Pf Digital Media Services Ltd. And vs Ufo Moviez India Ltd.
Facts of the Case
In a major development for India’s cinema technology and content delivery space, the Competition Commission of India (CCI) has directed an investigation against UFO Moviez India Ltd. and its subsidiary Scrabble Digital Ltd., on allegations of anti-competitive behaviour. The issue had originated from a complaint under Section 19(1)(a) of the Competition Act, 2002, by PF Digital Media Services Ltd. (Informant No. 1), a digital post-production processing of films company, and Mr. Ravinder Walia (Informant No. 2), a producer of films. Complainants alleged that UFO Moviez, a dominant supplier of Digital Cinema Equipment (DCE) on lease to cinema theatre owners (CTOs), was misusing its position in the market by imposing exclusivity in favor of its subsidiary Scrabble Digital, which also provides post-production services in direct competition with PF Digital. As per the Informants, UFO Moviez’s lease agreements with CTOs contained restrictive terms under which CTOs were obligated to only show content sourced from UFO or its subsidiaries. This contractual framework, combined with alleged technological constraints embedded in the leased DCE (including software locks restricting Key Delivery Messages or KDMs from non-Scrabble sources), effectively prevented CTOs from screening films post-produced by competitors like PF Digital. As a result, Informants like Mr. Walia were left with limited distribution options and were compelled to use Scrabble Digital’s services to ensure access to a substantial portion of the cinema screens in India. The complaint also briefly involved Qube Cinema Technologies, another DCE supplier, which was originally part of a proposed merger with UFO Moviez but later distanced itself from the core issues.
Arguments by the Plaintiff
The Informants contended that UFO Moviez’s lease agreements amounted to exclusive dealing, which violated the provisions of the Competition Act, 2002. They highlighted that: KDMs generated by Scrabble Digital were the only ones accepted by UFO’s leased DCEs, thus creating a technological barrier for PF Digital’s content. Such arrangements effectively denied market access to other post-production providers, violating Section 4(2)(c). UFO Moviez was allegedly leveraging its dominance in the DCE leasing market to favour Scrabble Digital in the post-production market, breaching Section 4(2)(e). The differential pricing between PF Digital (₹1800 per print) and Scrabble Digital (₹2400 per print) demonstrated how the restrictions led to consumer harm and inflated production costs. The agreements constituted anti-competitive vertical restraints, such as tie-in arrangements, exclusive supply, exclusive distribution, and refusal to deal, potentially falling under Section 3(4). The close affiliation and conduct between UFO and Scrabble amounted to an agreement to limit production or supply, in violation of Section 3(3)(c).
Arguments Presented by the Defendants
Denying all allegations, UFO Moviez and Scrabble Digital submitted that the lease agreements were standard commercial contracts entered into voluntarily by CTOs. UFO claimed it leased equipment to only 27–30% of digital screens in India and that Qube Cinema Technologies and other providers represented strong competition, thus negating any claim of dominance under Section 4. The companies argued that the KDM restrictions were essential for quality control, security, and anti-piracy measures, and not intended to stifle competition. Scrabble Digital also pointed out that it had a minimal market footprint, having handled only two films and two web series, with revenues of around ₹5 lakh, thereby denying any assertion of market power. Additionally, UFO Moviez highlighted that PF Digital’s parent company, Prime Focus Ltd., was itself a dominant player in the post-production space with a 50–60% market share, making the complainant’s claims of victimisation questionable. Qube Cinema, though named initially due to a past merger proposal with UFO Moviez, clarified that it was not involved in the conduct complained of. However, Informants alleged that Qube was engaging in similar exclusive practices and should also be investigated for adopting parallel restrictive models.
Issues
Whether UFO Moviez, by virtue of its position in the Digital Cinema Equipment (DCE) leasing market, was abusing its dominant position to deny access to competing post-production service providers like PF Digital, in violation of Section 4(2)(c) of the Competition Act?
Whether UFO Moviez was leveraging its position in the DCE leasing market to protect or favour its subsidiary Scrabble Digital in the post-production market, thereby contravening Section 4(2)(e) of the Act?
Whether the contractual clauses between UFO Moviez and cinema theatre owners (CTOs), such as tie-in arrangements, exclusive supply/distribution obligations, and refusal to deal with alternate service providers, were likely to cause appreciable adverse effects on competition in violation of Section 3(4) of the Act?
CCI’s Findings and Judgment
Upon review of the facts and submissions, the Competition Commission of India (CCI) delineated two relevant markets: (i) the market for the supply of DCE on lease/rent to CTOs in India, and (ii) the market for provision of post-production processing services in India, with the geographic scope being the entire country. While market share data was inconsistent, the Commission found that UFO Moviez’s share of 27–30% did not conclusively establish dominance under Section 4; hence, allegations under Sections 4(2)(c) and 4(2)(e) would require further investigation. However, the Commission found a prima facie case of anti-competitive vertical agreements under Section 3(4), noting that lease agreements between UFO and CTOs included clauses that tied content services to equipment use, excluded third-party providers, and technologically limited playback via KDM filtering. These restrictions were considered potentially harmful to competition and capable of foreclosing market access for rival post-production companies. Consequently, invoking Section 26(1) of the Competition Act, the CCI directed the Director General to initiate a detailed investigation into the conduct of UFO Moviez, Scrabble Digital, and, if necessary, Qube Cinema, to assess the full extent of anti-competitive harm.
https://cci.gov.in/images/antitrustorder/en/order1744805475.pdf