Turkey: The Board published the reasoned decision on the preliminary investigation against MARS (15-41/682-423, 20.11.2015)

Last Updated: 4 March 2016
Practice Guide by ELIG, Attorneys-at-Law

The Board published the reasoned decision on the preliminary investigation against MARS (15-41/682-423, 20.11.2015)

The Turkish Competition Board (“Board”) published the reasoned decision on the preliminary investigation against Mars, an undertaking operating in the movie exhibition and distribution markets. The case arose out of the allegations that MARS is abusing its dominance in the exhibition market to impede the activities of its competitors in the distribution market.

In its reasoned decision, the Board made two separate assessments with regards to the allegations regarding abuse of dominance under Article 6 of Law No. 4054 on the Protection of Competition, (“Law No. 4054); and the evaluation of franchise agreements obtained in the scope of the sector review under Article 4 of the Law No 4054.

The abuse of dominance allegations generally allege that MARS is able to offer conditions to producers which other distributors not present in the exhibition market cannot hope to match to induce them to distribute with MARS. These allegedly include a variety of advantages for the films such as number of screens, number of weeks, and not taking VPF payments. With respect to MARS’ market position, The Board made the findings that MARS, which is primarily active in the exhibition market, has  recently become active in the distribution market and its market share within the distribution market, especially with regards to local movies, has increased rapidly in a short time frame. With respect to the exhibition market, the Board assumed the existence of dominance for the sake of analysis as it found that the relevant practices did not ultimately constitute abuse.

In its analysis, the Board first assessed the difference between the number of screens and screening time allocated to MARS-distributed films and other distributors’ films in MARS’ movie theaters. To make the analysis easier, only the situation in Istanbul, Ankara and İzmir was evaluated. As a result of its assessment, the Board found that in all three cities, in terms of films exhibited by MARS after its entrance into the distribution market, the number of MARS-distributed films and the number of films distributed by other distributors do not differ significantly in terms of screening time and number of screens in any of the potential sub-segments in terms of revenue or foreign/local origin.

The first allegation specified in the complaint was that MARS offered long screening commitments in MARS theaters to producers to induce them to choose MARS as a distributor, whereas MARS would only make a screening commitment of one week to other distributors. Upon reviewing MARS’ distribution contracts, the Board could not find any information or documents indicating that MARS made long-term screening commitments to any producers.

The complainants also alleged that MARS shows more of the trailers/promotions of the movies it distributes compared to other distributors’ movies within its movie theatres. In this regard, the Board could not find any evidence to support the claim that MARS significantly differs from other distributors in terms of the average number of screens where its trailers are shown within MARS movie theaters.

Additionally, the complainants alleged that Mars offered to producers to refrain from taking VPF payments in contrast to the norm in the sector. As a result of its review of the distribution agreements concluded between MARS and producers, the Board found that there were no commitments not to take VPF payments. On the contrary, the Board found that the relevant agreements provided that MARS would receive VPF payments.

Furthermore, the complainants alleged that the fact that MARS became active in the distribution market after its completing its acquisition of AFM, thus after increasing the number of movie theatres it owns, is a clear indication of MARS’s intentions to distort the competition within the distribution market. In response, the Board stated that vertical integration after achieving a certain scale is not an indication that the relevant undertaking intends to prevent competition, on its own. Ultimately, the Board did not find any evidence supporting an anticompetitive intent.

A separate complaint sought to show that MARS abused its dominance in the exhibition market to distort competition in the distribution market based on the allegation that two films which grossed greater revenue than those distributed by MARS still got a lesser number of exhibitions. As set out above, the Board stated that the number of screens or exhibition time allocated to films distributed by MARS did not significant differ in comparison to those allocated to other distributors. Its above position notwithstanding, the Board also made a movie-specific assessment for the relevant two films. In this respect, the Board has stated that the assessment should not be conducted based solely on the number of sessions and the total revenues as several other factors such as weekly revenues, revenue anticipations and the weekly changes should also be taken into consideration for attaining accurate results. Therefore, the Board compared the weekly decrease rates of the revenues with respect to the movies in question, both for the movie theatres within MARS and within Turkey in general. As a result, of its findings, the Board stated that MARS’ practices concerning the two films had commercial justifications did not constitute abuse.

Based on the foregoing, the Board concluded that there was no evidence showing that MARS abused its dominance under Article 6 of the Law No. 4054.

The Board also initiated an ex officio pre-investigation into MARS’ management/franchise agreements with certain undertakings obtained in the scope of the ongoing sector inquiry with respect to cinematic film services. The Board found that the agreements signed between MARS and two undertakings (SEANS and PASIFIK), which are still in effect, contain provisions indicating that the ticket and cafe item prices and promotions of the movie theatres subject to the agreements shall be determined by MARS. In this regard, the Board assessed (i) whether the agreements grant MARS control over the movie theatre in question, and (ii) whether there is an agency relationship between MARS and the movie theatres in question. In regard to the first item, the Board found that MARS does not have sole or joint control over the movie theatres in question as, while having significant oversight rights as franchisor, did not have decisive influence over strategic commercial decisions of the undertakings. The Board also found that the relationship between MARS and the two undertakings cannot be regarded as a genuine agency relationship since the franchisees bear the costs of their own investments into the establishment of the movie theater, projection devices, the arrangement of ticket offices and cafes, etc. As such, the Board ruled that the relevant agreements were within the scope of Article 4 of Law No. 4054.

In light of the above, the Board made an assessment to determine whether the relevant vertical agreements will be granted individual exemption as the resale price maintenance provisions included within the agreements prevent the application of the block exemption provided by the Communique No. 2002/2 on Block Exemption for Vertical Agreements. The Board asserted that the relevant agreements cannot be granted individual exemption as the vertical price fixing in question restricts intra brand competition and the efficiencies generated by such practices do not render the resale price maintenance provisions reasonable.

Nevertheless, the Board refrained from initiating a full-fledged investigation as it reasoned that the relevant violation was vertical in character, only concerned intra-brand competition and the resale price maintenance practice only applied to two movie theaters. Instead, it sent MARS an written opinion under Article 9(3) of Law No. 4054 to bring its practices in line with Law No. 4054 within 90 days.

Ultimately, the Board refrained from launching an investigation against MARS based on abuse of dominance allegations under Article 6 of Law No. 4054, or its assessment of MARS’ franchise contracts under Article 4 of Law No. 4054.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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