CCI Fines Digital Cinema Service Providers UFO Moviez And Qube Cinemas For Anti-Competitive Agreements

Competition Commission of India (CCI) has found cinema service providers UFO Moviez India Ltd. and Qube Cinemas in contravention of anti-competitive agreement provisions under the Competition Act, 2002. The violations involve tie-in arrangements, exclusive supply agreements, and refusal to deal with the CCI imposing a fine of ₹104.03 lakh on UFO Moviez and ₹165.8 lakh on Qube Cinemas. The decision specifically concerns the markets related to the leasing of Digital Cinema Equipment (DCEs) to Cinema Theatre Operators (CTOs) and the provision of Post-Production Processing (PPP) services in India. Facts of the case The Opposite Parties, UFO Moviez India Ltd., engaged in supplying Digital Cinema Equipment (DCE), which was necessary to play digital films, to Cinema Theatre Owners (CTOs), who typically leased rather than purchased these systems from Digital Cinema Service Providers (DCSPs). Scrabble Digital Ltd., also an Opposite Party and a subsidiary of UFO Moviez, handled post‑production services, allegedly controlling nearly 90% of that market. Qube Cinema Technologies Pvt. Ltd., another key DCE supplier, was once slated to merge with UFO, but the deal was withdrawn in 2019, though QubeCinemas was still reputed to be under UFO's influence. To ensure compatibility and quality across screens worldwide, all DCEs had to meet standards set by the Digital Cinema Initiative (DCI), an association comprising Disney, Fox, MGM, Paramount, Sony Pictures, Universal, and Warner Brothers. The informants, PF Digital Media, contended that UFO Moviez had entered into anti-competitive agreements with CTOs to favour the business of its subsidiary, Scrabble Digital, which they alleged was a violation of the provisions of the Competition Act. They specifically referred to exclusivity clauses in equipment lease agreements between UFO Moviez and CTOs. The informants alleged that UFO Moviez was the dominant player in the market for cinema theatre screens playing digital format films and that the agreements with CTOs resulted in a denial of access to all cinematograph films that were not post-production processed by Scrabble Digital, which contravened Section 4(2)(c) of the Act. The Competition Commission, through a prima facie order dated 17.09.2021, found that equipment lease and content‑supply agreements imposed unlawful tie‑in arrangements and exclusive‑supply obligations, prompting a further investigation by the Director General through an order dated 17.09.2021, based on which the current order was issued. Contentions of Opposite Party The Opposite Parties argued that the Director General (DG) had misunderstood the different ways in which UFO offered access to DCI-Compliant Digital Cinema Equipment (DCI-DCEs). They contended that leasing DCEs as part of a bouquet of Digital Cinema Services (DCS)—including in-cinema advertising, content delivery (PPP services), and Video Projection Fee (VPF) collection—was an indivisible service that had been incorrectly conflated with simple flat-rate leases of DCEs. They claimed the DG had failed to properly assess substitutability from the perspective of Cinema Theatre Owners (CTOs), particularly given the lower rent under the DCS model. While responding to the allegations of tie-in arrangements and exclusive supply obligations, the parties submitted that, for such an arrangement to be considered anti-competitive under Section 3(4) of the Act, there must be evidence of coercion resulting from market power that forced CTOs to purchase the DCS bouquet against their will. They argued that the DG had failed to provide such evidence, asserting that CTOs opted for DCS voluntarily due to its cost-effectiveness, streamlined services, and reduced operational requirements. The CTOs, they claimed, had the freedom to choose between DCS, flat-rate leases, or outright purchases of DCEs. They further pointed out that none of the ten large CTOs interviewed by the DG had alleged any coercion. They maintained that the DCS offering was a 'composite service' rather than a tie-in of separate products and that CTOs were free to source content from any party. Regarding the alleged exclusive supply agreement, the Opposite Parties submitted that their standard sale agreements did not require CTOs to purchase other services from UFO, thereby allowing them to choose their own suppliers, including for content delivery. They argued that exclusivity in content delivery was only required in cases where UFO was responsible for collecting the VPF on behalf of theatres, to ensure accurate payment by producers. Observations by the Commission The Commission, while dealing with the issue of tie-in arrangements between the opposite parties, held that a tying arrangement take place when the purchase of one product is made conditional on the purchase of another. For such an arrangement to be recognized under the competition law, certain...

CCI Fines Digital Cinema Service Providers UFO Moviez And Qube Cinemas For Anti-Competitive Agreements

Muhammed Razik

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