Curtain drops on MegaStar spat

A Vietnam-based, British-backed heavyweight film importer has countered accusations it is killing local cinemas.

Last week, MegaStar rejected six local cinema operators’ accusations that the firm, which holds up to 80 per cent of the country’s film imports, had abused its market position.

The alleged abuse centres on  fixing minimum ticket prices and imposing other unreasonable conditions on local cinema operators.

The accusations are featured in a joint complaint sent to the Ministry of Industry and Trade’s Vietnam Competition Authority (VCA) on March 17, 2010.

MegaStar’s chairman Brain Hall said: “We affirm that since its commencement of operation in 2006, MegaStar has not committed any action in violation of Vietnam’s laws. We neither fix prices nor increase prices  unreasonably to cause losses to the customers, nor we impose any tying obligations as having been alleged.”

In its latest detailed explanation to the VCA on November 6, 2010, MegaStar asked the agency to consider the complainants’ accusations as groundless and stop its investigation started in June 18, 2010.

However, locally-based EPALS law firm, which is the representative of the complainants, told VIR that MegaStar was just trying to justify its violation of local legal regulations.

“MegaStar’s explanations are so funny. All of its evidence is unpersuasive and full of contradictions,” said an EPALS lawyer.

MegaStar since June, 2009 has applied a new pricing scheme called minimum-per-capita fee, under which MegaStar requires a minimum payment of VND25,000 ($1.28) on every ticket to a film that it distributes in contracts with local cinema operators.

The payment is applied to the one-two weeks in which the film is screened. Some 80 per cent of the film’s gross revenues are from this period.

As a result, the local cinemas claimed they had suffered from financial losses in the wake of this scheme. For example, Galaxy Studio Joint Stock Company, one of the six complainants, reported that MegaStar’s payment policy had seen companies like it suffer 30-50 per cent decreases in revenues.

The local cinema operators are Cinema 212 Corporation, Saigon Movies-Media JSC, Saigon Cinema Corporation, Galaxy Studio Joint Stock Company, Hanoi Movies Co., Ltd and Dong Nai Film Distribution and Screening Company.

The lawyer said MegaStar’s actions violated Clause 13’s articles 2 and 5 of Vietnam’s Competition Law, under which an enterprise is banned from imposing irrational service and goods prices on customers and associated contracts on other enterprises.

“MegaStar could be forced to stop its violations and fined 5-10 per cent of its gross revenues in Vietnam in 2009 under the Competition Law,” the lawyer said.

Decree 116/2005/ND-CP guiding the implementation of the Competition Law allows monopolists like MegaStar to increase prices of its goods or services by only 5 per cent within six months.

However, the complainants claimed with its new pricing scheme, MegaStar had within only one time increased prices by 19-30 per cent against the former pricing scheme stipulated in the former contracts between it and local cinema operators.

The increased percentages were calculated based on the operators’ statistics and MegaStar’s invoices sent to the operators, according to EPALS.

The former pricing scheme was based on the common international pricing convention, in which cinema owners and film distributors shared ticket revenues at an agreed average split percentage that could ensure profits for both sides and reasonable prices for moviegoers.

However, an EPALS document cited MegaStar as having affirmed that: “This policy [pricing scheme] is simply an additional factor to minimise financial loss-related risks in film distribution of MegaStar and film studios represented by MegaStar.”

“While MegaStar is an intermediary enjoying commission through minimum-per-capita from film distribution, it said it might suffer from losses. This is unpersuasive, because commission means no financial loss for MegaStar,” the lawyer said, adding that MegaStar failed to prove its possible losses.

“MegaStar’s target is not to minimise its financial losses, but simply to pressurising local cinemas into increasing their ticket prices, in order to minimise the competition between MegaStar and other cinemas,” said the EPALS document.

According to EPALS, the complainants also accused MegaStar of forcing them to give their biggest projection rooms and best screening times to its movies, along with other unfair conditions. For example, to show “Transformers”, Galaxy also had to hire the cartoon “Ice Age 3” film from MegaStar.

“All these accusations are based on specific evidence reflected in contracts inked between MegaStar and local cinemas. The evidence is also the foundations for the cinemas’ complaints to be received by the VCA, under the local law,” the lawyer said.

However, these accusations were rejected by Hall, who said that no tie-in sales obligation was prescribed in contracts between MegaStar and its customers.

“As a distributor for foreign studios, for commissions and in its contracts with such studios, MegaStar has committed that it will not distribute a film in tying it with another film,” Hall said.

However, EPALS cited MegaStar’s some letters and emails to local cinemas as reading that: “…This means that if you take Transformer, you are required to take Ice Age 3 and Public Enemy”.

VCA’s investigation will end and results will be released on December 18, 2010.

MegaStar, a joint venture between local publisher Phuong Nam and Envoy Media Partners Ltd. from British Virgin Islands, imports almost foreign blockbusters screened in Vietnam.  MegaStar’s monopoly was calculated based on local cinema operators’ statistics. Up to 95 of films screened in Vietnam are imported.