At times, the collective action of the members of the supply chains of the Bollywood, who are competitors of one another, relates to cartel like conduct, for which the Indian Film Industry has gained notoriety. Is the CCI taking note of this development? Find out more.
Since the advent of the Competition Commission of India (“CCI”) under the Competition Act, 2002 (“Competition Act”), there has been a spate of complaints made to the CCI including complaints from Indian film industry, Bollywood (“Indian Film Industry”). The CCI is the competition watchdog of India and has a duty to ensure distortion of free market.
Bollywood as an industry was formally recognized1 in India in the year 2000 and certain corporate houses started being active members of it after this. In the recent past, the stakeholders of film industry have approached the CCI with various concerns. These have ranged from producers alleging anti-competitive conduct of the distributors or exhibitors and vice-versa to the instances in which some producers have complained against another.In the Indian Film Industry for a movie to be released and made available for the viewership of the final consumers, it has to pass through the supply chain of producers, distributors and exhibitors. However, as the functions and interests of the latter are highly fragmented, therefore these functionaries, comprising of a number of independent and small competitors, prefer to conduct their business with members of other functionaries collectively in the form ofassociations or groups so as to be able to enhance their bargaining power. At times such collective action of the members of these functionaries, who are competitors of one another, relates to cartel like conduct, for which the Indian Film Industry has gained notoriety, and has been sanctioned in a number of cases.2
Earlier this year, the Association of the Producers of Indian Film Industry (“Producer Guild”) met in order to decide over the cost cutting strategies for the industry. The Producer Guild’s decision to take concerted action for reducing costs has been reported in various national dailies3. It has been reported that Producer Guild had congregated at a common place and collectively agreed to limit the money spent on a film’s marketing and promotion activities. An eminent member of the fraternity was quoted as saying in the Mumbai Mirror:
“We are confident of our films. Why are we charged so exorbitantly by TV channels and multiplexes when we promote these films on their platforms? What hurts is that we try to outdo each other in terms of publicity. Isn’t the goose being killed before it has laid the eggs? Costs involved in marketing need to be streamlined pronto.”
As per reports after such meeting the producers who otherwise on an average spend INR 60 million to 100 million on promotional and publicity activities would limit such spends quite drastically through the following steps:
It was also stated that similar cap is in existence in film industry of Southern India. Furthermore, to ensure compliance of their directions above, a fine has been decided to be imposed on the erring member. Such collective action of the Producer Guild is being projected to have definite advantages that would lead to reduction in costs and therefore help in increasing the profits. The same however gives rise to an interesting aspect. Does an agreement between the producers to limit their procurement of such advertising and promotional services tantamount to cartelisation and raise issues that fall within the purview of the CCI? Can such concerted actions by a group of producers, who are essentially competitors of each other, be construed to be cartel like behaviour, and does it fall within the ambit of a buyers’ cartel?
A buyers’ cartel focuses on the input side of the market rather than the output. The object of such a group is to eliminate competition in some aspect of their input purchases in order to reduce the prices associated with such purchases or otherwise control supplier conduct4. This type of cartel is most prominent in situations when the buyers collude to bring down their input costs even though they sell their product in highly competitive markets where there is no scope of forming a cartel and therefore leads to maximizing of their profits nonetheless.5
In the present instance, a holistic approach is required to understand the true impact of the Producer Guild decision to collectively limit their promotional costs. At first such a decision enables the producers to not compete with each other in procuring of services in relation to publicity and advertisement (“P&A”).This in turn may have the benefit of bringing down their own costs but may lead to demands for such services to be provided at prices that are below the competitive level, leading to foreclosure in the P&A markets. In spite of such a decision the existing P&A agencies would still compete with each other and in order to retain their market share the only option left for them would be to lower their prices or even undercut.
Do producers have no right to decide on cutting their input cost?
Any person does have the right to decide as to reducing their input costs. However, forming a concerted group to implement such a decision on the industry can well be viewed as violative of Competition Act. In the past CCI has taken action against other guilds which have acted against its members for not following its diktat. The other noteworthy aspect is the cross impact of such decision on the P&A sector. The decision of the courts of USA in Todd vs. Exxon6 may be relevant. In this case 80 to 90% of the petrochemical and oil industry players had got into an agreement to compare the salary of their employees and systematically reduce the bonus and the yearly increment paid to them by ensuring there is no competition amongst the employers for retaining the services of their employees as none of the employers would poach the other employers’ employee. The objective of getting into such an agreement was to reduce the input cost. The court in this case held such a practice as anti competitive.
Even if all producers agreeably create market situation of lower input costs, will it be legitimate in terms of macro market scenario?
Again, the instance of producers market is comparable to the situation in the case of Todd vs. Exxon. In that case the court also considered the issue of interchangeability of services of employees between the industries. The court analysed the impact on the salaries of Exxon employees by asking itself a question that what if the employee engaged in the oil industry would have performed similar services in other industry such as pharmaceutical.
In the same line, the Producers’ Guild may be required to think hard to distinguish the Indian Film Industry from any other industry in which similar services are provided by P&A agencies for varied costs. Till date the CCI has taken a tough stance on cartels, it has examined and penalized a number of sellers cartel including imposing a fine in excess of INR 63 billion against the cement cartel, but it has not got an opportunity to examine any buyers’ cartel. However a time will come when CCI would consider matters in relation to buyers’ cartel and the balancing of the obvious efficiencies of such practice against its anti-competitive effect would add richly to the jurisprudence of competition law in India.
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