DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

COMPETITION IN FILM SECTOR

SUBJECT

COMPETITION LAW

NAME OF THE FACULTY

Prof. VARSHITHA MANGAMOORI

SUBMITTED BY

K.S.M.C.SRAVANTHI

Roll No. 2016053

Semester-VIII

1
 ACKNOWLEDGEMENT

I am using this 0pp0rtunity t0 express my gratitude t0 every0ne wh0 supp0rted me thr0ugh

the c0urse 0f the pr0ject. I w0uld like t0 thank 0ur teacher wh0 enc0uraged, guide and
supp0rted me f0r d0ing this pr0ject. And sincerely grateful t0 them f0r sharing their truthful
and illuminated views 0n the issues related t0 the pr0ject.

I express my warm thanks t0 Pr0f.M. Varshitha madam, f0r her supp0rt and guidance t0 the
pr0ject with0ut her help it w0uld be difficult task f0r us .I have n0 valuable w0rds t0 express
my thanks, but my heart is still full 0f the fav0ur received fr0m y0u. .It was all my pleasure
t0 have y0u as my teacher and guider thr0ugh0ut this pr0ject f0r this I am thanking y0u fr0m
my heart.

2
 TABLE OF CONTENTS

 Sectors in Film Distribution.............................................................. 5

 Market Definition..............................................................................6
 Horizontal Concentration...................................................................8
 Barriers to entry.................................................................................8
 Vertical Concentration.......................................................................10.
 Competition of Film Sector in India..................................................13
 Conclusion.........................................................................................16

3
Aim of the Study: The aim of the study is to do detailed examination on the competition in
film sector.

Scope of the Study: The scope of the study is limited to the competition of film sector in
India.

Research Methodology:

Research Methodology used was doctrinal methodology. Descriptive and analytical type of
study is done in this project. Doctrinal Methodology includes doing research from primary
sources such as books, articles, journals, case study, news papers and also taking the help of
web articles. OXFORD style of citation is used in this project.

Review of Literature:

The researcher had taken the information from the articles, websites and books which
provided a lot of help for completion of the project. The information in the articles and
websites are cited.

Research Question:

What are the anti- competitive practices prevailing in the film industry in India?

4
 COMPETITION IN FILM SECTOR

The cinema remains the most popular form of art in the entertainment industry and it appears
to be one of the most widely practiced cultural activity in many countries. Due to the various
advancements of the technology a critical period has been reached where the development in
the industry is being promoted and at the same time different questions related to horizontal
concentration and vertical integration of the companies operating in the film distribution
markets is likely to be raised.

Sectors in Film Distribution:

Due to the technological advancement, in addition to the traditional distribution of films in

cinemas, the distribution in television and videos are also available to producers now.

Television plays an increasingly important role in film exhibition. The emergence of new
channels alongside the traditional broadcast channels are financed by advertising and licence
fees of encoded channels for which a charge is made and whose arrival has been made
possible by the development of cable and satellites.1 This new category of channels may itself
be divided in two, those charging by monthly subscription (premium channels) and pay per
view channels. Similarly, the video sector is an expanding method of film exhibition as most
households now have a video recorder. This sector principally covers the purchase and rental
of pre-recorded film cassettes.

Though this sector has seen significant changes however, the traditional vehicle for
distribution remains the cinema. There is a trend towards the grouping of cinemas within a
small number of national or regional circuits with independent cinemas not part of a circuit
now being the exception. This development is explained primarily by the very substantial
investment entailed by the modernisation of existing cinemas and the appearance of cinema
complexes. Cinemas in these networks, mainly located in urban areas, either in town centres
or in the suburbs, are designed to meet the new demands of the public in terms of comfort
and services. Thus, the new complexes have comfortable auditoria with large screens, offer
easy access and parking, and are well-served by shops, restaurants and other related services.

To assess the competitive conditions in which films are distributed in the three different
sectors, an analysis in several stages is required. Firstly, the market concerned should be

1
Notably multichannel distribution technologies such as cable networks, Direct Broadcast Satellites (DBS),
Satellite Master Antenna Television (SMATV), and Multichannel Microwave Distribution Systems (MMDS).

5
defined and the degree of concentration of that distribution activity determined. Secondly, it
must be found whether there are regulations or practices which prevent market entry; where
such barriers co-exist with high concentration, there will be the risk of exercise of market
power, which will make further horizontal concentration and, in some cases, vertical
integration, threatening to competition.

Market Definition:

Market definition entails distinguishing between new films shown exclusively in cinemas,
known as "first run films", and others, and examining the different film distribution sectors --
television, video and cinema, endeavouring to identify any relevant sub-sectors2.

First, a distinction must be made between first run films, that are exclusively shown in
cinemas, and films which are no longer first run and which may be exhibited by any one of
the three sectors, or even all three at once.

Then a question has been raised that as the first run films are available only in cinemas, do
consumers consider older films (or indeed other forms of entertainment) available on other
media, as close substitutes? That is an empirical question, of course. In spite of the increasing
advancements in home entertainment technology, however, the cinema continues to be a
popular form of entertainment. As long as producers continue to choose to exhibit new, mass
market films only in cinema houses, a good argument can be made for first run exhibition as
a distinct product market. Thus it must be asked whether producers are likely to consider
television or video as alternatives to cinema houses for new films. In the near future such a
change does not appear to be likely; a new technology could alter such a calculation in the
longer run, however.

For first run films, distributed in cinemas, the producer must determine whether certain
cinemas are preferable to others because of their location or the ancillary services they offer.
Thus, cinemas situated in key markets5 will be preferred, since box office results, in light of
which the value of television and video rights and foreign sales is negotiated -- are often
based on fairly limited markets; likewise, cinemas which offer greater financial guarantees,
for example, will be sought after by producers.

2
For a theoretical description of methods of analysis and market definition which may be applied to the film
industry, see Competition Policy and a Changing Broadcast Industry, OECD (1993) pp. 102 et seq

6
For films which are no longer first run, the producer has to assess whether the return would
be the same if the film were distributed in the cinema, on television or on video, or whether
one of these media is preferable to the others. On this point, the producer may find it useful to
observe consumer behaviour. For older films, the film viewer’s order of preference is likely
to be television, then video and finally the cinema.

There is evidence that once new techniques and available frequencies allow films to be
broadcast on television and on video6, the latter become close substitutes for the cinema.
Films can now be viewed at home continuously in the same version as in the cinema soon
after their release as first runs; because of the potential return which these new opportunities
offer, the time-lag between when a film is shown in the cinema and when it is broadcast on
television and video is continuing to decrease significantly.

However, when considering television, the producer must distinguish between encoded and
un-coded channels. Subscribers to encoded television channels, who have to pay more than
for un-encoded television, are greater consumers of films on television than un-encoded
television viewers, since although their main motivation seems to be to have a wider selection
of programmes, an important factor remains the opportunity to see more films. However, the
regular viewer of pay-per-view film channels is the biggest consumer of films. Pay-per-view
film channels, which are only now becoming prevalent as a result of new technology, offer
the producer a significant new source of revenue. These channels may someday compete
with, or supplant, first run exhibition.

The pre-eminence of television and video in the exhibition of films which are not first runs
must be qualified, however, in certain cases where exhibition in the cinema appears to regain
its specific character. For a section of the public as for certain films, broadcasting on
television does not have the same impact as in the cinema. Certain film viewers still feel that
impressions are stronger in a cinema auditorium; this is particularly true of "big screen" films
where the picture, sound and spectacle are of decisive importance and the experience is
enhanced by the comfort of a cinema auditorium and the special feeling of a visit to the
cinema.

To assess whether these media are of equal value for film distribution the producer/distributor
must also determine whether they are accessible on the same terms to all consumers
everywhere. The area where the film viewer lives will determine how often he/she visits the

7
cinema and the extent to which television is general, and encoded subscription or pay-per-
view channels in particular, or indeed video, are available as a substitute.

Horizontal concentration

Once the film distribution market has been defined together with its particular components,
the degree of concentration of the industry is an important element to be taken into
consideration. Some firms in the film industry are quite large by absolute standards, and there
appears to be a trend toward the creation of even larger enterprises by merger. In competition
analysis, however, it is not the absolute size of a firm which by itself is important, but the
resulting market share.

In the cinema industry there has been a trend toward consolidation into a limited number of
circuits, each of which may control several cinemas in a given market. In many markets a
relatively few independent cinemas survive. Television broadcasting is highly concentrated in
most markets, with relatively few broadcast channels available. The advent of cable
television, which provides many more channels, and of direct satellite broadcasting, is rapidly
altering the television environment, however. Film production, on the other hand, appears to
be less highly concentrated in many countries3. Alongside the large, well-established
production companies exist a number of independent producers, which produce successful
films from time to time. The trend toward vertical integration in the industry, discussed
further below, may adversely impact this situation, however.

In competition analysis, of course, high concentration and substantial market shares are not
by themselves a cause for concern; they may in themselves reflect welcome economic
efficiency. The analysis should be taken further in order to find out whether possible barriers
to market entry exist which could exclude, or reinforce the exclusion of, competitors.

Barriers to entry

Various barriers to entry to film exhibition may be erected, whether of a regulatory nature,
thus constituting barriers to entry in the more traditional sense, or relating to the
implementation of practices. Examples include

 regulations, which exist in some countries, intended to protect distribution in the

cinema from the development of television and video; such regulations may provide

3
Competition Policy and a Changing Broadcast Industry, OECD (1993) pp 123 et seq

8
 that new films released in the cinema may not be shown on television or marketed on
video for a fixed clearance period; they may also provide for the following hierarchy
in film distribution: cinema, video and finally television. Regulatory clearance periods
may also vary according to the nationality and box office success of a film, thus
creating further discrimination, as marketing on video may increase the film
producer’s return. Thus, many producers tend to demand longer clearance periods
between marketing on video and the broadcasting of their films on pay-per-view and
premium television channels in order to increase video retailers’ returns and
consequently their own;
 in the second category of barriers, the growing dominance of large cinema circuits in
many markets may operate to squeeze cinemas which do not belong to a circuit out of
the schedule of film releases. Not only may independent cinemas thus be deprived of
first-run films to show on their screens but they may also be forbidden to exhibit older
films which are no longer being shown as first runs by competitors who are members
of a circuit. The circuit members keep this option, plus the corresponding revenues for
themselves, thus controlling all of a film’s revenues until its box office value is
exhausted. Similarly, through their programming, these major circuits may squeeze
out small producers, showing films by powerful producers only
 In other respects, however, entry barriers in cinema exhibition may be considered
relatively insignificant. It does not appear unduly difficult in most markets simply to
build and operate a cinema complex, any more than any other type of large retail
establishment. Those entry barriers that exist appear to be centred on the ability to
acquire the rights to exhibit popular first run films;
 Entry barriers in television are quite different, and probably more significant than in
cinema markets. The number of available broadcast channels is limited, and closely
regulated. In most markets, television cable service is a regulated monopoly. The
cable network has aspects of a natural monopoly, although new entry by direct
broadcast satellite service and possibly by local telecommunications operators are
bringing about changes in this regard. Finally, while direct broadcast satellite service
promises to offer new and dramatic competition to traditional cable service, entry into
DBS itself is difficult, and is characterised by large economies of scale, regulatory
barriers, and possible shortages of available programming.

9
Vertical integration

Vertical integration may take the form of a system of common ownership or of contractual
provisions. In either case, co-ordination of production, distribution and exhibition decisions
upstream and downstream are the result, and these replace or supplement the incentives that
existed when competitors in these industries were acting independently. These vertical
relationships may be efficiency-enhancing; they have the advantage for the companies
concerned of ensuring the better co-ordination of production and distribution decisions.
However, where market conditions upstream or downstream concentration, barriers to market
entry etc. by allowing, these vertical relationships may lead to co-ordinated decision-making,
resulting in more complete exploitation of market power or to decisions which disadvantage
rival companies.

In the film industry, vertical integration is not a new phenomenon, since producers and
cinema operators long ago realised that their operations could be enhanced by joint control of
distribution and exhibition. With the advent of new distribution media (television and video),
this vertical integration was extended and has now taken a more complex turn with the
sometimes inextricably linked ownership of the three film distribution sectors.

By controlling the distribution of their films, producers and distributors can improve
economic efficiency and ensure that their films are shown. But in addition, if concentration in
these industries is high, and entry difficult, vertical integration may squeeze out competition
from independent producers and exhibitors 4. When examining the principal restrictive
practices implemented, it is therefore important to distinguish between those which improve
efficiency and those which have a negative effect on competition.

Cinema operators claim that producers and distributors treat cinemas differently according to
whether or not they are integrated. Cinemas belonging to circuits and also vertically
integrated allegedly are given greater opportunity to exhibit blockbusters, and are also
granted deductions in rental fees when they show two films, an extended exhibition period
and special preview exhibitions.

On the other hand, cinemas which are not part of a circuit and not vertically integrated may
find themselves subject to a number of constraints, in particular as regards:

4
Competition Policy and a Changing Broadcast Industry, OECD (1993) pp 8 est seq

10
 first runs, which allow maximum revenue to be gained from films shown in the form
of a series of distribution in cinemas across the country; producers generally reserve
this type of distribution for cinemas with a high turnover, most often belonging to a
powerful circuit. Films are then distributed in cinemas with a lower turnover until
their box-office potential is exhausted;
 the length of the distribution period; the requirement that this period be relatively long
(4 weeks or more) as a condition of licensing popular films reduces the ability of
cinemas with a limited number of screens to meet consumer demand and aggravates
the problems encountered by independent producers;
 the setting of a clearance period between the end of a film’s first run and the time
when it may be reshow in cinemas which, particularly if this is a long period, allows
more income to be obtained from the first run. If the clearance period is very long a
film will exhaust its box office value and in consequence the operators who have
negotiated subsequent distribution of the film will in reality be out in the cold.
Moreover, what income there is to be earned from redistribution will be captured by
video and television;
 zoning, which consists of setting geographic boundaries within which a given cinema
will have exclusive exhibition rights. This practice ensures that the cinema operator
will obtain the largest possible audience for his film and will prevent other cinemas
nearby from competing for the viewers who want to see that particular film. In
defence of the practice, however, it is pointed out that a reasonable zone of exclusivity
is necessary to induce the cinema operator to provide adequate promotion for the film;
 block booking, which is a form of tying, and which is the practice whereby
authorisation to show a film or a package of films is granted on condition that the
operator also takes one or more other films from the distributor. This provides an
outlet for poorer quality films or those with limited box-office potential. Where a
producer is linked by contract with the biggest stars, cinema operators are well-
advised to take his less commercial films if they want to have the more commercial
ones. This practice, which prohibits bidding for films cinema by cinema, makes it
impossible for small competitors to obtain first runs and gives an advantage to those
who are affiliated to a major network;
 blind bidding, which is the practice whereby a distributor requires an operator to order
a film without prior viewing;

11
  advance payments, which are made by the cinema operator before distribution of the
film as security or to effect payment under a distribution agreement;
 a guarantee, which is a minimum amount the cinema operator guarantees the
distributor in return for authorisation to show a given film.

Similarly, by buying out or taking a substantial share in a television channel, a producer can
secure outlets for his catalogue of films and, in so doing, enhance the value of his less
popular films. However, this benefit to the producer may be accompanied by a corresponding
exclusion of other producers who will find outlets for their own production correspondingly
more difficult to find.

As far as broadcasters are concerned, television companies, for example, may find it in their
interests to control film production as this will enable them not only to extend their profit
base but in particular to obtain a competitive advantage. By obtaining priority over its
competitors the producer channel captures its rivals’ audience and competes with video; it
may also bring about more competition between television and cinema, to the extent the
integrated producer elects to exhibit relatively new films on television. Non-integrated
cinemas may be adversely affected, on the other hand. Declining audiences lead cinemas,
which also have to pay off modernisation costs, to increase ticket prices, thus giving film-
viewers another reason to desert the cinema.

Moreover, although control of film production by television companies may benefit the
integrated film producers, it may also lead to the exclusion of certain producers who do not
make films considered suitable for television audiences. This may lead independent
producers to become employees of major groups and thus to lose their independence.

The adverse negative effects from vertical integration described above are not inevitable,
however. The integration of a film producer and a television network may foreclose other
television networks from access to the integrated producer’s films, for example, but that will
be of little consequence if there remain a significant number of independent producers whose
films are available to other networks. The same analysis applies to access to television and
other means of film exhibition. It is not clear, for example, that merely because a television
company is integrated with a film producer it would be unwilling to consider exhibiting the
products of independent producers. Such a policy could be self-defeating, particularly if the
products of the captive producer turn out to be unpopular with the public. These questions
and others, particularly those involving the effects of vertical integration on conditions of

12
entry, will be considered by competition officials as they confront the current trend toward
vertical integration in the film industry.

Competition in India:

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 5. 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

5
Competition law Concerning the Film Industry in India; Deiya Goswami; King Stubb & Kasiva Advocates and
Attorneys

13
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), in Raaj Kamal Film
International vs M/S Tamil Nadu Theatre Owners6, in 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 Commission 17 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

6
Raaj Kamal Film International vs M/S Tamil Nadu Theatre Owners, 2013

14
exhibition of feature films and thus, prima facie appeared to be in contravention of the
provisions of Section 3 of the Act7.’

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.

7
Competition law Concerning the Film Industry in India; Deiya Goswami; King Stubb & Kasiva Advocates and
Attorneys

15
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
those 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 will be presented before CCI. Further CCI has to formulate
clear-cut rules that can be applied to the entertainment industry.

16