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)
Date: 1999-07-20
Institutions: European Commission
Subjects: EU market, competition, film industry

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 (cid:151) 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 (cid:151) 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.

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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.

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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 (cid:145)IV/C.2-30.566
(cid:151) UIP Cinema(cid:146):

European Commission,
Directorate-General for Competition,
Directorate C,
Rue de la Loi/Wetstraat 200,
B-1049 Brussels;
Fax (32-2) 296 98 04.