[By Pathmanabhan Sooraj and Mahadev Krishnan]
The authors are students of National University of Advanced Legal Studies, Kochi and National Law University, Odisha, respectively
Keywords: Digital Cinema Equipment, Virtual Print Fee, Anti-Competitive Practices
Introduction
Over the years, India’s film exhibition industry has moved from the age of physical film reels to a fully digitised world driven by high-tech Digital Cinema Equipment (“DCE”). Although this change has led to the development of technology and has improved the viewing experiences for audiences, it has also created a new dimension of anti-competitive behaviour. The delivery of films to theatres might be different, but the underlying issues are still the same, which include market foreclosure and limiting access to essential infrastructure. DCE encompasses digital projectors, servers, software, and security systems, which are required to screen films in theatres as well as to ensure quality and standardisation. Digital Cinema Initiatives (“DCI”) sets common technical standards to make DCE systems interoperable and fair for all market players. Recently, in Qube Cinema Technologies Pvt Ltd v. CCI, the National Company Law Appellate Tribunal (“NCLAT”) has clearly held that these standards set by the Competition Commission of India (“CCI”) cannot be tampered with by any private entity to block access or favour affiliates.
The entrance of digital infrastructure in the market of film distribution has allowed powerful and dominant players to employ exclusive software controls, firmware locks, and restrictive-lease contracts to bar and distort the competition. What previously used to occur as physical supply rejections or price cartels has now become technological gatekeeping. The authors, through this blog, firstly delve into how cartelisation started to emerge in the film distribution and exhibition market, and secondly how the introduction of Virtual Print Fee (“VPF”) has concentrated the market. Lastly, the authors analyse the impact of the UFO decision, and how DCE, while it was meant to enable access, has, in some cases, created digital bottlenecks that isolated rival players from the market, leading to limited market access and foreclosure.
The FICCI Saga: An Impetus for Concert Action in the Film Exhibition & Distribution Market
During the period from 2001 onwards, the development of multiplexes revived the cinema theatre market; however, this led to the vertical integration of the film production and distribution sector. In FICCI Multiplex Association v. United Producers, producers and distribution associations came together to bargain with multiplexes for a larger revenue-sharing model, where exclusionary measures, including collective boycotts by producer associations, led to Multiplexes not being able to screen films for a period until their demands were met. Subsequently, the Director General (“DG”) came to the conclusion that there was an onset of cartelisation to limit the supply of films to multiplex owners in order to gain higher revenue. This was further affirmed by the CCI, which held such conduct to be a cartel and in violation of §3(3) of the Competition Act (“Act”) and had caused Appreciable Adverse Impact on Competition (“AAEC”). Further, the CCI’s latest market study on the film distribution chain in India also acknowledges the fact that there is a need for self regulation by the film industry itself to prevent such anti-competitive practices. The market study also brings out the fact that an average DCE per screen is about 30 lakhs, therefore, DCE providers enter into a lease with Cinema Theatre Operators (“CTO”) and agreements with the lessee cinemas for advertising and VPF, where they retain a majority of the revenues, which ultimately has resulted in a barrier for small CTOs.
The Price of Projection: How Virtual Print Fee Entrenches Entry to the Market
With the emergence of DCE, India’s film exhibition industry saw a complete technological transformation. Physical reels were replaced by digital projectors, servers, and software-based delivery systems. While this brought better quality and efficiency, it also created new ways to control the market, most notably through the VPF. VPF is a fee paid by producers or distributors to exhibitors, whether large multiplex chains or standalone theatres, to help recover the cost of DCE. This fee was at the heart of the controversy in Unilazer v. PVR, Inox & Cinepolis. Here, the multiplex giants were demanding payments to film producers to screen movies in their digital systems. Although the charge was initially designed to pay back initial DCE expenses, it quickly turned into a regular fee, which persisted even after the investments had been recouped.
Further, it was alleged that the dominant players were exerting uniform VPFs through coordination. This made it harder for producers, especially small or independent ones, to access digital screens without paying a premium. The VPF model had started as a short-term solution with a sunset clause (a specified date or time when the VPF would no longer be charged) to substitute the cost of physical film prints, reduce piracy, and increase quality. However, the revenue sharing mechanism became a burden in the long run, especially for the smaller exhibitors in the relevant market of DCE.
This shift from collaboration to control was the worst on the smaller multiplexes. Smaller exhibitors had no capital to invest in the DCE of their own or had any bargaining power to negotiate fair terms, and were left with no choice but to accept the terms of the dominant players. Many were forced to rely on digital infrastructure bundled with restrictive software or firmware locks, making interoperability nearly impossible and switching service providers prohibitively expensive. As a result, smaller exhibitors were embroiled in a technological trap of paying higher, receiving less, and falling behind in competitiveness. What was once a physical barrier to entry has now transformed into a digital bottleneck.
Digital Domination: Anti-Competitive Leasing Practices in UFO Moviez
Following the FICCI-Multiplex cartel case, the CCI has shifted its attention to a more modern form of anti-competitive behaviour where contractual design and digital infrastructure became a medium for exclusion. In PF Digital Media Services Ltd. & Anr. v. UFO Moviez & Ors., the CCI ordered a detailed probe into how control over DCE is being used to limit access to Post Production Markets and foreclose competition. It was alleged that UFO Moviez and its subsidiary Scrabble Digital had imposed restrictive clauses in DCE lease agreements with CTOs. These contracts meant that an incompatible Key Delivery Messages (a key to unlock and display a film on DCE) (“KDM”) generated by Scrabble would be the only compatible with the leased DCE, effectively locking out competitor Post-Production Processing (the final stage of editing after the completion of a film) (“PPP”) companies like PF Digital Media. Although they provided competitive prices and quality, other service providers did not have access to the exhibition value chain due to technological barriers. The CCI held that this was a vertical restraint under §3(4) of the Act.
In the present case at hand, the DCE leased by UFO Moviez acted as the tying product, while the PPP services offered by its subsidiary Scrabble were the tied product. These lease agreements required CTOs to use only Scrabble’s PPP services to make the DCE work, specifically and only Scrabble-generated KDMs were compatible. This implied that although other PPP providers such as PF Digital may have provided better or cheaper services, theatres were not able to utilise them since the hardware would fail to recognize their KDMs. Hence, these agreements were enough to ensure that CTOs and producers did not have any other feasible option other than to come to terms with Scrabble. These agreements were not ordinary leases but strategic weapons for market foreclosure. This allowed UFO to take advantage of its infrastructure by including interoperability constraints in its equipment and contracts to secure the role of its subsidiary in PPP services. This ultimately limited consumer choice, increased switching cost and marginalised and isolated the independent players.
Conclusion
The evolution of anti-competitive practices in India’s film exhibition industry indicates a tendency that predestines the dominance of the projection infrastructure, either in its physical or digital form, to become a tool of market superiority. While earlier cases exposed overt cartelisation and collective boycotts, the more recent instances reflect subtler but equally exclusionary methods rooted in digital infrastructure. As DCE has become the industry standard, the hardware, software and proprietary delivery system have enabled major players to abuse the market. Practices such as VPFs, which were originally implemented to recoup infrastructure costs, became obsolete and serve as artificial barriers to entry.
Likewise, the feature of lock-in mechanisms and interoperability in DCE systems is such that independent producers and smaller exhibitors do not have a sufficient opportunity to enter the market on equal terms. Such dominant players are usually sheltered because of a lack of direct evidence, despite clear market access distortion caused by their practices. If left unchecked, these subtle tactics may well evolve into overt cartel behaviour, with such entities positioned to fix prices, rig bids, restrict supply, and stifle competition through such coordinated control. Therefore, the CCI must develop sharper tools that detect anti-competitive conduct embedded within such digital infrastructure. Without such strict vigilance, the aim of digitisation could be hijacked by entrenched players, leading to a closed and exclusionary market that restricts innovation, access, and consumer choice.