Czech Republic: Cinema Digitalisation Fee Dropped Following An Investigation Into Potential Abuse Of A Dominant Position

The Czech Office for the Protection of Competition (the "Office") carried out a preliminary investigation into the practice of Cinema City, a leading competitor on the cinema market, of charging film production studios a Virtual Print Fee ("VPF"). The VPF was collected as a mandatory condition to introduce a new film onto the cinema screen. After the Office's preliminary findings indicated a possible abuse of a dominant position, Cinema City ceased charging the fee, allowing the Office to conclude the matter without initiating administrative proceedings.

For a decade, various cinema companies around the world have introduced a VPF charge. The purpose was to shift some of the cost burden of digitalising screening rooms, which cinema companies have heavily invested in, onto film producers, who also stood to benefit. Cinema City has been charging producers, via the film distributors, a VPF of EUR 500 for each cinema hall in which a new film was to be screened. At first, the total amount to be reached to eventually cover the digitalisation investment was not laid down.

Cinema City later negotiated individual agreements with major Hollywood producers, specifying definite amounts to be reached through VPF or one-time payments, after which the VPF requirement would cease for that producer. The remaining production companies were nevertheless still charged a standard VPF with no release condition.

Given that Cinema City operates the largest network of cinemas in the Czech Republic, the Office found that it was likely to hold a dominant position on the market. The main indication of its possible abuse were the selective conditions with which VPFs were charged. Without any apparent objective justifications, different producers in identical situations were subject to varying fee burdens.

After the Office initiated its investigation, Cinema City responded by dropping the VPF payment requirement. Since 2022, neither domestic nor foreign producers have been charged. Therefore, the Office concluded that its concerns had been remedied through alternative procedural means and did not initiate administrative proceedings to sanction Cinema City.

This decision indicates that cooperating with the Office at an early stage, may be beneficial for companies under preliminary investigation, depending on specific circumstances.

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