Notice published pursuant to Article 19(3) of Council Regulation No 17 concerning an application for a renewal of the Commission decision of 12 July 1989 to grant an exemption pursuant to Article 81(3) of the EC Treaty (Case No IV/C.2/30.566 - UIP Cinema) (Text with EEA relevance)
C 205/6 EN Official Journal of the European Communities 20. 7. 1999 Notice published pursuant to Article 19(3) of Council Regulation No 17 (1) concerning an application for a renewal of the Commission decision of 12 July 1989 to grant an exemption pursuant to Article 81(3) of the EC Treaty (Case No IV/C. 2/30. 566 - UIP Cinema) (1999/C 205/06) (Text with EEA relevance) 1. INTRODUCTION agreement establishing United The International Pictures BV (UIP) were first notified to the Commission on 11 February 1982. A summary of the notification was published (2) pursuant to Article 19(3) of Regu- the lation 17. Commission exempted UIP for five years with effect from 27 July 1988 and with expiry on 26 July 1993. On 22 June 1993 the Commission received a request for a renewal of the agreements the exemption of establishing UIP. In a decision of 12 July 1989 (3) the re-notified UIP agreements appeared to be incom- patible with Article 81 of the EC Treaty. Therefore, in this procedure, the parties made new amendments to the UIP agreements and provided new undertakings, in addition to the undertakings already given during the procedure leading to the exemption decision of 12 December 1989. 4. 1. Amendments proposed by UIP and the Partners to the agreements re-notified in 1993 2. THE PARTIES TO THE UIP AGREEMENTS 4. 1. 1. The right of first refusal provision UIP is a joint film distribution company established by Paramount Pictures Corporation, Universal Studios Inc. , (the Partners). The and Metro-Goldwyn-Mayer Partners and indirectly through their subsidiaries, in the financing, production and distribution of feature films and other enter- tainment programmes for exhibition in cinemas, on television and other media. engaged, directly Inc. are all 3. THE MARKET for for in the film business is national due The UIP agreements concern the market the distribution for exhibition in cinemas of feature films, short subjects and trailers. The relevant geographic to market differences in the industry in the various Member States such as language, governmental regulations and different patterns of distribution and exhibition. While theatrical exhibition generally has the market enjoyed a positive trend over the past years, UIP’s fluctuated average Community market around 20 % throughout the since exemption decision in 1989 depending on the films In 1997 UIP’s market share was as low as released. activities of 13 %. The Polygram Filmed of those Universal Studios only adds moderately to UIP’s total market share. share has the period recent merger (4) of Entertainment with the 4. CHANGES MADE TO THE RE-NOTIFIED UIP AGREEMENTS AND PARTIES FOLLOWING THE INTERVENTION OF THE COMMISSION UNDERTAKINGS GIVEN THE BY the analysis carried out by the On the basis of Commission and of received from third parties during this procedure certain features of the comments (1) OJ 13, 21. 2. 1962, p. 204/62. (2) OJ C 286, 10. 11. 1988, p. 4. (3) OJ L 226, 3. 8. 1989, p. 25. (4) OJ C 309, 9. 10. 1998, p. 8, Non-opposition to a notified concen- tration (Case No IV/M. 1219 - Seagram/Polygram). first Under the UIP agreements, UIP has a right of refusal to distribute the Partners’ films. The right of first refusal means that the Partners are obliged first to offer their films for distribution to UIP and if UIP decides not to distribute a film, the Partners are free to use other distributors. Under the current provision, the whole Community is considered as one single territory. The Parties have offered to amend this provision so that each Member State is considered as a single for Belgium/Luxembourg and the territory, except UK/Republic of each of which shall be Ireland, treated as one territory. that The Commission considers that this amendment of the right of first refusal will reduce the restrictions of competition flowing from the UIP agreements. The amendment means the Partner holding the distribution rights to a film will be free to seek alter- native distribution for the film in territories where UIP elects not to distribute such film. In addition to the lessening of the restrictions of competition flowing from the UIP agreements, this amendment will in the Commission’s opinion lead to a diversification and improvement of the supply of films in the Member States. 4. 1. 2. Best efforts Currently, the shareholders agreement contains an obli- gation for UIP to maximise gross receipts for each film distributed by it. The Parties have undertaken to delete this obligation from the shareholders’ agreement. This modification meets the concerns that retaining the best effort provision in the shareholders agreement could be seen to extend the contractual obligation to maximise profits to each individual Partner in respect of every film distributed by UIP. This could be seen as an incentive to undertake an anti-competitive co-ordi- nation of the release of films through UIP. 20. 7. 1999 EN Official Journal of the European Communities C 205/7 the towards gross the Commission has accepted that a best However, efforts provision will be retained in the individual franchise agreements concluded between UIP and the Partner. The provision confirms UIP’s individual each individual commitment to Partner each individual receipts of maximise Partner’s film. The purpose is to make it clear that each Partner will satisfy the requirements of their contractual partners and other profit participants) to ensure the most profitable indi- vidual distribution possible of a film through UIP. The Commission considers that retaining the best efforts clause in the individual franchise agreements will not act as an incentive for the parties to coordinate their distribution activities. (producers, talent produce, rights to local films in the EEA. finance, co-finance or acquire distribution 4. 2. 6. Records to show the nature and extent of the Parties’ local film activities UIP and the Partners have agreed to provide an under- taking to continue to maintain records to show the nature and extent of their activity in the production, co-financing or acquisition of distribution rights of films of EEA national origin or made in whole or in in the EEA (2). A definition of a film of EEA part national origin has been included in the undertaking to avoid doubts as to the origin of a particular film. Undertakings from the 1989 decision as repeated and amended by UIP and the Partners 4. 2. ^ 4. 2. 1. Co-financing and distribution of films of third parties in the EEA UIP and the Partners have agreed to repeat the under- that UIP will make itself available, based takings (1) upon co-finance, judgement, its acquire distribution rights to or distribute feature films of third parties in the EEA. commercial to 4. 2. 7. Undertaking professional European film makers and film festivals support to development of development UIP and the Partners have agreed to provide an under- taking that one or more of them will take initiatives to support and promote the training and encourage, professional European filmmakers and their films by, for example, providing funding to film to film schools, financial festivals, sponsoring prizes or awards and offering internship opportunities to novice EEA film industry professionals. support young of 4. 2. 2. Publication of availability 4. 2. 8. No coordination of release dates UIP has agreed to provide an undertaking to publicise such availability to independent producers and will introduce and make known its procedures to assist such producers to contact UIP concerning their film projects. 4. 2. 3. Appointment of a film executive responsible for identifying and securing EEA films for distribution UIP and the Partners have agreed to provide an under- taking to facilitate the abovementioned undertakings by employing an experienced film industry executive to be identifying and seeking to secure responsible for considered distribution of EEA films, which are commercial reasonably judgment, to generate reasonable earnings in theatrical distribution. on UIP’s an opportunity likely, to offer based 4. 2. 4. Publication of UIP and the Partners’ activities in respect of third party films UIP and the Partners have agreed to provide an under- taking to publicise annually in the trade press or by some other appropriate publication the nature and its activity in the co-financing, acquiring extent of to and distributing the feature distribution rights films of third parties in the EEA. 4. 2. 5. Production, financing and distribution of films in the EEA Each of the Partners have agreed to provide an under- taking to make themselves available individually, based to upon their commercial judgement individual UIP and the Partners have offered to maintain the undertaking (3) that no Partners’ committee would consider or discuss the plans to release, distribute or market the individual films of any Partner. Except pursuant to any co-production or co-financing or similar agreement each Partner moreover has agreed to provide an undertaking to set dates for the release of its films through UIP individually without agreeing or seeking to reach agreement with any other Partner as to such date, and UIP shall not disclose such release dates until authorised to do so or the date becomes known to third parties. The reinforcement of this undertaking is made in order to underline that UIP will not work as a coordination vehicle for film distribution activities, which is one of the main concerns that third parties have raised against UIP. the Partners’ 4. 2. 9. Arbitration the already established UIP and the Partners have agreed to provide an under- taking to establish a new conciliation procedure in arbitration addition to procedure to resolve disputes between UIP and exhibitors relating to the supply of prints. Moreover, the arbitration procedure has been improved by being designed to operate more quickly. The new mech- anisms are to be applied in Member States where no industry arbitration procedures exist. (1) Point 27 of the 1989 Commission Decision. (2) Point 32 of the 1989 Commission Decision. (3) Point 31 of the 1989 Commission Decision. C 205/8 EN Official Journal of the European Communities 20. 7. 1999 In the Commission’s view the new conciliation and the amended arbitration procedures are useful instruments in ensuring that UIP deals with exhibitors on a fair and equitable basis. 4. 2. 10. Undertaking never to block book UIP has agreed to provide an undertaking not to apply block-booking practices, i. e. never make the acceptance of a film conditional upon the acceptance of any other film. The Commission was concerned that UIP potentially could force exhibitors to accept films they would not otherwise have accepted. This undertaking makes it clear that UIP will not use block booking. 4. 2. 11. Undertaking not to discriminate between own and third parties’ cinemas UIP has agreed to undertake to supply films to cinemas owned or controlled by the Partners on an arm’s length basis, recognising that differences in license terms may be attributable to commercial differences between cinemas. This undertaking ensures that third parties have access to the Partners’ films on fair conditions. 5. THE COMMISSION’S INTENTIONS The parties have provided a number of changes to the notified agreements and provided additional under- takings to the Commission. Taking into account the the film commodity, the heterogeneous character of amended UIP agreements allow the parties to achieve greater efficiency by avoiding the duplication of distribution organisations and thereby reducing costs. Consequently, the parties are able to release more films in the Community. A less costly distribution organi- sation results in a more efficient network of branch and cinema offices viewers to a wider variety of films. to the benefit of through a ready and regular access exhibitors On the basis of the foregoing, the Commission intends to take a favourable view in respect of the agreements subject to the Parties amending the agreements and putting the undertakings into force. Before doing so, it invites third parties to send their observations within one month of the publication of this notice to the following address quoting the reference IV/C. 2-30. 566 - UIP Cinemaí: European Commission, Directorate-General for Competition, Directorate C, Rue de la Loi/Wetstraat 200, B-1049 Brussels; Fax (32-2) 296 98 04