sirpurkar chaired the tribunal bench.
Tribunal is of the opinion that, it would not be proper on our part to freeze the agreements” between Yash Raj Films and the single screen film exhibitors. However, the tribunal has issued notices to YRF along with its distributor entities, following Ajay Devgn Films’ appeal.