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Ottawa Citizen, December 19, 2000

"Movie chains accused of squeezing out competitors"

Competition Bureau probes allegations that Famous Players, Cineplex Odeon collude against independents

Glen McGregor
The Ottawa Citizen

The federal Competition Bureau is investigating allegations that Canada's two largest movie theatre chains use their market power to ensure that independent theatres don't get a chance to screen the latest Hollywood blockbusters.

Documents filed by the bureau in Federal Court this month accuse Famous Players Inc. and Cineplex Odeon Corp. of using their dominant positions to engage in anti-competitive behaviour by splitting the hottest new movie releases between them.

Although such investigations are usually kept confidential, details of the probe became public this month when Competition Bureau lawyers went to court seeking an order to have 17 film distributors open their books to investigators.

A supporting affidavit filed by a bureau investigator says his preliminary inquiry found that Famous Players and Cineplex Odeon use "splitting arrangements" that ensure that neither company bids against the other for the rights to newly released films. These deals relegate other theatres to a "perpetual second-best position for the exhibition of commercially valuable motion pictures in Canada," the affidavit claims.

The splitting arrangements have been in place since the early 1990s, or at least since before 1994, according to the bureau's preliminary inquiry, and have "substantially reduced" competition in the Canadian theatre business.

Such an anti-competitive practice would discourage competitors from entering the Canadian theatre business and keep ticket prices artificially high.

Movie ticket prices have climbed steadily since the early 1990s, as Famous Players and Cineplex have enjoyed near total dominance of the theatre industry, controlling more than 1,600 screens between them. The top price of a movie ticket in Ottawa jumped to $12 from $10 earlier this year.

The theatres use their market power to "coerce" film distributors into splitting deals, but the distributors have "largely agreed" the document says. Most of the major distributors are owned by or affiliated with Hollywood motion picture studios that make the films.

Famous Players generally screens films made by Paramount, Warner Bros., Disney and MGM, while Cineplex runs films from Universal, 20th Century-Fox and Columbia Tri-Star.

The court documents also allege the two theatre chains use exclusivity arrangements to ensure they are only exhibitor in a certain market, "often in the face of overwhelming demand by both the consumer and other exhibitors -- that goes unsatisfied."

The splitting practice may have allowed the two companies to insulate themselves against a changing industry and delay their move into capital-intensive "mega-plexes" -- large, modern theatres typically located in the suburban areas -- while preserving their operations in downtown areas.

The affidavit suggests that while U.S.-based companies like AMC began moving toward mega-plexes in the United States more than five years ago, the splitting arrangement may have allowed theatre chains to delay such innovation here in Canada.

Joanne Fraser, vice-president of corporate affairs for Famous Players, said the company only received a copy of the affidavit yesterday and has yet to prepare a response. A spokesperson for Cineplex Odeon did not return calls requesting comment.

The order from Federal Court will force the distributors cited to hand over reams of business information dating back to 1998 so bureau investigators can assemble an accurate model of how the theatre industry operates.

This is not the first time the federal government has taken a look at the movie theatre business. In 1974, the government set up an inquiry to study why independent cinemas couldn't get the rights to new releases. That inquiry was shut down by the attorney general. Four subsequent inquiries were also discontinued for various reasons.

Earlier this year, an independent theatre chain in Quebec, Cinemas Guzzo, won an injunction against a distributor that had promised rights to the children's film Grizzly Falls. The 10-theatre chain claimed Cineplex had threatened the distributor that it would pull the film out of its theatres if the Guzzo chain were given a print.

680.5 in reply to 680.4

Globe and Mail, Wednesday December 20, 2000
Cineplex CEO blasts collusion charges

MICHAEL POSNER
ARTS REPORTER; With files from reporter Campbell Clark in Ottawa
Wednesday, December 20, 2000

TORONTO -- The suggestion that Canada's two largest theatre chains might
have colluded to split distribution of Hollywood's top-grossing movies is
"absolute drivel," Cineplex-Odeon Corp. chief executive officer Allen Karp
said yesterday.

Mr. Karp was reacting to an affidavit filed in Federal Court by Ottawa's
Competition Bureau that alleges that Cineplex-Odeon and Famous Players Inc.
are engaging in anticompetitive behaviour by not bidding against each other
for American films.

"It is absolute nonsense," Mr. Karp said.

"The North American theatre industry is in crisis. And, it has never been
more competitive than it is now. At this point, I'm just trying to stay
alive."

The best evidence of just how absurd the allegation is, Mr. Karp said, is
the industry's current turmoil.

Three major U.S. movie chains filed for Chapter 11 bankruptcy protection
this year. In Canada, Famous Players is well short of its budget revenue
projections and Cineplex-Odeon, a subsidiary of New York-based Loews
Cineplex Entertainment Corp., is caught up in its parent's financial
predicament.

In the past two years, according to Morgan Stanley Dean Witter & Co., the
North American theatre industry has generated $20-billion (U.S.) in losses
for its stock and bond investors.

Several factors have conspired to affect the performance of North American
movie chains. These include: a costly capital expansion program, with
hundreds of new state-of-the-art screens, digital sound, stadium seating and
other amenities; rising ticket prices, needed to pay for the construction;
the growing unprofitability of older movie houses, many of them locked into
long-term leases at declining locations; a sustained period in which
Hollywood has turned out few box office blockbusters; and, growing
competition for moviegoers' dollars from video, satellite and specialty
cable TV distributors.

Victor Lowey, chairman of Alliance Atlantis Motion Picture Group, agreed
with Mr. Karp's assessment. "Older, unrenovated cinemas cannot compete with
the newer ones, no matter who owns them, and will therefore have trouble
getting film product."

According to documents filed in Federal Court, Canada's two principal
exhibitors have used their dominant market share to coerce Hollywood studios
into splitting their distribution of films.