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The present Information has been filed by The Film and Television Producers’ Guild of India Limited (‘Informant’) under Section 19(1)(a) of the Competition Act, 2002 (‘Act’) alleging contravention of the provisions of Sections 3 and 4 of the Act by UFO Moviez India Limited (‘OP-1’), Qube Cinema Technologies Private Limited (‘OP-2’) and PVR INOX Limited (‘OP-3’). OP-1, OP-2 and OP-3 are collectively referred to as the Opposite Parties (‘OPs’).
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The Informant is stated to have been established in 1954 by the Indian film industry. The television sector was included within its fold in the year 2004. The Informant has approximately 170 producers as its members which include small, medium and large producers.
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Both OP-1 and OP-2 are companies incorporated under the Companies Act, 1956 and are, inter alia, involved in the supply of Digital Cinema Equipment (‘DCE’) to Cinema Theatre Owners (‘CTOs’).
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OP-3 is stated to be the largest film exhibitor in India with 1,707 screens across 115 cities (India and Sri Lanka) with 359 properties and an aggregate seating capacity of 3.58 lakh seats. It has been stated that OP-3 recently completed the merger with INOX Leisure Limited, thus becoming the largest multiplex chain in India.
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As per the Information, movies could only be projected on analogue 70 mm projectors, which later transitioned into ‘celluloid’ played on 35 mm projectors. Once a film was shot, the (physical) prints had to be transported to different theatres. For distributors, the cost of physically transporting a print from one location to another was significant. During 2000s, there was a global shift to the digital medium and digitization of the Indian theatres started soon after in the year 2005. By the end of 2014, 100% of the Indian cinema screens were digitized.
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Initially, there were concerns by the CTOs and exhibitors regarding the necessity of transitioning from celluloid to a digital medium, the latter being capital-intensive compared to analogue projectors. The cost of DCE ranges between INR 30 lakhs to INR 50 lakhs which proved to be a substantial economic burden on the theatres.
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It is stated that to mitigate the cost of DCE, Virtual Print Fee (‘VPF’) originated in the USA around the middle of 2005, when the first set of the VPF agreements were executed between 6 major studios/producers viz. Fox, Paramount, Sony Pictures Entertainment, Disney, Universal, and Warner Bros. and Christie/AIX (a DCE provider) for the roll-out of the digital cinema technology in 4,000 screens. Thus, in effect, producers agreed to subsidize the transition of theatres from analogue projectors and equipment to digital equipment by bearing a charge, which was payable to the DCE provider. This was later termed as VPF.
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Around the year 2007, producers and DCE providers in India started to follow the same model as USA and pay VPF to incentivize the adoption of digital projectors. VPF was charged by DCE providers to be paid by producers at the rate of approximately INR 500-600 per film per screen and per show, capped at INR 20,000-27,500 per film per screen for multiple/unlimited number of shows. There was however, no written agreement to this effect between Indian producers and DCE providers.
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It has also been stated that the introduction of digital cinema in India also coincided with the advent of multiplexes in the 2000s, led by PVR which was followed by several players such as INOX, Carnival, BIG Cinemas, Miraj, DT Cinemas and Cinepolis. Initially, they chose to lease DCE from DCE providers such as OP-1 and OP-2 who are the primary providers of DCE to the exhibitors and have been charging VPF from the producers. During 2015-18, PVR and INOX decided to purchase their own DCE, followed by Cinepolis purchasing DCE for some of their multiplexes.
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As per the Informant, VPF was understood to be transitory and not permanent in nature. In 2018, the agreement between 6 Hollywood producers and DCE providers/third party digital aggregators lapsed and thus Hollywood producers/studios do not pay VPF for screening their movies in India. It has been stated that some producers and distributors appear to have entered into an agreement with OP-3 with a sunset clause that would put an end to VPF in 2024.
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In order to charge and collect VPF, DCE providers enter into agreements with exhibitors in India, for providing DCE to CTOs on payment of lease rental by the CTOs/exhibitors and grant of exclusive rights to supply films, as well as exclusive advertisement rights that generates advertising revenue in the said theatre. The CTO is ‘locked-in’ to that particular DCE provider due to exclusivity clauses and cannot take films or content from any other source, as these would not be capable of projection on the DCE supplied by any other supplier.
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It has been stated that though VPF is not relatable to any particular service provided but was originally introduced to enable the transition from analogue to DCE as it was intended to cover the cost incurred by CTOs for the transition. Once the transition was complete, VPF was to come to an end as in the case of Hollywood producers, in 10 years, i.e., by 2018. However, the same has continued to be levied, for more than 15 years since its introduction, even though theatres completed their digitization in 2014. At present, it is unviable for several producers, particularly small and medium size ones, to get a decent theatrical release without releasing the movie in theatres controlled by the OPs and having to incur VPF charges. It is stated that when a Hollywood film gets released in India, it is under no obligation to pay the VPF and Hollywood producers are therefore, able to release a larger number of prints in India which is discriminatory towards Indian producers.
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Several requests have been made by individual producers over time, to remove the VPF charges. It has been stated that in 2019, Unilazer Ventures approached the Commission against PVR, INOX and Cinepolis, in Case No. 10 of 2019 (‘Unilazer Case’), wherein all 3 exhibitors submitted that they were willing to discuss the VPF charges as well as a sunset clause. However, despite a period of 5 years having lapsed since, these 3 exhibitors continue to levy VPF.
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Following the release on 14.10.2022, of the Commission’s Market Study which had found the levy of VPF charges to have anti-competitive outcomes particularly for smaller producers in the ecosystem, the Informant requested its members to send their comments on the same. The Informant was requested by its members to engage in discussions on behalf of the producers with all DCE providers and exhibitors on the levy of VPF. Consequently, in May 2023, the Informant wrote several letters to the DCE providers and exhibitors to meet the Informant on the VPF issue. However, all attempts to end VPF were futile and the OPs were reluctant to even engage in discussions. A letter dated 04.06.2023 by OP-2 suggests that VPF should be continued indefinitely, while OP-1 and OP-3 continue to delay any resolution of the issue. At no point has it been suggested that VPF would be ended either immediately or within a defined period.
