On October 3 2016 the Competition Authority approved the divestment of four Utopolis cinema complexes from cinema operator Kinepolis. The divestment implements a remedy package that the authority imposed on Kinepolis in the context of its merger with cinema chain Utopia in early 2016.
Further, in a recent study unrelated to the authority's decisions, the Ministry of Economic Affairs expressed concerns about the high concentration ratio in the Belgian cinema market and the significant price increase of cinema tickets in recent years.
On March 25 2016 the Competition Authority conditionally approved the merger between Kinepolis and Utopia. The transaction consisted of Kinepolis's acquisition of 100% of shares in Utopia, which included Utopolis cinema complexes in Mechelen, Lommel, Aarschot and Turnhout.
The Utopia acquisition did not exceed the Belgian merger control thresholds, but had to be notified to the authority on the basis of prior remedies imposed on Kinepolis when it was established in 1997 as a result of the merger between the Bert and the Claeys groups. One of the conditions imposed at that time was the need for prior authority approval for any future Kinepolis acquisitions.
Kinepolis is the uncontested market leader in the Belgian cinema market, with a market share of close to 50% based on turnover data. The investigation concluded that the proposed acquisition of Utopia would significantly impede competition in the relevant Belgian and local markets. In order to address the identified competition concerns, the Competition Authority imposed structural and behavioural remedies. The structural remedies consisted of the divestiture of two Utopolis cinema complexes in the local markets where Kinepolis and Utopolis primarily competed (Mechelen and Aarschot). The behavioural remedies – imposed for three years – were designed to address the concerns of price increases at the cinema complexes in Turnhout and Lommel.
Eventually, Kinepolis decided to divest all four Belgium-based Utopolis cinema complexes. This went beyond the structural remedy imposed. The divestment also concluded the behavioural remedies relating to the cinema complexes in Turnhout and Lommel, as they no longer had any object.
Almost simultaneously, the Ministry of Economic Affairs published a study of the Belgian cinema market, which revealed that it is highly concentrated. The study also noted that:
- the average price of a cinema ticket in Belgium had increased more rapidly than the rate of inflation; and
- larger cinema complexes typically charge higher prices than smaller complexes.
Another notable finding relates to relative ticket price levels. The study confirmed that between 2006 and 2013, prices in Belgium increased at a higher rate than the average increase in neighbouring countries, and that the same finding was made over a longer period – specifically, between 1989 and 2013. These factors point to suboptimal competition.
When confronted with this type of evidence, the Competition Act entitles the Competition Authority to intervene in the pricing of products or services in specific circumstances. There is no indication that the authority will use this power on the basis of the report. The report does not conclude that there are significant competition issues in the Belgian cinema market. However, it does note that the high concentration ratio can have anti-competitive effects, such as increased barriers to access for film producers and distributors. More generally, the report contains an interesting analysis of the market's structure, which could serve as a background for future competition cases in this sector.
For further information on this topic please contact Koen Platteau at Simmons & Simmons LLP by telephone (+32 2 542 0960) or email ([email protected]). The Simmons & Simmons LLP website can be accessed at www.simmons-simmons.com.
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