UFO Moviez, Qube Cinema fined Rs 2.7 crore by CCI for market abuse

New Delhi: The Competition Commission on Wednesday slapped penalties totalling nearly Rs 2.70 crore and non-monetary sanctions on UFO Moviez India, its subsidiary Scrabble Digital, and Qube Cinema Technologies for unfair business practices, NewsDrum reported.

UFO Moviez and Qube were significant players in the relevant market for the supply of digital cinema initiatives compliant Digital Cinema Equipment (DCE) on lease/rent to Cinema Theatre Owners (CTOs) in the country.

Imposing the penalties, the Competition Commission of India (CCI) said the companies imposed restrictions on the supply of content in lease agreements entered into with CTOs, creating barriers for players engaged in the provision of post-production processing services.

Besides, they blocked a significant portion of CTOs having digital cinema initiatives compliant DCEs from being served by any other player, the regulator said in a release.

As the companies violated the competition norms, CCI has imposed penalties and directed them not to carry out certain activities.

After considering the nature and gravity of the contravention along with an assessment of mitigating and aggravating factors, the watchdog has imposed monetary penalties of Rs 104.03 lakh on UFO Moviez, along with its subsidiary Scrabble Digital and Rs 165.8 lakh on Qube.

Besides, they have been directed "not to re-enter lease agreements with the CTOs imposing restrictions on the supply of content from other parties".

CCI has also held that the existing lease agreements with CTOs shall stand modified so that they do not impose restrictions on the supply of content from parties other than UFO Moviez (and its affiliates) and Qube.

The Commission also observed that UFO Moviez held significant market power with about 40 per cent share in the DCI-compliant DCE leasing market, while Qube Cinema commanded an even larger share at around 48 per cent.

It noted that the clauses in lease agreements between UFO, Qube and CTOs imposed restrictions tantamount to tie-in arrangements, exclusive supply agreements, and refusal to deal, all of which were likely to cause appreciable adverse effects on competition, the order said.

"...the ingredients of tie-in arrangement as provided in Section 3(4)(a) of the Act are satisfied. Therefore, the contentions and arguments of OP-1 (UFO Moviez India) in this respect, including that CTOs' are not being coerced or restrained to procure DCS, which includes delivery of content cannot be accepted," CCI said.

Accordingly, the commission concludes that OP-1 is indulging in a tie-in arrangement with respect to the provision of DCI Compliant DCE on lease by tying in the supply of content along with it.

The Director General's investigation also revealed that these practices limited the ability of independent post-production firms to operate freely, thereby creating artificial entry barriers.

The case, stemming from information filed by PF Digital Media Services Ltd (now DNEG India Media Services Ltd) and a producer, alleged that UFO Moviez and its affiliate Scrabble Digital imposed exclusivity clauses on CTOs leasing their DCE.

These clauses barred CTOs from sourcing post-production services from any party other than Scrabble Digital, thereby foreclosing competition.