ACCC accepts undertakings from Hoyts, Greater Union and Village on cinema advertising

The Australian Competition and Consumer Commission has accepted court-enforceable undertakings from Hoyts, Greater Union, Village and Val Morgan and its associated entities, in relation to cinema advertising.

The undertakings address the ACCC's competition concerns regarding the proposed acquisition of Val Morgan by a joint venture owned and operated by Hoyts, Greater Union and Village. Greater Union, Hoyts and Village are Australia's leading cinema exhibitors, controlling approximately 75 per cent of cinema revenue in Australia.

The undertakings provide that:

• two of the acquiring exhibitors will divest their stake in Val Morgan within 18 months of the acquisition
• the undertakings will remain in effect until such time as any advertising contracts existing between Val Morgan and the divesting exhibitors cease to remain in force. Such contracts are, in any case, limited in the undertakings to 12 months in duration
• Val Morgan will honour existing contracts with independent cinema exhibitors and offer them new cinema advertising contracts when existing contracts expire
• Val Morgan will guarantee minimum contractual terms to be offered to independent cinema exhibitors. The undertakings also incorporate procedures and checks to ensure the independent exhibitors are dealt with fairly.

"The undertakings should ensure that, in addition to preserving cinema screen advertising in Australia, competition will remain in the cinema industry", ACCC Chairman, Professor Allan Fels, said. "Without the acquisition it was likely that Val Morgan would have been placed into administration, and that this important source of revenue for cinema exhibitors would disappear".

Despite being Australia's only national provider of cinema advertising, Val Morgan was on the point of financial collapse which would have had a significant impact on the continued provision of advertising to cinemas. Recently it has suffered large operating losses, mostly due to high cinema rents and lower than expected advertising revenue.

In reaching its view the ACCC consulted extensively with independent cinema exhibitors and relevant industry representative bodies.

"The ACCC's market inquiries revealed that there was concern about the major cinema exhibitors acquiring Val Morgan and increasing the vertical integration of the major cinema exhibitors. This could allow them to treat independent exhibitors unfairly with respect to screen advertising, potentially threatening the viability of a number of independent cinemas. However market inquiries also indicated, that if these competition concerns were overcome, the transaction should be allowed to proceed to keep cinema advertising available".

Following this consultation, the ACCC expressed concern about the proposed transaction and the original form of undertakings offered to it. In response, the acquiring exhibitors offered significant concessions to resolve these competition concerns.

These undertakings ensure that the structural issues surrounding the acquisition are overcome within a timeframe that minimises the ACCC's competition concerns, while allowing sufficient time for the acquiring exhibitors to return the Val Morgan business to viability. In addition, the undertakings protect industry players from any potential anti-competitive bias otherwise arising from the acquisition.

The undertakings will appear on the ACCC's public register in due course.

Background

The ACCC has considered the proposed acquisition of Val Morgan by Hoyts, Greater Union and Village on a public basis. Val Morgan is Australia's only national cinema advertiser, holding exclusive advertising contracts over almost all cinema screens in Australia. Its activities are conducted under the Val Morgan name, and also through two subsidiaries, Independent Cinema Advertising and Media Entertainment Group. Hoyts, Greater Union and Village are all cinema exhibitors. They operate cinema screens in Australia and many other countries. Collectively they account for approximately 75 per cent of cinema revenue and 60 per cent cinema screens in Australia. Between them, the acquiring exhibitors operate a number of cinema joint ventures and have interests in cinema film distribution.

The acquiring exhibitors propose to run Val Morgan jointly for only 18 months in order to restore it to financial viability. Upon acquiring Val Morgan, they intended to renegotiate or enter into new contracts with Val Morgan on substantially lower terms than they presently receive. The undertakings require two of the exhibitors to divest their interests entirely and restrict the period of their contracts upon divestiture to 12 months. The undertakings set out the terms and conditions applying to independent exhibitors clearly and explicitly, and enable them to ensure that they are treated fairly during the undertaking period. The undertakings also contain audit, dispute resolution and compliance measures.

The ACCC considered that the ultimate structural solution offered in the undertakings would resolve its concerns in relation to the acquisition. Further, the behavioural undertakings, designed to regulate the conduct of the acquiring exhibitors until such time as that structural solution can be brought about, provide all market players with certainty that they will be treated on a fair and non-discriminatory basis by Val Morgan.