Turkish Law Blog
Battle on the Big Screen: A Call for the Turkish Competition Authority to Launch an Investigation into the Dispute between MARS and Turkish Film Producers
1. Facts and Allegations
Turkey welcomed the new year with a furious debate over the box office revenue allocation between film producers and CJ CGV MARS [hereinafter MARS], the most influential undertaking in the domestic Turkish film industry. Producers have complained that their share from the sale of tickets has not increased for five years, remaining at between 4.5-5 Turkish Lira per ticket sold. They have condemned MARS for bundling movie tickets with popcorn and beverages. In an interview in late 2018, a MARS executive accepted that the box office revenue is supposed to be divided half and half and that MARS’ bundling strategy—which started in 2018—decreases its share but allows it to attract more customers to screenings. Şahan Gökbakar—a famous film producer and actor—counterclaimed that MARS has been issuing two separate receipts in bundling to customers so as to get around the agreed provisions that require it to divide ticket sale revenue equally between itself and film producers. These serious allegations against a large and powerful undertaking like MARS are worth discussing and analyzing from a legal perspective. In particular, the present post seeks shed light on the extent to which MARS has engaged in anti-competitive practices, which would warrant investigation by the Turkish Competition Authority [herinafter TCA].
2. Does MARS Hold a Dominant Market Position?
Under Article 3 of Turkey’s Commercial Competition Code [hereinafter the Code], a dominant market position is defined as one in which an undertaking or undertakings have the power to determine price, supply, amount of production and distribution independently without any influence by its competitors or customers in a given market. First and foremost, the relevant market should be identified. The film industry is generally accepted as consisting in three distinct markets: production, distribution, and exhibition. The dispute has arisen in the exhibition services (i.e. retail cinema) market, where MARS has bundled consumer products. However, MARS’s market position in the distribution market is of utmost importance—vertical integration in both distribution and exhibition likely impacts its buying power.
The next question is whether MARS is a dominant undertaking in the relevant markets. Market share below 40 percent generally reflects a non-dominant position, but TCA leaves the door open for exceptional cases. For our purposes here, market share is calcuated using the two most recent years of relevant data. In 2017, MARS held 36.16 percent of the market, distributing seventy-five films with some 25.74 million tickets sold. Data from Anadolu Ajansı, an international newswire in Turkey, reveals that in 2018 MARS had 43,91 percent of the distribution market, owning 905 movie screens out of 2,692 across the country. These figures indicate that MARS does hold a dominant position, with an average 40,03 percent share in the distribution market over the period. The retail cinema market, unlike that for distribution, is divided geographically (among Turkey’s 81 provinces). Dominance within each province is calculated according to the number of tickets sold. In a recent decision by TCA, the national market is additionally accepted as the relevant geographic market on the ground that movie exhibitors have a special relationship with distributors and producers in terms of the access to the exhibition market and buying power. Thus, the number of tickets sold by MARS exhibitors, the total ticket income and the advertising income should be considered instead of the number of movie screens at the national level.  The reason is that 85.4 percent of Turkish moviegoers elect to watch films at shopping malls, because of convenience, proximity, comfort, and price. Since the overwhelming majority of cinema screens operated by MARS in Turkey are located in malls, a detailed investigation by TCA would reveal its precise share of the national exhibition market, which is currently not publicly available due to commerical-in-confidence provisions.
However, a second step in assessing market dominance is to analyze barriers to market entry or limits on existing undertakings’ opportunity to grow their market share. MARS distributed six of the ten blockbuster films released in Turkey in 2018 (including the most watched movie), and total of ninety-three movies overall, double that of its next competitor. Also, four undertakings assume 85.16 percent of the market in 2018, which might be an indication of market saturation. Sociological factors can also be considered. Turkish consumers use malls as a social place where they can find grocery stores, restaurants, a range of clothing, book, drug stores or movie theaters, thus renting movie theaters in malls becomes crucial to reach potential customers. As mentioned, cinemas are overwhelmingly located in shopping malls in Turkey, and a survey conducted by TCA revealed that 77 percent of the exhibitors surveyed believe that the malls prefer to rent to specific movie exhibitors despite being offered less rental income. This points to the barriers to competition that MARS and other big chains are able to impose in this environment. MARS’s vertical integration in distribution and exhibition is also another decisive factor. To conclude, MARS’s dominant position in the distribution market and likely dominance in the retail cinema market in Turkey is essentially not in doubt.
3. Has MARS Abused its Dominant Position?
Holding a dominant position does not mean market abuse per se. Pursuant to Article 6 of the Code, an abuse of market market dominance arises where an undertaking exploits its dominance to gain advantage in a manner that is deemed to be illegitimate and prohibited. More specifically, MARS’s conduct should be assessed in the light of clause (d) of Article 6 of the Code, which prohibits conducts that seeks to distort competitive conditions in another market for goods or services through exploiting technological, financial and commercial advantages brought by dominance in a given market. This underscores just how much MARS’ conduct has the potential to distort competition in the production market.
Before the analysis, the general practice should be demonstrated in order to understand the dynamics of the movie industry. In Turkey, the total tax in a single movie ticket constitutes 15.84% percent, and remaining percentage is traditionally shared between movie producers (42.08%) and exhibitors (42.08%). Movie producer then usually pays 10 percent to the distributor according to the distribution agreement for copying a digital version of the movie and arranging the timeline and theaters for exhibition. If MARS both distributes and exhibits a movie, its share thus increases to 52.08%, and the movie producers’ share falls to 32.08%.
TCA decided that any act by a distributor prohibiting or interfering with a movie exhibitor offering a package deal or discount (or requiring the distributor’s prior consent to do so) would, inter alia, constitute a violation of clause (d) of Article 6 of the Code. In another decision, TCA, in its dicta, did not find that short term bundling or package deals with other group companies in the context of the Turkish economic crisis constituted a violation. Although there was no specific decision related to bundling movie tickets with popcorn and beverages, it should be noted that there was no legal barrier before MARS to offer package deals, bundles, or discounts in 2018. However, MARS cannot maintain its bundling strategy this year. According to a bill which has been recently approved by the Turkish legislator, a movie exhibitor will have to obtain prior permission from the producer or the distributor to engage in product bundling or any other promotional campaign, or otherwise be subject to an administrative fine. A conflict between a special legislation and an administrative decision, however, is resolved in favor of the former in Turkey, which is a a civil law jurisdiction.
Since this note focuses on practices that took place in 2018, TCA’s above-mentioned decisions are taken into account as a starting point for analysis. First, it should be noted that MARS’ buying power—which, in turn, stems from its vertical integration—differs from the above-mentioned criteria, because the distributor and exhibitors were different undertakings in those decisions. The issue here is not the bundling of products per se but how MARS shares the income with producers. A recent consumer complaint claimed that a movie ticket costing 38.25 Turkish Lira, comprised 19,50 TL for the ticket and 18,75 TL for popcorn and a beverage, even though the consumer had not wanted to purchase the food items. A cinema ticket on MARS’ website costs 27,50 Turkish Lira. According to the agreed ratio of revenue allocation, the movie producer is entitled to receive 8.82 Turkish Lira from a single ticket without bundling, whereas it appears from the consumer complaint that only 6.25 Turkish Lira from such a deal would go to the producer, a 29% loss in the share allocated to the movie producer compared with the agreement. Even when the average ticket price in Turkey—17.53 Turkish Lira—is taken into account, the producers’ share should not fall below 5.62 Turkish Liras for any film distributed and exhibited by MARS. Hence, according to the film producers’ claims, MARS’ bundling strategy would have resulted in a loss in producer share of anywhere between 11 and 20 percent compared to the agreed amount in 2018, depending on the kind of ticket purchased. This would constitute a signficiant hit for the film producers concerned, particularly in respect of blockbuster movies, which often sell more than a million tickets or more. However, given that ticket prices vary across the county, the percentage loss that the movie producer would have suffered would depend on the number of bundled sales and the prices shown on each ticket and popcorn receipt.
Since concession sales are not shared with distributors and producers, exhibitors always have an incentive to increase the volume of offers for which the profit margins are highest. However, MARS’s bundling is understood not simply as a move to increase the volume of concession sales overall but also as a means to increase share from existing box office revenue at the expense of producers. If the allegations are found to be correct, MARS’s conduct would arguably constitute a violation of clause (d) of Article 6 of the Code. Moreover, a MARS executive has asserted that the firm will refuse to exhibit movies whose producers have not approved the bundling strategy. It is, however, highly debatable whether this statement violates clause (a) of the Article 6 of the Code, under which refusal to deal by a dominant player is prohibited, as exhibiting films at MARS’ cinemas would be indispensable for movie producers. Otherwise, this conduct would likely eliminate the production market, meaning fewer local films would be produced, leaving Turkish consumers worse off.
TCA recognized the threat MARS would pose in 2016 when discussing the effects of the then-merger between MARS and AFM in the distribution and exhibition markets. The author believes that the time has come to investigate the serious allegations against MARS, which will likely have severe implications for the production market. The Turkish economy has experienced significant currency depreciation and high inflation in the last few years, which has dramatically increased production costs for film producers. Since cinema-goers are very much attracted by Turkish films, the producers’ share in the total ticket income should be fairly allocated to incentivize them, thereby enhancing the culture by ensuring a steady supply of locally produced cinema content. Because of the dispute, production of many films has already been postponed indefinitely, including big-budget films such as Cem Yilmaz’s Karakomik Filmler, Yilmaz Erdoğan’s Organize İşler 2: Sazan Sarmalı and Şahan Gökbakar’s Recep İvedik 6. As a result, the number of moviegoers in the first ten days of January 2019 fell precipitously compared with the same period in January 2018 (i.e., from 2,565,715 to 1,141,787) mainly because of the lack of Turkish films being exhibited at theaters. To resolve the dispute, TCA should immediately launch an investigation, examination or inqury into the alleged violations ex officio according to Article 27 of the Code. Such an investigation is now clearly long past overdue.
 Cengiz Semercioğlu, Film Çekmezse Çekeni Bulacağız, Hürriyet (Dec. 30, 2018), http://www.hurriyet.com.tr/yazarlar/cengiz-semercioglu/film-cekmezlerse-cekeni-bulacagiz-41067366.
 Şahan Gökbakar, Sinema Gişesi Oyunları, Youtube (Dec. 30, 2018), https://www.youtube.com/watch?v=f1f2sd_ZhUY.
 See, Türk Rekabet Kurulu [Turkish Competition Authority] 05-06/48-20, Jan. 18, 2005, para. 90 (Turk.).
 See, Türk Rekabet Kurulu [Turkish Competition Authority] 10-36/575-205, May 5, 2010, para. 110 (Turk.).
 Türkiye Box Offıce, 2017 Yılı Özeti, https://boxofficeturkiye.com/dagitimcilar/2018 (last visited Jan. 14, 2019).
 Son Günlerin Tartışma Konusu Türk Sinema Sektörü, Anadolu Ajansı (Dec. 31, 2018) https://www.aa.com.tr/tr/kultur-sanat/son-gunlerin-tartisma-konusu-turk-sinema-sektoru/1352983.
 Türk Rekabet Kurulu [Turkish Competition Authority] 05-40/556-135, June 17, 2005, para. 170 (Turk.).
 Türk Rekabet Kurulu [Turkish Competition Authority] 15-41/682-243, Dec. 11, 2015, para. 12 (Turk.).
 See, Türk Rekabet Kurulu [Turkish Competition Authority], 11-57/1473-539, Dec. 17, 2011, para. 35, 51 (Turk.)
 Rıdvan Şentürk et al., İstanbul Ticaret Odası/İstanbul Düşünce Akademisi, Türkiye’de Film Endüstrisi (2011-2015), at 131.
 https://www.cinemaximum.com.tr/sinemalar (last visited Jan. 08, 2019). (Only two movie theaters are operated in art and cultural centers, namely Denizli Art Center and Caddebostan Cultural Center, the remaining 105 movie theaters are operated in malls)
 Sinemalar AVM’lere Taşındı, Hürriyet (Apr. 8, 2016, 02:30 PM), http://www.hurriyet.com.tr/ekonomi/sinemalar-avmlere-tasindi-40084301.
 Kerem Tomur et al., Rekabet Kurumu: Sinema Hizmetleri Sektör Raporu (Feb. 16, 2016), at 69.
 See, Türk Rekabet Kurulu [Turkish Competition Authority] 18-03/35-22, Jan. 18, 2018, para. 51 (Turk.) (acknowledging MARS’s dominance in terms of the number of audience and income, and mentioning its indispensability for consumers)
 Meltem Kara, Recep’i Seven İstinye’ye Gidince Şahan Kazanıyor, Vatan (March 22, 2014, 07:31 AM) http://www.gazetevatan.com/recep-i-seven-istinye-ye-gidince-sahan-kazaniyor--620128-ekonomi/.
 Türk Rekabet Kurulu [Turkish Competition Authority] 07-19/192-63, Mar. 3, 2007, para. 1360-70 (Turk.).
 Türk Rekabet Kurulu [Turkish Competition Authrotiy] 09-42/1062-271, Sept. 16, 2009, para. 120 (Turk.). Marketed as the “Free Movie Ticket Campaign”, the promotion offered a free ticket to any consumer purchasing food and beverages worth 15 Turkish Lira in the mall in which the MARS cinema was located, or an additional ticket free to those purchasing two movie tickets from the relevant cinema (i.e., buy-two-get-one-free). The offer was later changed to a spend of 10 Turkish Lira on food and bevearages or buy-two-get-one-free. It was clearly stated that the promotion was for a limited time.
 Sinemada Yeni Perde: Düzenleme, TBMM’den Geçti, T24 (Jan. 18, 2019), http://t24.com.tr/haber/sinemada-yeni-perde-duzenleme-tbmmden-gecti,801950.
 Article 8 of The Bill to Amend the Code on the Classification, Evaluation, and Promotion of Cinema Films, No. 43 of 21 December 2018, proposed by the Justice and Development Party.
 Cinemaximum Fiyat Politikasi, (Dec. 14, 2018) https://www.sikayetvar.com/cinemaximum/cinemaximumun-fiyat-politikasi-1. (showing two receipts, one issued for popcorn and beverage, other for the movie ticket)
 This price is cited for Şampiyon, a well-known Turkish film, showing at İstinye Park in Istanbul on 17 January 2019—the same location and day and similar screen-time as Müslüm, the film in the consumer complaint. https://www.cinemaximum.com.tr/biletleme/~step~ticket~code~0000000037~session~126138. (last visited Jan. 14, 2019).
 Generally speaking, MARS’ cinema ticket prices are higher than the average, although this depends on the theater. Yıllara Göre Ortalama Sinema Bileti Fiyatı (2009-2018), https://www.verikaynagi.com/grafik/yillara-gore-ortalama-sinema-bileti-fiyati-2009-2018/. (last visited Jan. 14, 2019).
 Semercioğlu, supra note 1.
See, Sinema Sektöründe Kan Kaybı: İlk 10 Günde İzleyici Sayısı da, Hasılat da Düştü, Habertürk https://www.haberturk.com/canliyayin/589972-sinema-sektorunde-kan-kaybi-ilk-10-gunde-izleyici-sayisi-da-hasilat-da-dustu (last visited Jan. 20, 2019). (reporting that the film industry suffered the loss of 20 million Turkish Lira in the first ten days of January 2019, and the least number of moviegoers and Turkish films were recorded in the last seven years)
 Tomur, supra note 13, at 70.
 Habertürk, supra note 23.