On January 3, 2013 the Competition Bureau issued a No-Action
Letter in respect of the acquisition by Canadian film distributor
Entertainment One Ltd. (eOne) of its competitor, Alliance Films
Holdings Inc. (Alliance), indicating that the Commissioner does
not, at this time, intend to challenge the proposed acquisition
pursuant to section 92 of the Competition Act.
In its statement concerning the
proposed acquisition of Alliance by eOne, the Bureau indicated that
the parties are significant competitors for film distribution in
Canada but that the distribution of Canadian films constitutes a
distinct product market due to various government cultural
initiatives and funding programs. In particular, in order to
qualify for government funding available for Canadian productions
(a significant source of total funding), the producer must use a
Canadian distributor, and government funding requirements limit the
ability of the distributor to lower minimum guarantees or increase
distribution fees. Notwithstanding the substantial share of the
combined companies in that market, therefore, the Bureau concluded
that the government policies in place would render a substantial
lessening or prevention of competition unlikely and that in any
event, there was effective remaining competition for the
distribution of non-Canadian films.
The Bureau's decision not to challenge the merger is all the
more interesting in light of its finding that the Canadian films
distributed by eOne and Alliance account for the vast majority of
the revenues generated by Canadian films. With respect to high
budget Canadian films, the Bureau found that eOne and Alliance
faced limited competition as there are few competitors able to
offer the minimum guarantee required to secure government funding
for these films. Accordingly, the Bureau was initially concerned
that the merged entity would be capable of implementing more
restrictive distribution terms to producers by increasing
distribution fees and/or reducing the minimum guarantee.
Following its review, however, the Bureau concluded that
government funding programs would prevent the implementation of
more restrictive terms on producers by the merged entity. In
particular, in order to trigger funding, distributors are typically
required to commit a minimum guarantee to the producer as evidence
that they are committed to the film's success. Furthermore,
distribution fees tend to be standardized and capped by funding
Finally, in its review, the Bureau expressed concern that the
merged entity might distribute fewer Canadian films. It concluded,
however, that certain smaller Canadian distributors see the
proposed acquisition as an opportunity to expand and distribute
more films, and are poised to expand should the combined entity
pull back. Furthermore, due to the very low volume of sales
associated with some films, the Bureau concluded that the
anti-competitive effects of the proposed transaction (if any) would
likely be very small relative to the efficiency gains.
The Bureau's conclusions in this case appear to indicate a
willingness to recognize the practical implications for many
businesses of a relatively thin and regulated Canadian market, and
the efficiencies that can sometimes be gained from
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