CCI Penalizes UFO Moviez and Qube for Anti-Competitive Practices in Cinema Tech

DCI-Compliant Digital Cinema Equipment (DCE) refers to standardized digital projection and server systems used for screening high-quality cinema content in theatres.

In a significant development aimed at preserving market competition in the digital cinema technology space, the Competition Commission of India (CCI) has passed a detailed order under Section 27 of the Competition Act, 2002, penalizing UFO Moviez India Pvt. Ltd., its subsidiary Scrabble Digital Ltd., and Qube Cinema Technologies Pvt. Ltd. for engaging in anti-competitive conduct in contravention of Section 3(4) of the Act.

The case, registered as Case No. 11 of 2020, focused on the conduct of these companies in the market for supply of DCI-Compliant Digital Cinema Equipment (DCE) on lease or rent to cinema theatre owners (CTOs) across India.

Background and Investigation

DCI-Compliant Digital Cinema Equipment (DCE) refers to standardized digital projection and server systems used for screening high-quality cinema content in theatres. UFO Moviez and Qube have been two dominant players in this space, offering DCE to CTOs through long-term leasing arrangements.

The Commission found that both UFO Moviez and Qube entered into lease agreements with CTOs that contained restrictive clauses, including:

• Tie-in arrangements,

• Exclusive supply agreements, and

• Refusal to deal with third-party content providers or post-production processing (PPP) service providers.

These clauses effectively limited the ability of CTOs to obtain content or services from any source other than the lessee company, creating significant entry and operational barriers for smaller or new competitors in the market.

Findings of the CCI

Upon detailed examination, the CCI concluded that the restrictive clauses had an appreciable adverse effect on competition in the relevant market. Specifically, the Commission observed:

• The lease agreements effectively foreclosed the market for PPP service providers who were not affiliated with either UFO Moviez or Qube.

• CTOs using DCI-compliant equipment leased from these companies were prevented from accessing content or services from unaffiliated vendors, thereby curbing choice and innovation.

• These practices harmed competition not just among equipment providers but also in the post-production segment of the film distribution chain.

The CCI held that UFO Moviez (along with Scrabble Digital) and Qube were in violation of Section 3(4) of the Competition Act, which deals with agreements that cause or are likely to cause an appreciable adverse effect on competition within India.

Directions and Penalties

Under Section 27 of the Act, the Commission has issued both behavioral and monetary sanctions. The key directions are as follows:

• UFO Moviez and Qube have been directed to cease and desist from entering into any future lease agreements that impose content-supply restrictions on CTOs.

• All existing lease agreements must be modified to ensure CTOs are free to source content from any provider, thereby restoring fair access and market flexibility.

• The companies must remove all exclusivity clauses and non-compete restrictions that hinder market competition.

In addition to these directions, the Commission has imposed monetary penalties based on the severity of the contraventions, turnover of the enterprises, and both mitigating and aggravating circumstances:

• UFO Moviez (including Scrabble Digital Ltd.) has been fined ₹104.03 lakh, and

• Qube Cinema Technologies Pvt. Ltd. has been fined ₹165.8 lakh.

Broader Implications

This order by the CCI reaffirms its stance against anti-competitive practices, especially in sectors that directly affect consumer choice and innovation. By dismantling restrictive business models and opening the market for multiple service providers, the Commission aims to foster a competitive, transparent, and technology-driven cinema ecosystem in India.

The Commission also emphasized the importance of fair market access for smaller players in the post-production and content distribution sectors. The decision serves as a reminder for dominant entities across all industries to review their contractual practices and align them with the principles of fair competition.

A public version of the full order is available on the official CCI website: www.cci.gov.in, under Case No. 11 of 2020.