News Release
Mario Monti
No. 150/04
October 26, 2004
EUROPEAN COMMISSION CLOSES INVESTIGATION INTO CONTRACTS
OF SIX HOLLYWOOD STUDIOS WITH EUROPEAN PAY-TVs
The European Commission decided to close its investigation into the
so-called Most Favoured Nation (MFN)[1]
clauses found in the contracts of the Hollywood film studios with a number of
pay television companies in the European Union after the studios decided to withdraw
the clauses. The case remains open with regard to NBC Universal and Paramount
Pictures Corporation, Inc., that still hold on to them. The Commission’s competition
services believe that these clauses have the effect of aligning the prices of
the broadcasting rights bought by the television companies.
Commenting on the matter, Competition
Commissioner Mario
Monti said: “I welcome the constructive approach taken by six Hollywood
Major Studios concerning MFN clauses. I also invite Universal and Paramount to
follow this reasonable path as soon as possible, so as to avoid adverse effect
on competition.”
The Commission started looking into the MFN clauses in May 2002 after it discovered
that they featured in most of the "output deals" between the major Hollywood
film studios (the "Majors") and the European pay-TV broadcasters that
bought the broadcasting rights. Output deals are common in the Hollywood film
industry where the studios typically agree to sell to broadcasters their entire
film production for a given period of years.
The MFN clause gives the studios the right to enjoy the most favourable terms
agreed between a pay-TV company and any one of them.
According to the Commission’s preliminary assessment, the cumulative effect
of the clauses is an alignment of the prices paid to the Majors. This is particularly
true because any increase agreed with a Major triggers a right to parallel increases
in the prices of the other studios. The Commission considers that under these
circumstances of cumulative effect such an anomalous way of setting prices is
at odds with the basic principle of price competition.
The Commission found a proliferation of these clauses, with many similarities,
in the
contracts of the distribution arms of the eight “Majors”: NBC Universal; Paramount
Pictures Corporation, Inc. (subsidiary of Viacom); Buena Vista International,
Inc. (subsidiary of The Walt Disney Company); Warner Brothers Entertainment, Inc.;
20th Century Fox Film Corporation; Sony Pictures Entertainment, Inc.; MGM Studios,
Inc. and Dreamworks LLC.
The Major studios have not admitted a violation of EU
Competition law or the above-mentioned preliminary assessment. However, at
an early stage of the investigation, one of them withdrew its clauses, also indicating
that it would not seek to implement such provisions in future agreements. The
Commission welcomes this decision allowing it to close the case concerning this
company. Later on, five other studios also decided to waive their clauses in their
existing agreements. Insofar as they will not deviate from this new behaviour,
it is not envisaged to take further action against them concerning this issue.
The investigation remains open in respect of NBC Universal and Paramount Pictures
Corporation, Inc., since they have not accepted to withdraw their clauses in their
own contracts.
[1] In the Hollywood Studios’ output deals, the term “most favoured
nation” clauses (MFNclauses) is borrowed by analogy from international commercial
law. In actual fact these clauses establish a most favoured supplier principle.
