On September 17, 2021, CCI asked the DG to investigate the existence of anti-competitive agreements and restrictive tie-in practices implemented by UFO Moviez (‘UFO’).

An Information was filed by PF Digital Media Services Ltd. (‘PF’) and Mr. Ravinder Walia (‘Informant’) against UFO, Scrabble Digital Ltd. (‘Scrabble’), Qube Cinema Technologies Pvt. Ltd. (‘Qube’), Globe Theatres Pvt. Ltd., Imperial Cinema Pvt. Ltd., FICCI Multiplex Association of India and Indian Film and TV Producers Council, alleging contravention of the provisions of Sections 3 and 4 of the Act.^[1]

PF is a subsidiary of Prime Focus Limited (‘PFL’) and is engaged in the business of post-production processing of cinematograph films. PF has carried out post-production processing for the Informant, a producer who produced a movie by the name ‘Roam Rome Mein’. UFO supplies Digital Cinema Equipment (‘DCE’) to Cinema Theatre Owners (‘CTOs’) and Scrabble is a wholly owned subsidiary of UFO, involved in the same business. It was alleged that UFO entered into Equipment Lease Agreements (‘Agreements’) with CTOs to maintain the market for Scrabble. Allegedly 1,064 CTOs entered into agreements with UFO in violation of the provisions of Section 4(2)(c) of the Act.

Allegations

It was alleged that UFO imposed technological fetters and restrictions in the DCE given on lease to CTOs under the Agreements. The restriction ensured that only Key Delivery Message (‘KDM’) that is necessary for displaying the film on a DCE as per DCI standards, generated by Scrabble, is incorporated into the digital format of the cinematograph film.

It was alleged that KDM inserted by PF is not accepted by DCE supplied by UFO to promote the business of Scrabble (a subsidiary of UFO). Further, other clauses of the Agreements allegedly ensured that the post-production processing (‘PPP’) activity of cinematograph films became the domain of Scrabble, and all other competitors of Scrabble stand excluded. PF claimed that its fee for PPP was lower than that of Scrabble, but the clauses of the Agreements prevented CTOs from obtaining PPP from PF.

CCI’s Findings

CCI defined the relevant markets of provision of services of supply of Digital Cinema Equipment by a digital cinema service provider on lease/ rent to CTOs in India, and provision of post-production processing services in India for its competition assessment. In the relevant market of supplying DCE to CTOs, CCI did not find UFO prima facie dominant. However, it observed that UFO appears to have market power by having a market share in the range of 30-40% in the market for supply of DCE on lease/ rent to CTOs through which it controls the post-production processing services in India for the benefit of its subsidiary Scrabble. Therefore, CCI assessed the alleged conduct under the rules prohibiting anticompetitive vertical restraints (Section 3(4) of the Act).

UFO introduced clauses in the Agreements that required PPP services to be mandatorily availed from its subsidiary, i.e., Scrabble. In CCI’s assessment, for producers/exhibitors/CTOs, this prima facie becomes an unlawful tie-in-relationship to avail PPP (tied product) for getting DCE (tying product). CCI found that UFO also enforced exclusivity through its Agreements by requiring the purchaser of services from approaching Scrabble’s competitor. CCI also returned a finding of an unlawful refusal to deal because a competitor’s KDM cannot run on DCE leased from UFO, which controls large number of screens and locations in the market. Further, by virtue of restrictive clauses in the Agreements, there seems to be an effective refusal to deal on the part of exhibitors/producers with service providers of post-production services other than that of Scrabble.

CCI believed that the tie-in arrangement has the potential to cause an appreciable adverse effect on competition (‘AAEC’), as existing competitors of Scrabble like PF are driven out of the market for post-production processing services in India. Further, entry of new players is hindered as screens and locations are in control of UFO. This prima facie appeared to thwart development of technology and innovation in post-production processing services market in India in the absence of effective competition. Even if newer technologies were to be developed in post-production processing services, there cannot be any promotion of innovation unless it is compatible with DCE (controlled by UFO). Given that the producers/exhibitors necessarily require the services of post-production processing as well of DCE, the restrictive clauses imposed by an enterprise with market power in the DCE lease market prima facie has the effect of making such exhibitors/producers captive customers of Scrabble for post-production processing services even if competitors like PF are ready to offer services at cheaper rates. For availing services of DCE of UFO, exhibitors/producers/CTOs have no choice but to also buy post-production processing services offered by UFO’s subsidiary, i.e., Scrabble.

CCI also directed the DG to investigate Qube’s agreements with CTOs that require the purchase of DCE services along with film content and put fetters on CTOs for procurement of such content from another entity.

[1] PF Digital Media Services Ltd. and Anr. v. UFO Moviez and Ors., Case No. 11 of 2020, Order dated September 17, 2021.