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India – CCI Imposes Fine On Super Cassettes Industries Limited For Abuse Of Dominance.

28 December, 2014

 

 

On October 1, 2014, CCI imposed a penalty of ¤28.3 million on Super Cassettes Industries Limited (‘SCIL’). CCI’s proceedings were initiated following a complaint by HT Media Limited (‘Informant’) alleging that SCIL had inter alia charged excessive amounts as license fees/ royalty for granting rights for broadcasting its music content, imposed unfair terms such as monthly minimum commitment charges (‘MCC’) to be paid irrespective of actual broadcast and had made
its licensing arrangements subject to the acceptance of license fees and MCC imposed by it. The
Informant contended that the aforementioned practices amounted to the imposition of unfair
terms in the license granted to the Informant to broadcast music content belonging to SCIL.

 

Following its investigation, DG concluded that SCIL was in a dominant position and was
abusing its dominant position by (i) charging excessive and unfair prices for licenses/royalty
fees from the Informant, (ii) imposing minimum commitment charges, and (iii) charging license
fees for both sound recording and underlying works.

 

After determining the question of its jurisdiction to determine the issues raised by the Informant,
CCI considered the allegations of the Informant. Drawing a distinction between radio
and other kinds of media broadcasting, content available on the radio (including FM, AM, FM AIR
and private FM channels), CCI identified the relevant market narrowly as the ‘market for licensing
Bollywood music to private FM radio stations for broadcast in India’. Having defined the relevant
market, CCI found SCIL to be in a dominant position on account of inter alia market share
which was above 50% calculated on the basis of revenue earned from FM Radio by major music
providers, revenue from FM Radio by major music providers, comparative revenue, acquisition
of movies, ownership of popular content from its competitors and ownership over majority music
labels (where SCIL has over 58% market share). Further, CCI observed that SCIL continued
to charge royalty on the basis of the ‘needle per hour’ standard whereas all other competitors
provide licenses at a rate either determined by or equivalent to 2% of the net advertisement of
each radio station accruing from the radio business only as determined by the Copyright Board.
However, SCIL had consistently refused to follow this system of licensing. Moreover, SCIL imposed MCC ranging from 30%-50% of its music play out, which radio stations are required to pay irrespective of whether they play that amount of music. Despite several objections, SCIL continued to charge these rates.

 

On the issue of abuse, CCI concurred with the DG’s findings and held that MCC, irrespective
of whether it is 30% or 50%, is both exploitative and exclusionary in nature – exploitative
as it forces customers to pay for music which they may not play and exclusionary because it
forecloses SCIL’s competitors from selling their music. Since private FM stations were contractually bound to pay SCIL a minimum guarantee, they were unlikely to purchase music from other sources on an additional expense. However, CCI did not find any merit in the allegation that the royalty fees charged by SCIL amounted to excessive pricing given the absence of adequate cost data, without which an appropriate finding on excessive pricing could not be conducted.

Accordingly, CCI concluded that SCIL had abused its dominant position in the market for
licensing bollywood music to private FM radio stations for broadcast in India. CCI went on to
impose a penalty of 8% of the turnover of SCIL for the last 3 years with a direction to SCIL to cease and desist from formulating and imposing the unfair condition of MCC in its agreements with private FM radio stations in India. CCI further directed SCIL to modify the unfair conditions imposed on private FM stations in their existing agreements.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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