1. SUMMARY 2. LEGAL AND FACTUAL FRAMEWORK

Transcription

1 Class: UP/I / /80 24 th February 2011 Case: KINO ZADAR FILM d.d., Zadar vs. BLITZ d.o.o., Zagreb and DUPLICATO MEDIA d.o.o., Zagreb Type of case: Competition - abuse of a dominant position Type of decision: Decision on rejection of the claim 1. SUMMARY The Croatian Competition Agency (hereinafter: CCA), on grounds of the Competition Council's decision adopted at 65 th session, held on 24 th February 2011, rejected as unfounded a claim of KINO ZADAR FILM d.d. (hereinafter: KINO ZADAR FILM) against BLITZ d.o.o. (hereinafter: BLITZ) and DUPLICATO MEDIA d.o.o. (hereinafter: DUPLICATO) on alleged abuse of dominance of the latter two undertakings. 2. LEGAL AND FACTUAL FRAMEWORK On 23 rd December 2008 CCA received a complaint from KINO ZADAR FILM on alleged abuse of dominance of BLITZ and DUPLICATO. KINO ZADAR FILM claims that these undertakings apply dissimilar conditions to equivalent transactions in favour of its competitor BLITZ-CINESTAR ADRIA d.o.o. (hereinafter: BLITZ-CINESTAR ADRIA) by not allowing KINO ZADAR FILM to exhibit same movie in the same time and that they have imposed unfair commercial terms in the new contracts on public exhibition of movies concluded with it. Moreover, KINO ZADAR FILM considers that the payment of minimal guarantee, required by BLITZ for the provision of additional film copy at the date of national release in case of limited number of copies, amounts to an abuse of dominant position, due to the fact that this payment was never asked from other movie exhibitors. KINO ZADAR FILM also claims that BLITZ and DUPLICATO deliver written approvals related to particular movies just before their exhibition, which creates difficulties in its business, being that in the public exhibition contracts it s stipulated that the approval is valid only in written form. So, without the timely delivered and signed written approval, a solid ground for distribution of a particular movie is missing and the related promotional activities cannot be carried out successfully. One of the forms of abuse, considers KINO ZADAR FILM, is also involvement of BLITZ in scheduling of its weekly programme, being that BLITZ conditions the delivery of a particular movie with a certain number of screenings and size of the movie theatre, while such conditions are not simultaneously imposed to its rival theatre Cinestar, which has a great impact on its business. Additionally, KINO ZADAR FILM mentions the fact that all promotional movie posters received from BLITZ contain a printed logo of Cinestar, forcing it to promote its direct rival. In the conclusion, KINO ZADAR FILM considers the lowering of prices only in Cinestar Zadar and not in other towns where Cinestar is present, as a predatory strategy of BLITZ, carried out through its vertically integrated exhibitors BLITZ-CINESTAR and BLITZ- CINESTAR ADRIA, aiming to exclude KINO ZADAR FILM from the market of public exhibition of movies in Zadar.

2 3. PARTIES 3.1. KINO ZADAR FILM d.d. The undertaking KINO ZADAR FILM d.d., with its seat in Zadar, Kraljskog Dalmatina 1/a, is registered under the number in the court register of the Commercial Court in Zadar. Between other activities, it is registered for the public exhibition of movies, operating exclusively in the city of Zadar. KINO ZADAR FILM owns the movie theatre «Callegro», with total capacity of three screens and 450 seats BLITZ d.o.o. The undertaking BLITZ film i video distribucija d.o.o., with its seat in Zagreb, Kamenarka 1, is registered under the number in the court register of the Commercial Court in Zagreb. Between other activities, it is registered for the production, commerce and public exhibition of audiovisual acts. BLITZ concluded licence agreements for the territory of the Republic of Croatia with major film studios WARNER BROS and UIP, but also distributes independent movies. BLITZ holds [ ] % share in the movie exhibitor BLITZ-CINESTAR, which holds 100% share in the movie exhibitor BLITZ-CINESTAR ADRIA. BLITZ-CINESTAR is the leading movie exhibitor in the territory of the Republic of Croatia, with market share of 70-80% in DUPLICATO MEDIA d.o.o. The undertaking DUPLICATO MEDIA d.o.o., with its seat in Zagreb, Kamenarka 1, is registered under the number in the court register of the Commercial Court in Zagreb. Between other activities, it is registered for the production, commerce and public exhibition of audiovisual acts LINKS BETWEEN BLITZ AND DUPLICATO BLITZ and DUPLICATO concluded an Executive Distribution Agreement on [ ] under which is DUPLICATO entitled to distribute in its name and for the account of BLITZ certain number of audiovisual acts provided by BLITZ, with the correspondent obligation of BLITZ for remuneration. CCA determined that the agreement in case is not an Agency agreement, due to the fact that DUPLICATO bears a part of contract-related financial risk. However, CCA established that DUPLICATO carries out its movie distribution business entirely in dependence of BLITZ, so it can not be considered as an individual undertaking with autonomous market strength, but as an undertaking under control of BLITZ pursuant to Article 5 Paragraph 1 and Paragraph 2 Point 4 of the Competition Act, meaning that BLITZ and DUPLICATO constitute a single economic entity. 4. LEGAL PROVISIONS CCA applied provisions of the Competition Act, Regulation on the definition of relevant market, as well as the provisions of Act on Common Administrative Proceeding, which regulates the administrative proceeding before the CCA in the part not regulated within the Croatian Competition Act.

3 According to Article 35 Paragraph 3 of the Competition Act, CCA applied the following criteria from the Community acquis: - Communication from the Commission - Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02), from 24 th February 2009, - Commission notice - Guidelines on Vertical Restraints (SEC(2010) 411 final), from 10 th May 2010, - Cases of the European courts (Istituto Chemioterapico Italiano and Commercial Solvents v Commission, Irish Sugar plc v Commission of the European Communities, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission, IMS Health v NDC Health and Microsoft v Commission). Additionally, CCA took into account the provisions of special acts regulating audiovisual sector in the Republic of Croatia. 5. PRELIMINARY ASSESSMENT Before the formal initiation of the proceedings, in the meaning of Article 41 Paragraph 1 and Article 46 of the Competition Act, pursuant to Article 37 Paragraph 9 of the Competition Act, CCA collects data and statements from the undertakings which are necessary for market analysis and for the assessment whether the conditions for the formal initiation of the proceedings are met. For that purpose, CCA requested data and statements from the undertakings in dispute, other undertakings operating in the movie distribution sector (CONTINENTAL FILM d.o.o., PA-DORA d.o.o., DISCOVERY d.o.o., MG FILM d.o.o. and VIDEO TOP INTERNATIONAL d.o.o.), BLITZ-CINESTAR and BLITZ CINESTAR ADRIA, as well as from Croatian Audiovisual Centre, established under Audiovisual Activities Act by the Government of the Republic of Croatia for the promotion of audiovisual creativity in the Republic of Croatia. 6. FORMAL PROCEEDINGS After the preliminary assessment, in the meaning of Article 41 Paragraph 1 and Article 46 related to Article 16 of the Competition Act, considering that the dominance of BLITZ in the relevant market was determined, as well as sufficient indications pointing to the conclusion that BLITZ and DUPLICATO might use their privileged position in the market to prevent, restrict or distort competition, CCA has started the formal proceedings by adopting the Decision on initiation of proceedings from 9 th June During the course of the proceedings, in the meaning of Article 48 of the Competition Act, CCA has in the several occasions requested the data from the parties in dispute, other movie distributors and Croatian Bureau of Statistics. The parties submitted written statements to the CCA and at the end of the proceedings the possibility to directly give statements on all important facts was given to them at the oral hearing, pursuant to Article 54 Paragraph 1 of the Competition Act. After the oral hearing was held, the proceedings were finished, as well as the comprehensive economic and legal analysis, upon which the decision of the CCA is based. 7. RELEVANT MARKET The relevant market, pursuant to Article 7 of the Competition Act, is defined as a market of certain goods and/or services, which are the subject of the activities performed by the undertaking in the specific geographic territory.

4 Pursuant to Article 3 Paragraph 2 of the Regulation on the definition of relevant market, the definition of relevant market is a tool to identify and define products which are the subject of competition, as well as to set the geographic area in which the undertakings concerned compete. The definition of relevant market, pursuant to Article 4 Paragraph 1 of the Regulation on the definition of relevant market, shall be considered as identifying its product (relevant product market) and geographic dimension (relevant geographic market). CCA identified the relevant product market as movie distribution market, while the relevant geographic market was identified as the territory of the Republic of Croatia. CCA also analysed the structure of the neighbouring market of public exhibition of movies in the city of Zadar, as well as in the territory of the Republic of Croatia. 8. ECONOMIC AND LEGAL ANALYSIS CCA determined that BLITZ held constant market share levels above 40%, in the meaning of Article 15 Paragraph 3 of the Competition Act, during the whole assessed period of 5 years ( ). In addition, it was established that BLITZ holds significant market power in the meaning of Article 15 Paragraph 1 of the Competition Act, having respect to its significant financial power, direct and exclusive access to a significant source of supply and its capital and personal interconnections with the leading movie exhibitor in the Republic of Croatia, which altogether represent a significant factual barrier to the entrance of the real or potential competitors in the relevant market. Having in mind all the circumstances of the case, CCA established the dominance of BLITZ in the relevant market, pursuant to Article 15 Paragraphs 1 and 3 of the Competition Act. In the course of the proceedings CCA analysed all relevant facts and supporting evidence, and established that the claim of KINO ZADAR FILM related to direct refusal to supply is unfounded, being that in the assessed period from the opening of Cinestar theatre in Zadar to August 2010, KINO ZADAR FILM exhibited [ ] movies of total [ ] movies distributed by BLITZ and DUPLICATO (60-70%), [ ] of which were exhibited on national release date (30-40%). Having in account only the list of top 40 movies in 2009 and 2010, based on their total income in the Republic of Croatia, KINO ZADAR FILM exhibited 80-90% movies distributed by BLITZ and DUPLICATO, 60-70% of them on national release date, which points to the conclusion that the most successful movies distributed by BLITZ and DUPLICATO were usually available to KINO ZADAR FILM on the earliest possible date, date of the national release. With respect to individual movies which BLITZ refused to deliver to KINO ZADAR FILM on the national release date, CCA determined that BLITZ applied the economic-based objective criteria. CCA also analysed the claims of KINO ZADAR FILM related to minimal guarantee, untimely delivery of written approvals, involvement of BLITZ in scheduling of its weekly programme and delivery of promotional materials containing promotional logo of Cinestar, concluding that the actions of BLITZ and DUPLICATO did not contain elements of indirect refusal to supply, i.e. it was not established that the intent of BLITZ was to bring its vertically integrated exhibitor BLITZ-CINESTAR ADRIA in a privileged position, in the meaning of Article 16

5 paragraph 2 Point 3 of the Competition Act, capable to exclude KINO ZADAR FILM from the market of public exhibition of movies in the city of Zadar. Related to minimal guarantee, which was used only once, CCA determined that BLITZ used previous income of similar movie played in KINO ZADAR FILM as a reference point, but as these results were achieved in the period when KINO ZADAR FILM was the only exhibitor in Zadar, CCA concluded that they can not be used in the situation of different market structure, now consisting of two rivals. Nevertheless, taking into account the facts that minimal guarantee reflected the cost of related film copy, that the same amount was requested and paid from BLITZ-CINESTAR ADRIA and that it was an isolated case, regarding that KINO ZADAR FILM rejects to approve minimal guarantee as an instrument itself and complains to its amount only subordinately, CCA established that the conduct of BLITZ did not substantially prevent, restrict or distort competition in the neighbouring market of public exhibition of movies in the city of Zadar. With respect to untimely delivery of written approvals, CCA determined that the conduct of BLITZ and DUPLICATO could not substantially prevent, restrict or distort competition in the neighbouring market of public exhibition of movies in the city of Zadar, due to the fact that these two undertakings apply the same conduct to BLITZ-CINESTAR ADRIA, while the oral form of approval with delivery of the written approval just before or parallel to the delivery of the related film copy represents a common practice in the market. Related to the part of the claim mentioning involvement of BLITZ in weekly scheduling of programme, CCA determined that involvement of distributor in scheduling of exhibitor s weekly programme represents a common practice in the market. Moreover, CCA concluded that it is not even probable that two exhibitors with different capacity and previous results would have the same weekly schedule of particular movie, so this part of the claim was not further inspected. In the part of the claim connected to the delivery of promotional materials containing promotional logo of Cinestar, CCA determined that the logo was printed in the lower left corner of the related posters and compared to their size represented an irrelevant part which was located out of focus of the ordinary consumer and could at the same time easily be removed or covered, which was not prohibited by BLITZ. Moreover, it was determined that in the course of the proceedings BLITZ stopped to print the logo on the posters delivered to KINO ZADAR FILM. So, even though that the occurrence of some irregularities was found to exist, CCA determined that these actions did not substantially prevent, restrict or distort competition in the neighbouring market of public exhibition of movies in the city of Zadar. The alleged predatory strategy of BLITZ-CINESTAR ADRIA was also analysed, and it was determined that the lowering of prices in this case could not be assessed as a predatory strategy but merely as an example of meeting the competition, which is a legitimate strategy even for an undertaking in dominant position. In fact, the prices of BLITZ-CINESTAR ADRIA, despite their lowering, were still higher that the ones used by KINO ZADAR FILM, making the alleged predation impossible. In the conclusion, CCA determined that BLITZ and DUPLICATO did not impose unfair trading conditions, in the meaning of Article 16 Paragraph 2 Point 1 of the Competition Act, in the new contracts on public exhibition of movies concluded with KINO ZADAR FILM. 9. DECISION OF THE COMPETITION COUNCIL Even though some irregularities, related to the determination of minimal guarantee taking into account incomparable results of similar movies exhibited in the past and delivery of the promotional material containing printed logo of the rival, were present in this case, the

6 Competition Council, at 65 th session, held on 24 th February 2011, determined that these irregularities did not lead to substantial prevention, restriction or distortion of the competition in the relevant or neighbouring market and decided to reject the claim of KINO ZADAR FILM as legally unfounded. Nevertheless, the Council warned BLITZ that CCA, having in mind the legal framework in the Republic of Croatia, which does not prohibit vertical integration of movie distributors and exhibitors, as well as the high concentration of relevant and neighbouring market, close capital and personal interconnections of BLITZ and BLITZ-CINESTAR and control over DUPLICATO, shall in the future closely monitor the compliance of actions of these undertakings with the current competition rules. The Council also pointed out that BLITZ, as a dominant undertaking in the market of movie distribution in the Republic of Croatia, must in the future refrain from arising any suspicions in justification of its conduct, and must have in mind that it has a special responsibility to apply the same criteria, being that personally or through its executive distributor DUPLICATO, to all movie exhibitors, which are to be timely supplied with appropriate number of particular film copies, and in case of negative financial estimation offered with a minimal guarantee determined exclusively using the cost of an additional copy, not in any way using insecure criteria as the results of similar movies exhibited in the past. In that way, every exhibitor could secure its access to the requested copy, while BLITZ is not obliged to bear any additional costs. 10. SUPERVISION OF THE COURT According to the current legislative framework, undertakings have the right to file an administrative dispute before the Administrative Court of the Republic of Croatia against the decision of the CCA within 30 days of the date of decision delivery. So far, CCA has not received any related appeals. Note: Since the data indicated [...] and the data in the ranges represent a business secret within the meaning of Article 51 of the Competition Act, they are exempted from disclosure, omitted from the text and replaced by abbreviations and percentages in the range.