Information on the "Film Ticket Marketing Sales Specifications"

China Film Distribution and Screening Association and China Film Producers Association (respectively and jointly referred to as the "Association") jointly formulated and issued the "Film Ticket Marketing and Sales Specifications" on July 8, 2015. After the specifications were issued, some comments appeared in the society that the specifications were suspected of violating the "Anti-Monopoly Law of the People's Republic of China"(the "Anti-Monopoly Law"). The Legal Center of the Association now provides further explanations on the background, purpose and whether the regulations involve anti-monopoly law issues.

In order to continue to promote the development of the film market, at the request of member units, China Film Distribution and Screening Association and China Film Producers Association (respectively and jointly referred to as the "Association") jointly formulated and issued the "Film Ticket Marketing and Sales Specifications"(hereinafter referred to as the "Specifications") on July 8, 2015.

After the issuance of the regulations, there have been some comments in the society that the regulations are suspected of violating the Anti-Monopoly Law of the People's Republic of China (the "Anti-Monopoly Law"). The Legal Center of the Association now further explains the background, purpose and whether the anti-monopoly law issues are involved:

1. Characteristics of the film production, distribution and screening industry

(1) The parties in the film industry chain and their value realization mechanisms

In the ordinary tangible commodity sales industry, the value of all parties in the industry chain is generally realized through the sale, resale and distribution of raw materials, semi-finished products or finished products between upstream and downstream operators. The basic legal relationship between the upstream and downstream of the industrial chain is the legal relationship of sales contracts. Through the transfer of ownership of raw materials, semi-finished products and finished products, operators located in different locations in the industrial chain can directly recover costs and obtain corresponding return on investment through sales. The film production, distribution and screening industry is very different from the ordinary tangible goods sales industry. The realization of the value of a film must go through various links in the industrial chain such as creation, production, distribution, and screening. The main income of all parties in the industrial chain, such as producers, distributors, theaters, and theaters, comes from the retail income of terminal movie tickets, that is, box office, and is realized through the box office sharing mechanism. Through the film's box office revenue sharing arrangement, producers, distribution agencies and projection units can share benefits and risks.

(ii) In the "box office split system" and "negotiated fare"

film industries, the "sales"(i.e., distribution and screening) of films as products are different from the general legal relationship of sales contracts, but include intellectual property licensing, entrusted agency and service provision. A mixture of multiple legal relationships. In practice, the distributor usually signs a film distribution and screening contract on behalf of the producer, and the theater line on behalf of the theater to regulate the above legal relationship. The specific terms of the distribution and screening contract shall be negotiated by the parties involved in the contract based on the film involved, distribution period, target audience, market supply and demand, etc. As a common model that conforms to the characteristics of the film distribution and screening industry, most distribution and screening contracts usually stipulate that all parties to the contract will share the movie ticket sales revenue earned during the film's release period by dividing the box office revenue of the relevant movie according to a specific proportion, namely "box office split account system".

On the basis of the box office split system, in order to ensure the rights and interests of film copyright owners, encourage film creation and production, and balance the interests of participants in various links, relevant parties in the film industry usually agree on a guaranteed settlement price that can be obtained by upstream parties such as producers, distributors and other upstream parties from downstream links such as theaters and theaters based on factors such as film distribution and screening costs, film quality, consumption levels in the release area, and release time. That is, when sharing box office revenue between upstream and downstream links, if it is higher than the agreed minimum settlement price, the downstream link, that is, the theater line or theater, will settle the price according to the actual ticket price, and lower than the minimum settlement price, the settlement will be based on the minimum settlement price. The above-mentioned guaranteed settlement price is only for issuers and theaters, and does not involve terminal retail movie ticket prices.

The "agreed fare" mentioned in Articles 6 and 7 of the Code refers to the guaranteed settlement price of all parties in the film industry chain under the principle of box office sharing system, which is different from the terminal movie retail fare. In fact, movie ticket sales agents, such as e-commerce, can adopt price promotion measures to expand the number of movie-watching users, which may not have an impact on the overall box office. They also have the opportunity to obtain additional revenue by increasing other related businesses, thus forming a win-win situation for issuers, theaters, sales agents and consumers, which is exactly what the norm means.

(iii) The role and legal status of e-commerce in the film industry chain

E-commerce companies engaged in movie ticketing business are no different from other agents engaged in movie ticket sales. They are not an independent downstream link in the film industry chain. Specifically, e-commerce and theaters or other related parties sign a movie ticket commission (settlement) contract, and the two are legally agency relationships.

2. The norms do not conflict with the Anti-Monopoly Law

The purpose of formulating norms by the Association is to ensure the healthy and orderly development of the film industry, strengthen the construction of self-discipline mechanisms for the film industry, and create a good environment for industry development. No matter from the perspective of motivation, content and regulatory objects, regulations do not aim to hinder competition or harm consumer interests.

The Association noted that some commentators believe that Articles 6 and 7 of the Regulation are suspected of violating Articles 13 and 14 of the Anti-Monopoly Law and are suspected of "organizing competitive operators to reach horizontal monopoly agreements to fix or change commodity prices", as well as urging "operators and counterparties to reach a monopoly agreement that limits the minimum price for resale of goods to third parties."

Article 6 of the Code stipulates that "production, distribution, theaters, and cinemas, as relevant parties to the box office of movies, shall sign film distribution and screening contracts in accordance with the relevant provisions of relevant national laws and regulations and in the spirit of contract.

Relevant parties must make detailed agreements on each link in the distribution and screening contract and clarify the agreed fares. Fares should be determined through negotiation by relevant parties based on market supply and demand and operating costs.

Relevant parties must strictly abide by the contract and settle accounts based on the actual ticket price on the basis of the agreed fare in accordance with the contract."

Article 7 of the Code stipulates that "relevant parties and e-commerce and other movie ticket sales agencies must follow the relevant terms of the distribution and screening contract and sign a movie ticket sales (settlement) contract.

E-commerce and other movie ticket agency agencies can actively carry out promotional activities. Film retail ticket prices, event ticket prices, labeling and settlement cannot be lower than the agreed ticket prices in the distribution and screening contract. The discounts in the film promotion will be made up for by the promoter based on the agreed fare, and those exceeding the agreed fare will be settled based on the actual fare, excluding service fees."

The association believes that:

(1) Standardizing relevant provisions does not constitute a horizontal monopoly agreement reached by operators with competitive relationships.

(1) Standardizing Article 6 is intended to advocate that in the film distribution and screening relationship, as upstream and downstream distributors and theaters, reach distribution and screening agreements, and standardize the box office sharing mechanism. The specification is not a distribution and screening contract or a format clause of a distribution and screening contract. Different distributors and different theaters sign distribution and screening contracts for different films. No matter in terms of text or meaning, Article 6 of the Regulation and other provisions of the Regulation do not involve organizing competitive operators to reach horizontal monopoly agreements.

2. As stated in Article 6 of the Specifications,"Relevant parties must make detailed agreements on each link in the distribution and screening contract and clarify the agreed fares. The ticket price should be determined through negotiation by relevant parties based on market supply and demand and operating costs."It is intended to require the issuer and the theater line to carefully agree on the box office calculation method in the distribution and screening contract, so as to avoid disputes when implementing box office split arrangements. In addition, Article 6 particularly emphasizes that relevant parties need to set prices independently based on market conditions and their own operating costs, and have no intention of making any interference in the pricing principles, pricing calculation formulas, price changes, etc. of the agreed fares, let alone involving anti-monopoly law Other acts or arrangements stipulated in Article 13 that may be suspected of monopolizing agreements.

3. Article 6 of the Code requires that "relevant parties must strictly abide by the contract and settle according to the actual ticket price based on the agreed ticket price in accordance with the contract" means that if the issuance and screening contract determines the box office sharing mechanism, such as: guaranteed settlement price, issuing parties and theaters should strictly abide by it. The association believes that arbitrary violation of the agreement on box office sharing arrangements when the distribution and screening contract is clearly stipulated will destroy the basic consensus of the film industry that relevant parties in the film industry share risks and encourage creation, and will be fundamentally detrimental to issuers. Competition between theaters and theaters will ultimately restrict consumer choices and harm consumer interests.

(2) The regulations do not constitute or induce the operators to reach a vertical monopoly agreement.

1. As mentioned in the first part of this situation statement, in practice, as one of many types of movie ticket agent sellers, e-commerce and theaters (theaters) The relationship is an agency relationship in the legal sense, not a resale relationship. By signing a movie ticket commission (settlement) contract with the e-commerce (reseller), the theater and the e-commerce (reseller) agree that the e-commerce will sell movie tickets to consumers and charge the theater (cinema) a commission service fee. The relationship between an e-commerce company and a cinema (cinema) is an principal-agent relationship between the person and the agent, and does not constitute a resale relationship between the operator and the counterparty of the transaction as regulated by Article 14 of the Anti-Monopoly Law.

2. As mentioned in Article 7 of the regulation,"E-commerce and other movie ticket sales agencies may actively carry out promotional activities. Film retail ticket prices, event ticket prices, labeling and settlement cannot be lower than the agreed ticket prices in the distribution and screening contract. The discounts in film promotion activities shall be made up for by the promoter based on the agreed fare, and those exceeding the agreed fare shall be settled based on the actual fare, excluding service fees."This means that in the case of terminal movie ticket promotion, if the guaranteed settlement price is stipulated in the distribution and screening contract, the possible reduction in the split base caused by the terminal fare promotion cannot be a reason for the promoter to violate the distribution and screening contract and not settle the split account with the issuer as agreed in the contract, rather than that the terminal fare promotion itself is restricted.

To sum up, the Association believes that the content of the regulations does not conflict with the Anti-Monopoly Law. The Association's issuance of regulations has no intention of organizing operators to carry out behaviors that hinder competition. The implementation of regulations will not hinder competition or infringe on the interests of consumers. An important daily work of the association is to strengthen industry self-discipline and advocate standardized operations. It hopes to truly establish industry integrity through norms and protect the healthy development of the industry.

Editor: vian