In May 2007, the Belgian Federation of Cinemas in Belgium (FCB) and several individual cinema complexes (UGC, Utopolis) appealed against the decision of the Belgian Competition Council of 16 April 2007 in relation to Kinepolis Group. This decision abolished the conditions which the Council had imposed back in 1997 when it granted approval for the concentration of Group Bert and Group Claeys, which created Kinepolis Group.
In its decision of 16 April 2007, the Council first assessed to what extent the market structure had changed since 1997. Despite Kinepolis proposing the adoption of a broader product market definition, by including other forms for the distribution of media content (such as DVD, pay TV, video on demand), the Council, stuck to its previous market definition of ‘the screening of films in cinemas’. In doing so, the Council relied mainly on the specific characteristics associated with viewing films in a cinema. The Council concluded that it was no longer justifiable to maintain the conditions imposed on Kinepolis as the market structure had substantially changed since 1997 and would change further in the near future in light of the digitalization of the cinema industry. Kinepolis’ decreased market share compared to that of 1997, the fact that big distributors of films such as Warner Brothers and United International Pictures detain bargaining power towards cinema complexes, the absence of barriers to entry and the competitive side-pressure exercised by alternative distribution channels were key factors taken into account by the Council in its assessment of the current market situation.
Although the Council ruled that the changed market structure was sufficient to abolish the conditions, each individual condition was in turn discussed by the Council. As far as the prohibition to request film distributors to provide exclusivity or priority for the distribution of films as well as the prohibition to reserve, promote more intensively or grant any other favorable treatment to films Kinepolis distributes itself are concerned, the Council held that the Belgian and European provisions on restrictive practices and on abuse of dominance were sufficient to guarantee that Kinepolis would not be in a position to foreclose the market in the future. Furthermore, the Council declared that the condition to end the existing agreements and not to enter into new agreements with independent theatres concerning the programming could not be maintained, as these agreements had effectively been terminated and new agreements with independent theatres would have to be assessed in light of the Belgian and European provisions on restrictive practices and abuse of dominance. On both points, the Council departed from the Auditor’s opinion.
The prohibition to request the investment company GIMV to abstain from participating in other companies competing with Kinepolis was found to be outdated as the GIMV is no longer the reference shareholder in Kinepolis. Finally, the Council analysed the condition that Kinepolis shall not create or acquire new cinema complexes nor expand, renovate or replace an existing complex (where more than 20 per cent new seats or theatres would be created) without prior approval of the Competition Council. The Council agreed that prior approval was no longer needed for the creation or replacement of complexes as the Belgian market is quite saturated and the creation of new complexes could lead to greater competition between the existing market players. In relation to the prior approval of the acquisition of a complex, the Auditor was of the opinion that this condition should be maintained as it is justified in order to prevent the unlimited proliferation of Kinepolis complexes and the elimination of the existing competitors in Belgium. However, the Council ruled that Kinepolis is, as all other undertakings are in Belgium, subject to the existing Belgian concentration notification regime under which undertakings which have a combined turnover of more than €100m and a separate turnover of €40m have to be notified, and that it is not appropriate to apply special treatment to one undertaking.
The competitors appealing the Council’s decision argue that the Council, when determining Kinepolis’ market share, had failed to take into account the new Kinepolis complex that opened in Bruges in 2006 and the additional complex that will open soon in Ostend. Should these have been taken into account, Kinepolis would have an even bigger market share than in 1997, hence the argument that Kinepolis’ market share decreased since 1997 would no longer be valid. Furthermore, the competitors pointed out that the Council, on different occasions, departed from the Auditor’s analysis.