I am pleased to bring to you our next guest post by Ritisha Mukherjee. Ritisha is a young lawyer having recently graduated from Nirma University with specialization in Intellectual Property Rights. She takes keen interest in media and entertainment laws and is currently working at Excel Entertainment Pvt. Ltd. Ritisha had earlier written for us here on the controversies surrounding the arbitrary ban of the Bengali film ‘Bhobishyoter Bhoot’. In this post, Ritisha has covered the issues surrounding the recent complaint filed by producer Ronnie Screwvala’s RSVP before the CCI against multiplex theatres in relation to VPF and other issues.

Mere months after the entertainment tax was reduced to ensure improved profit-sharing between producers, distributors and exhibitors of films, a new debacle surfaces only to bring to light arbitrary hidden expenses vis-a-vis exhibition of films at theatres. Recently, producer Ronnie Screwvala’s Unilazer Ventures Private Limited through its division RSVP (the ‘Informant’ herein) filed a complaint before the Competition Commission of India alleging against the Multiplex Association of India and some of its members who are also leading exhibitors in the Film Industry of having indulged in anti-competitive collusion among themselves so as to affect the business of the Informant who belongs to the same product market and geographical market. Filed against PVR, Inox, Cinepolis, Carnival and FICCI Multiplex Association of India (‘Opposite Parties’ herein), the complaint goes on to address the issues of arbitrary and non-negotiable models of revenue-sharing between producers/distributors and exhibitors, the lack of transparency in their way of conducting business and deliberates extensively upon the disconcerting practice of exhibitors imposing the Virtual Print Fee (VPF) on producers/distributors.

The concept of paying VPF was first introduced during the period of transition from the existing old projection system of 35mm physical print to the new era of digital projections. Since the transition cost from the old system to the new was quite high, the producers and distributors in the western countries agreed to co-contribute towards the same by paying VPF for a limited period of time until the exhibitors became sufficiently equipped with the necessary digital apparatus. In an attempt to follow the tradition, Indian exhibitors started charging VPF from producers and distributors as well. However, given that multiplexes were just being established in India for the first time, the new system using digital projectors could be installed from inception so as to entirely avoid the conversion cost from the old system to the new, for which VPF was ideally paid to the exhibitors. Manifestly, the very basis of introducing VPF as a standard expense in India is flawed. Nevertheless, as per the industry practice, producers/distributors are required to pay VPF of a non-negotiable amount of Rs. 20,000 per movie per theatre as subsidy for public screening. Therefore, a movie being screened at five PVR theatres shall require Rs. 1,00,000 to be paid as VPF. Amusingly, VPF has to be paid even to exhibitors who use digital projectors on rent.  Initially, it had been agreed that VPF shall be paid until the end of 2015. Subsequently, it was verbally amended to continue till 2017. However, producers/distributors are still made to pay VPF long after the expiry of the aforesaid understanding. Unsurprisingly, producers of low budget films often land in the soup to find the estimated VPF payable to the exhibitors to be nearly equaling the cost of production of the entire film, and are hence forced to look for alternative means to release their movies. During the attempted theatrical release of ‘Love Per Square Foot’ (2018), the producer refusing to pay the VPF was denied theatrical exhibition of the film by all exhibitors, as a result of which the film had to be released digitally on Netflix rather than at theatres. The Informant has further alleged in the complaint that no VPF is charged by the exhibitors for the release of Hollywood films in India.

To whack the industry further subsists the distressing system of revenue-sharing between producers/distributors and exhibitors. As a standard industry procedure, producers approach exhibitors like PVR, Inox and others either directly or through distributors for exhibiting their films in theatres. Given that a major chunk of the total revenues generated through commercial exploitation of a film accrues from its theatrical exploitation, the arrangement between distributors/producers and exhibitors is guided by a revenue-sharing model, which often tends to turn arbitrary owing to the market dominance of the exhibitors. As a result, the Competition Commission of India has had to deal with several disputes regarding such revenue sharing ratios in the past. After a stretch of persisting battles between producers/distributors on one side and exhibitors on the other, a temporary agreement was entered into in 2009, pursuant to which a standard rule was established for revenue collection, regardless however, of the fact that a case-to-case determination of revenues for every independent film should have been the ideal scenario. Nonetheless, the current non-negotiable format for sharing of revenues involves 50% of the revenues in the first week of release of the film, 42.5% in the second week, 37.5% in the third and 30% thereafter to be considered as the distributor’s share. This seemingly fair format has some inherent flaws in it. This structure of revenue-sharing was established 10 years ago and has not been subjected to upgradation ever since. In the meantime, production of films has undergone a sea of changes, cost of production of movies has gone up owing to technological upgradation, A-list actors have started claiming a share in the revenues earned by producers. Little wonder, hence, that the sole beneficiaries of this arrangement are the exhibitors, for the distributors’ share is next to negligible. Additionally, exhibitors in their endeavor to reap maximum benefits out of advertisement revenues have now begun to lengthen film intervals at their theatres to buy more time for advertising trailers. To ensure that there is sufficient content to advertise during such prolonged intervals, they have started forcing producers to provide more than one trailer for their films. The trailer of ‘Uri: The Surgical Strike’ was refused to be played by PVR at its theatres because its producer could not provide more than one trailer when asked for. Moreover, the market dominance and independence of exhibitors often earn them the leeway to limit the daily number of shows in the theatres so as to restrict the distributor’s share of revenues. Like in the instance of Murder 2 (2011), exhibitors took the film off the theatres within the third week of its release while it was still performing well at the box office.

Having control over almost 60% of the film business in the country, the Opposite Parties herein are dominant enterprises. Whether they have abused such dominant position in contravention of section 4 of The Competition Act, 2002 is what the Informant’s application under section 19 of the Act urges the Commission to inquire into. As per section 3 of the Act, any enterprise involving in a trade or provision of services aiming to determine prices directly or indirectly, or limit or control the production, supply or technical development relating to the market shall be presumed to have an adverse effect on the competition in the market. Factually, both the revenue sharing model as well as the practice of VPF have extensive influence on the market as well as the players therein; have the capacity of denying market access to the producers/distributors of small budget films and hence, fall squarely within the ambit of section 3 of the Act. What has been in use for over a decade in the name of ‘standard industry practice’ is, in essence, an attempt to restrict healthy competition in the market through cartelization of exhibitors. In any industry, standard practices are ostensibly meant to reduce hindrances likely to be faced by the members thereof. VPF was introduced to ensure the unimpeded establishment of a system of digital prints of films so as to bring about an overall reduction in the cost of distribution and marketing expenses of films. Not only has the industry practice of VPF miserably failed to fulfill its purpose, it seems to have fostered an anti-competitive collusion to be formed among exhibitors to mislead, defraud and deceive producers/distributors of their legal rights. The practice of VPF has the potential to grant exhibitors, especially the Opposite Parties herein the authority to create an oligarchy within the film industry in abusive exercise of their market power. Moreover, since exhibitors are arguably yielding better than the producers/distributors inter alia by virtue of the revenues acquired through advertisements, there is no legitimacy in singling out producers/distributors for paying the VPF, as they are clearly not the sole beneficiaries of the new digital system.

Last year in May, the south Indian film industry refused to release films over a period of time in protest against the exorbitant VPF charged by the multiscreen exhibitors. Producers and distributors across Kerala, Karnataka, Andhra Pradesh and Telengana participated in the strike in unison. As the strike gained momentum, theatre owners even considered screening IPL matches to make ends meet and recover the losses incurred. The protests were called off only after the Tamil Film Producers Council, the theatre owners and the digital service providers unvaryingly agreed to reduce VPF for e-cinema projectors by 50%. Unless such practices are eliminated, it might only be a while before other regional film industries also rise up in protest; and the instant complaint filed by the Informant could well mark the beginning. It is no exaggeration to state that a large part of the film industry still remains unregulated, and all unregulated sectors are evidently bound to struggle with unresolved issues every now and then. The existing laws addressing the controversies likely to arise in association with the media and entertainment sector are clearly not comprehensive or all-encompassing. There is no denying that the current practice of VPF harms the producer’s ability to invest into creation of better content in future, and thereby restricts production. Until now, there is record of only one film having suffered from its evil effects and being forced into digital release. We can only hope that such practices are done away with before they can destroy the market balance completely by holding the film industry hostage, and bring an end to theatrical releases altogether.