Competition Law Concerning The Film Industry In India
In
the entertainment Industry, cinema remains amongst the most popular form of art
and in many countries appears to be one of the most widely practiced cultural
activity. Every day there are technological advancements and much is yet to
come in this regard.
Over
more than one hundred years after its conception, a critical period has been
reached where, different questions from those seen so far are likely to be
raised as far as competition is concerned, questions linked to the horizontal
concentration and vertical integration of companies operating in film
distribution markets along with the promotion of development of the industry.
The
Indian Film industry in order to discipline itself had set up self-disciplinary
association or agencies. The associations are either societies or companies
under Section 8 of the Companies Act. These associations or companies formulate
bye-laws and work as a dispute resolution agency for disputes between
exhibitors, producers and the distributors/exhibitors. In this manner, the
pecuniary interests of the exhibitors were protected. This is being done firstly, by registering
the name of the film with one of the associations. Such registration protects
two films from having the same release at the same time.
Secondly,
whenever a producer enters into an agreement with a distributor for a certain
zone, the same needs to be registered by an association. This is being done
with the idea that a producer does not sell the same movie rights to another
distributor in the same area to obtain further finance. Moreover, when the film
being produced involves a large amount of finance, another distributor is
usually appointed for a zone or two distributors would form a joint venture to
finance the film.
Now,
with the advent of new technology, migration of the Indian community to
different countries and due to other such reasons, the demand for Indian films
extended in various countries. This created the opportunity for the producers
to sell the rights in the entire world, DTH and satellite rights, internet
rights etc. of the film. The new technology also led to an increase in breach
of piracy and reduction in the earnings of the producers. These factors have
led to the closure of many single screen exhibitors all over India.
India
is one of the largest producer of movies in the world with over 1,300 films
released each year. With respect to theatre density, however, India ranks
poorly with 12 screens per million as opposed to 117 per million in the USA. As
a result of this huge infrastructural deficit, an industry survey estimates a
poor volume of 4 billion ticket sales each year across 12,000 odd theatres. In
fact, that has led to the trend has emerged where film digital rights (such as
satellite, home video, VOD, PPV, DTH and webcast) are being negotiated and sold
much ahead of the theatre release. One might argue that simulations release
could enable easy piracy, which would eat up revenues from legitimate streams.
This view fails for the simple reason that consumers of ‘pirated’ (for lack of
better word) goods do not appreciate pricing mechanism of the legitimate
market. Between picking up a DVD at a street corner for a mere fifty rupees,
and purchasing it from an authorized dealer (if there is one in their town) for
five times that amount, no consumers would bother purchasing an original disc.
One
such incident is where the Competition Commission of India (CCI) intervened
after receiving information about anti-competitive practices against certain
film distributors and exhibitors of blockbuster film, Vishwaroopam in relation
to the simultaneous direct-to-home (DTH) release by actor-producer Kamal
Hassan. Since the contents of the film was controversial so was initially
banned in one state but since the dispute was of a manner that had a wider
implication for the entire film industry so Raj Kamal Films approached the CCI
for a ruling on the Association for restraint of trade.
The
question that the CCI had to answer was upto what extent a competition
regulator such as CCI can intervene in disputes within an artistic industry. In
this information before the CCI, it was alleged that there was an abuse of
dominance and cartelization against the film distributors and exhibitors,
resulting in the disruption of the DTH release. In response the distributors
have stated that Hassan has violated an informal understanding in the industry
to release films exclusively on theatres. Although Section 3(5) of the
Competition Act excludes agreements made in furtherance of exploitation of an
IP right. As long as the terms of license are ‘reasonable’, IP owners are free
to impose any measure. In other words, an informal pact for exclusivity in
distribution of films does not stand valid before a court of law.
The Competition Commission17 ruled as follows –
‘The
facts discussed above prima facie show that the resolution of OP was in the
nature of an agreement among the members of the association and was intended to
limit and control the market of exhibition of movies as well as innovative use
of technical development in exhibition of feature films and thus, prima facie
appeared to be in contravention of the provisions of Section 3 of the Act.’
In
Hassan’s information to CCI the distributors’ and exhibitors’ associations did
eventually succeed in deferring the DTH release with their threats to boycott
screening. This decision to boycott is likely to violate the following
provisions of the Competition Act :
• Refusal to deal: The threat of the
distributors has an effect of restricting the ‘classes of persons to whom goods
are sold or from whom goods are brought’ which is prohibited under sub-clause
(d) of Section 3(4).
• Denial of market access: Section 4(2)
(c) prohibits dominant entities from indulging in ‘practices resulting in
denial of market access in any manner’. It is likely that the DG might find a
valid claim against the associations which control theatre distribution in
Tamil Nadu for denying home-video market to the actor.
In
a nutshell, the cultural and linguistic issues limits the applicability of the
competition laws to the entertainment industry. Also the products of the
entertainment industry specially films and cinemas are singular goods and the
CCI does not have the technical know-how to assess the non-market consequence
of the market competition. Another problem is that the cultural segment focuses
on a long term individual consumer whereas the market argument focuses on short
term individual consumer welfare effects.
Moreover,
recently in 2017, the CCI has passed decision in order to provide further
clarity and to emphasise the position in certain national and regional trade
associations of film artists and producers for engaging in practices of
controlling/limiting the supply of services and market sharing. That Mr. Vipul
Shah, the producer of films, filed an information against Artists’
Associations, comprising the All India Film Employees Confederation, Federation
of Western India Cine Employees (FWICE) and its affiliated associations as well
as Producers’ Associations, comprising the Indian Motion Picture Producers
Association, the Film and Television Producers Guild of India, and the Indian
Film and Television Producers Council stating that there was Memorandum of
Understanding (MoU) regarding wages and rates of member artists and there were
restrictions on engaging non-members also there was a committee which was
entrusted with the vigilance of the said MoU.
The
main contention in this case was that such acts have been held to be in
contravention of Sections 3(3) (b) and 3(3) (c) read with Section 3(1) of the
Competition Act, 2002. The CCI in this case reiterated the decision of Supreme Court
and observed that the even trade unions fall within the preview of the scrutiny
of antitrust laws in India, although they are not directly the part of trade
unions but are part of the production chain. Further there was a clarity
provided that under the provided circumstance, where these bodies acted as
operating member in the trade union does not fall within the horizontal
agreement.
Conclusion
To conclude, the market concerned should be defined and the degree of concentration of that distribution activities needs to be determined. Secondly, it must be found whether there are regulations or practices which prevent market entry. Further such barriers co-exist with high concentration, there will be high risk of exercise of market power, which will make further horizontal concentration and, in some cases, vertical integration, threatening to competition. Also in a diversified country like India, where there are more than 19,500 languages and 22 official languages the Competition Commission will often be confronted by cultural and linguistic disputes presented before CCI. Further CCI has to formulate clear-cut rules that can be applied to the entertainment industry.
Contributed By – Deiya Goswami
Designation – Associate
King Stubb & Kasiva,
Advocates & Attorneys
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