Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for March 8th, 2010

Windows

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This is not a post on Microsoft.

In a move to make their films available early through various channels (DVD, VoD, etc.), movie distributors – big fishes like Disney – have sought to reduce the x-months exclusivity enjoyed by theatres over the first release of movies (the so called theatrical “window”).

Historically, movie distributors had been reluctant to do this, because the release of movies on a wide number of physical (DVDs) or digital (Internet) formats rang the opening hour of piracy. Moreover, the theatres’ temporal monopoly over the distribution of movies led to fat prices for consumers, and thus appreciable margins for the movie distributors (which normally receive a %  on each ticket sold).

Movie distributors are manifestly changing their minds. A plausible explanation of this is that distributors increasingly perceive the theatrical window’s lenghty exclusivity as a key explanation for movie piracy. In addition, in times of crisis, consumers may prefer to stay home to watch movies, so the revenue generated by theatrical distribution decreases as compared to other formats. Think, for a second, to the situation of a budget-constrained family man. To him, watching a movie home is akin to a fixed cost. It is incurred once (renting the DVD) and can be spread over the various members of the family. By constrast, watching a movie in a cinema is a variable cost, which increases with the number of family members brought to the theatre.

So much for the theory. Why a post on this issue? On the occasion of the release of “Alice in Wonderland“, cinema chains have tried to undermine the distributors’ attempts to shrink the theatrical exclusivity window. To this end, they have engaged into the most brazen form of anticompetitive conduct: boycott. In the UK, it has for instance been reported that the three big cinema chains – Odeon, Vue and Cineworld – initially threatened to boycott Alice in Wonderland. The same has also happened, and may still be happening, in a number of European countries (Belgium, the Netherlands).

Under EU competition law standards, such boycott practices may be challenged on two possible grounds. First, they constitute a refusal to purchase movie distributors’ services (or they entail the termination of long lasting commercial relationships) and may thus be tantamount to an unlawful abuse pursuant to Article 102 TFEU (or its national equivalent).  Assuming – I sound like an economist – that the theatres hold a dominant position (individual or collective), the interesting issue lies in the fact that theatres do not try to harm competition on a secondary upstream market as in classical “essential facility” cases (where upstream, or downstream, foreclosure is the concern). As a result, the Magill/IMS/Microsoft case-law which requires the elimination of competition on a secondary market should thus not apply to cinema chains practices. Yet,  I am tempted to argue that there could nonetheless an abuse pursuant to Article 102 TFUE. In coercing distributors to maintain the current release windows through boycott, theatres artificially forestall the early entry of alternative viewing modes on the market.  This in turn is prejudicial to “consumer welfare” in the meaning of competition law since it limits consumer choice and impedes the development of new markets.  The increased emphasis of “consumer welfare” under Article 102 TFUE brings support to this interpretation.

Second, such practices may be tantamount to an infringement of Article 101 TFUE (or the national equivalent), provided the cinema chains have jointly decided to boycott movie distributors – again I sound like an economist.  EU competition law has a strong enforcement record against collective boycotts. Back in 1974, the Commission held in Papiers peints de Belgique that  “collective boycott is amongst the most egregious violations of competition rules”.

Apologies for the long post, but I find the issue fascinating. Thanks to T. Hennen for the pointer.

(Image possibly subject to copyrights: source here)

Written by Nicolas Petit

8 March 2010 at 12:41 pm