The Competition Commission of India (CCI) has imposed a cumulative penalty of Rs. 2.69 crore on UFO Moviez, its subsidiary, Scrabble Digital, and Qube Cinema Technologies for indulging in anti-competitive practices that adversely affected competition in India’s digital cinema exhibition market.
The Commission found the companies guilty of violating sections 3(1) and 3(4) of the Competition Act, 2002 for engaging in tie-in arrangements, exclusive supply agreements and refusal to deal. A penalty of Rs. 1.04 crore was levied jointly on UFO Moviez and Scrabble Digital while Qube Cinema was fined Rs. 1.65 crore
The case dates back to a complaint filed in 2020 by Prime Focus Ltd. (Digital Media Services) and film producer Ravinder Walia, who alleged that UFO Moviez was disabling its leased equipment to prevent exhibition of films that were not post-production processed by Scrabble Digital. The informants contended that this amounted to denial of market access and abuse of dominance. A civil suit originally filed before the Delhi high court was withdrawn in favour of filing a formal information before the CCI. In September 2021, the CCI directed its Director General (DG) to conduct a detailed investigation.
After thorough investigation, the DG concluded that both, UFO Moviez and Qube Cinema Technologies, held significant market power, controlling approximately 40% and 48% respectively of the market for Digital Cinema Equipment (DCE) leased to cinemas.
TIE-IN
The Commission held that both, UFO and Qube, entered into tie-in arrangements with cinemas, bundling the lease of DCE with exclusive content delivery services.
“The provision of content has been tied with the lease of DCE which can be separately made available,” the CCI noted, adding that such bundling “constitutes a tie-in arrangement” under section 3(4)(a) of the Act.
It found that cinemas leasing DCEs from UFO or Qube were contractually barred from sourcing content from any other provider.
EXCLUSIVE SUPPLY AGREEMENTS
The investigation revealed that agreements between the companies and cinemas contained clauses explicitly stating that the right to supply content was reserved by UFO Moviez and Qube Cinema, forbidding supply of content by any other player on DCEs leased from them.
TECHNICAL BARRIERS, FIREWALLS
A significant finding in the investigation was the implementation of technical barriers or “firewalls” in the leased equipment. Multiple film producers testified that key delivery messages (KDMs) generated by competing post-production processors were rejected by the DCEs leased from UFO and Qube Cinema. Viacom18 testified during the investigation: “We are forced to work with the concerned digital cinema service providers as the films processed via any other lab are disabled from being run on the DCE supplied by the concerned service providers to cinemas.”
The Commission observed that such restrictive practices do not appear to exist in international markets, where KDMs supplied by any service provider are compliant with any DCI-compliant DCE.
“Based on the above, the Commission agrees that the restraints imposed have resulted in adverse effects,” CCI said.
The CCI conducted a detailed assessment of the appreciable adverse effect on competition resulting from these practices. The Commission concluded that the restrictions imposed by both companies created barriers to entry for newer players in the post-production processing market, drove out existing competitors and foreclosed a significant portion of the market.
The Commission also found that these agreements hindered improvement in production services and potential innovation in the sector. Film producers including Yash Raj Films, Reliance Entertainment, Viacom18 and Zee Entertainment Enterprises Ltd. confirmed during investigation that the restrictive practices led to lower bargaining power and higher prices.
Beyond financial penalties, the CCI has issued specific directives to address the anti-competitive behaviour:
“In terms of section 27(a) of the Act, the Commission hereby directs the OPs not to re-enter lease agreements with the cinemas imposing restrictions on supply of content from parties other than Opposite Parties. Further, in terms of section 27(d) of the Act, the existing lease agreements with cinemas shall stand modified such that they do not impose restrictions on supply of content from parties other than UFO Moviez and its affiliates and Qube Cinema,” the order stated.
After considering mitigating factors submitted by the companies, the CCI imposed penalties of Rs. 1.04 crore on UFO Moviez and Scrabble Digital, and Rs. 1.65 crore on Qube Cinema Technologies.
The companies have been given 60 days to deposit the penalty amounts.
Prime Focus (Digital Services) and Ravinder Walia were represented by advocate Tarini Khurana. UFO Moviez and Scrabble were represented by senior advocate Arun Kathpalia with advocates Rahul Rai, Binit Agarwal, Diksha Gupta, Riddhika Dumane, Bhavika Chhabra and Avinash Amarnath. Qube Cinema was represented by senior advocate Sajan Poovayya with advocates Bharat Budholia, Deepanshu Poddar and Vayshnavi Ganesh.
