CCI Fines Digital Cinema Service Providers UFO Moviez And Qube Cinemas For Anti-Competitive Agreements
Pranav B Prem
In a landmark order, the Competition Commission of India (CCI) has found that two major digital cinema service providers, UFO Moviez India Ltd. and Qube Cinema Technologies Pvt. Ltd., engaged in anti-competitive agreements in violation of Sections 3(4)(a), (b), and (d) read with Section 3(1) of the Competition Act, 2002. The CCI has imposed a fine of ₹104.03 lakh on UFO Moviez and ₹165.8 lakh on Qube Cinemas, directing both entities to pay the penalty within 60 days of the order.
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The case was initiated following information filed by PF Digital Media Services Ltd. (now DNEG India Media Services Ltd.) and producer Ravinder Walia, who raised concerns over unfair market practices in the leasing of Digital Cinema Equipment (DCE) and the provision of Post-Production Processing (PPP) services in India. Specifically, the informants alleged that UFO Moviez, through its wholly owned subsidiary Scrabble Digital, and Qube Cinemas had entered into restrictive agreements with Cinema Theatre Operators (CTOs) that compelled them to exclusively use their services, effectively blocking competitors from entering the market.
The CCI order explains the structure of the digital cinema ecosystem: DCE is crucial for projecting digital films in cinemas, and CTOs typically lease this expensive equipment from Digital Cinema Service Providers (DCSPs). To ensure global compatibility, all DCEs must comply with standards laid down by the Digital Cinema Initiative (DCI), an association formed by major global studios like Disney, Fox, MGM, Paramount, Sony, Universal, and Warner Bros. However, despite these standards, the CCI found that UFO Moviez and Qube Cinemas had implemented practices that created technological and contractual lock-ins, shutting out other PPP providers.
The CCI carefully examined lease agreements that CTOs entered into with UFO Moviez and Qube Cinemas. Clauses in these agreements, such as those in Clause 5 and Clause 7, explicitly required CTOs to exclusively source content from UFO or its affiliates. Even when CTOs acquired DCE through subsidized purchases, the agreements imposed exclusivity on content supply. CTOs confirmed during investigation that they were required to obtain Key Delivery Messages (KDMs) — a necessary digital key to play films — only from these providers, which effectively meant they could not play films processed by other PPP labs, even when master copies were available.
The Commission's investigation, led by the Director General (DG), identified two key relevant markets: (1) the market for the supply of DCI-compliant DCE on lease/rent to CTOs in India, and (2) the market for PPP services, including mastering, cloning, encryption, and delivery of digital film content. The DG found that UFO Moviez held around 40% market share in the leased DCE space, and Qube Cinemas held approximately 48%, giving both players significant market power. Furthermore, the investigation revealed that these companies used this power to impose tie-in arrangements, exclusive supply agreements, and refusal-to-deal practices, causing appreciable adverse effects on competition (AAEC).
The Commission rejected arguments raised by the opposite parties, who claimed that the bundled services offered under Digital Cinema Services (DCS) — including equipment leasing, content delivery, in-cinema advertising, and Video Projection Fee (VPF) collection — were composite offerings voluntarily selected by CTOs for their cost-effectiveness and operational convenience. The companies argued that CTOs were free to choose between outright DCE purchases, flat-rate leases, or DCS bundles, and that no coercion was involved. However, the CCI concluded that the restrictive clauses effectively made the lease of DCE conditional on procuring content exclusively from the lessor, which constitutes a classic tie-in arrangement under competition law.
The CCI relied on submissions and statements from multiple market participants, including leading producers and distributors such as T-Series, Viacom18, Zee Entertainment, and Yash Raj Films. These stakeholders confirmed that they were effectively compelled to work with UFO Moviez and Qube Cinemas because of the broad geographic coverage of their leased equipment, the exclusive content delivery rights they enforced, and the technological incompatibilities created by their encryption systems. Statements from CTOs such as Seble Cinemas, Globe Theatre Pvt. Ltd., Ritz Cinemas, and Delite Theatre also confirmed the presence of exclusive obligations in their agreements, which prevented them from using content from other service providers.
The Commission carefully analyzed the technological dimension, noting that although DCEs are designed to comply with DCI standards that allow interoperability, UFO Moviez and Qube Cinemas implemented encryption systems and software restrictions that blocked KDMs generated by competitors. This technological barrier effectively forced CTOs to rely solely on the content and services of these companies, creating a de facto refusal to deal. Notably, even when master copies of films were processed by other PPP providers, cloned copies could only be delivered and exhibited through the systems controlled by the opposite parties.
The DG's investigation further revealed that the market shares of UFO Moviez and Qube Cinemas remained stable or increased over time, despite claims of declining influence. The investigation also highlighted that other players in the market, such as K Sera Sera, E-City Digital Cinemas, and TSR, had significantly smaller footprints, with UFO and Qube together controlling over 80% of the leased DCI-compliant DCE market in India. The Commission also took note of the vertical integration of these companies: UFO Moviez, through Scrabble Digital, controlled a large portion of the PPP services market, while Qube Cinemas had stakes in related ventures like the movie ticketing platform Just Tickets. This vertical integration amplified the anti-competitive effects of their conduct.
The Commission concluded that the practices of UFO Moviez and Qube Cinemas violated Sections 3(4)(a) (tie-in arrangements), 3(4)(b) (exclusive supply agreements), and 3(4)(d) (refusal to deal) of the Competition Act, causing substantial foreclosure of the market to other PPP providers and limiting the choices available to CTOs and film producers. These practices not only raised barriers for new entrants but also forced producers and exhibitors to work within a closed ecosystem controlled by the dominant players, undermining market efficiency and innovation.
In its final order, the CCI directed UFO Moviez and Qube Cinemas to cease and desist from entering into any new DCE lease agreements containing exclusive content supply restrictions. The Commission also ordered that all existing lease agreements be modified to eliminate such anti-competitive clauses, ensuring that CTOs are free to source content and PPP services from any provider of their choice. To reinforce its findings, the CCI imposed financial penalties: ₹104.03 lakh on UFO Moviez and ₹165.8 lakh on Qube Cinemas, reflecting the companies’ financial turnover and the severity of the violation.
Ultimately, the Commission’s order marks an important step in safeguarding competition in India’s digital cinema market. By ensuring that CTOs, producers, and PPP service providers can compete on fair terms, the CCI aims to dismantle the exclusive and restrictive practices that have long distorted the market. The penalties and remedial directions serve as a clear warning to dominant players that leveraging market power to shut out rivals will not be tolerated under Indian competition law.
Appearance
PF Digital Media Services Ltd. (Informant No.1): Ms. Tarini Khurana, Advocate
Mr. Ravinder Walia (Informant No.2) UFO Moviez India Ltd. (OP-1): Mr. Arun Kathpalia, Senior Advocate Ms. Riddhika Dumane, Advocate Ms. Bhavika Chhabra, Advocate Mr. Avinash Amarnath, Advocate Mr. Tejveer S. Bhatia, Advocate Mr. Sanjay Jain, Head-Legal Ms. Diksha Gupta, Advocate
Scrabble Digital Ltd. (OP-2): Mr. Arun Kathpalia, Senior Advocate Mr. Rahul Rai, Advocate Mr. Binit Agarwal, Advocate Ms. Diksha Gupta, Advocate Ms. Riddhika Dumane, Advocate Ms. Bhavika Chhabra, Advocate Mr. Avinash Amarnath, Advocate
Qube Cinema Technologies Pvt. Ltd (OP-3): Mr. Sajan Poovayya, Senior Advoacte Mr. Bharat Budholia, Advocate Mr. Deepanshu Poddar, Advocate Ms. Vayshnavi Ganesh, Advocate Ms. Prathima S., Director- Legal
Cause Title: PF Digital Media Services Ltd. & Anr. V. UFO Moviez India Ltd. & Ors.
Case No: Case No. 11 of 2020
Coram: Ms. Ravneet Kaur [Chairperson], Mr. Anil Agrawal [Member], Ms. Sweta Kakkad [Member], Mr. Deepak [Anurag Member]
[Read/Download order]
