CCI imposes penalty on Super Cassettes Industries Ltd. for abuse of dominant position

Court :
Competition Commission of India
Brief :
The Competition Commission of India held Super Cassettes Industries Limited in contravention of the provisions of section 4(2)(a)(i) of the Competition Act, 2002 for imposing unfair conditions of Minimum Commitment Charges (MCC) upon the private FM Stations in its existing agreements. The Commission imposed a penalty on Super Cassettes Industries Limited at the rate of 8% of its average turnover of the last three years amounting to Rs. 2,83,28,000 (Two Crore Eighty Three Lakhs Twenty Eight Thousand). The Commission further directed to deposit the penalty amount within 60 days of receipt of the order.
Citation :
In Re: M/s HT Media Limited...Informant And M/s Super Cassettes Industries Limited...Opposite Party

Case No. 40 of 2011 Page 1 of 93

COMPETITION COMMISSION OF INDIA

Case No. 40 of 2011

In Re:

M/s HT Media Limited Informant

And

M/s Super Cassettes Industries Limited Opposite Party

CORAM

Mr. Ashok Chawla

Chairperson

Mr. M. L. Tayal

Member

Mr. S. L. Bunker

Member

Appearances: Ms. Pallavi S. Shroff and Mr. Naval Chopra, advocates for the

informant.

Mr. Amit Sibal and Mr. Anand S. Pathak, advocates for the

opposite party.

Order under Section 27 of the Competition Act, 2002

The present information has been filed by M/s HT Media Limited (‘the

informant’) under section 19(1) (a) of the Competition Act, 2002 (‘the Act’)

against M/s Super Cassettes Industries Limited (‘the opposite party’) alleging

inter alia contravention of the provisions of sections 3 and 4 of the Act.

Facts

2. Factual matrix, as unfolded in the information, may be briefly noted.

3. The informant claims to be one of the leading media companies in

India. As per the informant, apart from being engaged in the business of print

media under the aegis of ‘Hindustan Times’, it has diversified its ambit into

electronic media and has launched an FM radio channel called Fever 104,

which is currently operational in Delhi, Mumbai, Kolkata and Bengaluru. It is

stated that Fever 104 largely plays Bollywood film music and since its coming

into operation in Delhi (October 2006), Mumbai (January 2007) and Kolkata

(January 2008), it has developed a strong listenership in these metros.

4. It is averred that the opposite party, known under the brand name of TSeries,

was founded by the late Shri Gulshan Kumar and is engaged in

manufacture, production and publication of music and videos in India and

internationally and also offers its repertoire of music to television stations,

radio stations and mobile companies for use and broadcast.

5. The informant has alleged that the opposite party, which is the largest

private publisher of Indian music and owns/ controls over 70% of the latest

Bollywood music, is abusing its dominant position in contravention of the

provisions of section 4 of the Act by (i) charging excessive amount as license

fees/ royalty from the informant for grant of rights for the broadcast of the

opposite party’s music content on Fever 104 radio station; (ii) imposing

minimum commitment charges (‘MCC’) to be paid to the opposite party per

month irrespective of actual needle hour (each aggregate of sixty minutes of

actual broadcast of sound recordings by FM radio station excluding

commercials, advertisements, voice over, anchor time etc.) of broadcast of the

opposite party’s music content by the informant and (iii) making conclusion of

licensing arrangements with the opposite party subject to the acceptance of

license fees and MCC imposed by them. The informant has further alleged

that such imposition of exorbitant license fees and MCC by the opposite party

is an unfair condition imposed by it for granting license to broadcast its music

Case No. 40 of 2011 Page 2 of 93

content on radio under the Act which limits and restricts the right of the

informant to broadcast its music content of other music companies/ composers

thereby limiting the choice of music for the end consumers to only the

opposite party’s music content and results in denial of market access for other

music companies (publishers, copyright societies etc.) with less market share

and bargaining power.

6. The informant has also alleged that the opposite party is infringing

section 3 of the Act by requiring radio stations including Fever 104 to enter

into a license agreement to broadcast its music content, the terms whereof are

anti-competitive. As per the informant, the said agreement permits the licensee

to broadcast music subject to acceptance of onerous conditions such as MCC

obligations, which has the effect of restricting around 30-40% of the radio

stations’ broadcast to the opposite party’s music content. Such conditions

imposed by the opposite party have resulted in depriving consumers of their

right to listen to their choice of music and also distort competition in favour of

the opposite party as the conditions imposed force FM radio stations to

predominantly broadcast the opposite party’s music content thereby causing

an appreciable adverse effect on competition in the relevant market in India.

7. The informant has further detailed the allegations against the opposite

party which are summarized in the succeeding paras.

License Fee

8. The informant has stated that it was granted permission, through a

bidding process, by the Government of India to set up and operate FM radio

stations in four metro cities, and pursuant to grant of permission, the

Government entered into a Grant of Permission Agreement (‘GOPA’) with the

Case No. 40 of 2011 Page 3 of 93

informant. Accordingly, the informant entered into license agreements with

Indian Performing Right Society Limited (‘IPRS’) as well as music companies

such as the opposite party, Reliance Big Music, Yash Raj Music etc., to

acquire rights to broadcast their music on its FM stations.

9. The informant has averred that under the terms of such agreements, the

license was based on the license fees as determined by the Copyright Board in

its order dated 19.11.2002 in the case of Music Broadcast Pvt Ltd. v.

Phonographic Performance Limited (‘First Order of the Copyright Board’),

under which compulsory licenses were granted and royalty was fixed at an

average rate of INR 660 per needle hour. This First Order of the Copyright

Board was challenged before the Bombay High Court by PPL citing the

royalty rates as excessive, wherein the Bombay High Court had remanded the

matter back to the Copyright Board for fresh fixation of rates. Aggrieved by

the said order, the radio stations and PPL filed special leave petitions before

the Supreme Court of India.

10. The informant has further alleged that as it lacked the bargaining

power to negotiate license fees with the opposite party, the parties agreed to

adopt the then existing market standard rate as the rate of payment of license

fees i.e. an average rate of INR 660 per needle hour decided by the Copyright

Board in its First Order. In the meantime, the Supreme Court set aside the First

Order of the Copyright Board and referred the matter back to the Copyright

Board to consider the issue of rates of royalties to be charged by PPL afresh.

By way of order dated August 25, 2010 (‘Second Order of the Copyright

Board’), the Copyright Board determined the royalty rates as ‘2 % of net

advertisement of each radio station accruing from the radio business only for

that radio station..’

11. The informant avers that following the Second Order of the Copyright

Board, the informant and other radio stations individually approached the

Case No. 40 of 2011 Page 4 of 93

opposite party for applying the rates as fixed by the Second Order. However,

the opposite party filed a writ petition before the Delhi High Court challenging

the applicability of the rates and vide interim order dated September 15, 2010,

the Delhi High Court granted an injunction in favour of the opposite party

against the application of the Second Order of the Copyright Board on the

ground that the opposite party was not a party to the proceedings before the

12. The informant has submitted that since the opposite party refused to

apply the rates as fixed by the Copyright Board, it filed an application before

the Copyright Board for grant of compulsory license on reasonable royalty on

September 24, 2010 which is pending adjudication.

13. The informant has submitted that since the license granted by the

opposite party was scheduled to expire on October 25, 2010, the informant

received a legal notice dated October 15, 2010 from the opposite party for

renewal of license terms, which the informant agreed to do under the current

rate, subject to the outcome of any orders of the Copyright Board. The

informant has further submitted that in order to survive in the FM Radio

industry, the informant had no choice but to accede to the unreasonable terms

imposed by the opposite party, which has rights over premium music content.

MCC

14. The informant has stated that the opposite party imposes an amount of

INR 1,25,000 per month each as MCC for sound recording and for

performance rights. Thus, the informant is required to pay an amount of INR

2,50,000 per month equivalent to 189 hours per station to the opposite party,

irrespective of whether or not it broadcasts the opposite party’s music content

and/ or the number of needle hours consumed by the opposite party’s music.

Hence, it is alleged that the informant was made to pay higher royalty rates as

MCC than the amount actually incurred by it based on the actual amount of

Case No. 40 of 2011 Page 5 of 93

needle hour consumed by the opposite party’s music, which is unfair and

abusive.

15. The informant has submitted that most of the radio stations are running

into losses and therefore, in such a situation imposing exorbitant royalties and

MCC obligations makes it unviable for radio stations to sustain let alone make

profits. Furthermore, such imposition of MCC restricts the ability of radio

stations to license music content of other owners thereby adversely affecting

competition in India.

16. It is further stated in the information that music companies may

of recording rights to provide blanket licenses to users or, like the opposite

party, license the broadcasting rights of its music catalogue on its own and

earn royalties in return. It is pointed out that the music industry grants

different licenses to different users and based on such rights, earns its revenue

from five main sources, which include physical sales through audio cassettes

and CDs, mobile Value Added Services (‘VAS’), radio broadcast, online

download and public performance. According to the informant, different rights

are provided to different users by music providers/ copyright societies, which

constitute separate markets.

17. The informant has stated that the three main sources of broadcast of

music are FM radio, television and mobile VAS. One of the main

distinguishing factors of radio from other broadcasting sources is that it is

free-to-air; non-subscription based and is easily and widely available to end

consumers. Additionally, costs associated with radio are much lower. Thus,

radio cannot be substituted with broadcast of music on television or mobile

VAS. The informant has further submitted that with FM radio’s superior audio

quality and stereophonic sounds, cheaper availability, wider collection of radio

channels, FM frequencies are not considered inter-changeable or substitutable

with AM frequencies.

Case No. 40 of 2011 Page 6 of 93

18. The informant has further submitted that there is no inter-changeability

between music and non-music content as music is the essential ingredient for

the survival of FM radio stations and furthermore, Hindi Bollywood music

stands out as the most popular genre of music, and in fact ‘new’ Bollywood

music is the most sought-after and heavily demanded music content in India.

Hence, as per the informant, ‘new’ Bollywood film music broadcast on FM

radio stations constitutes a separate product market. The informant has further

submitted that as FM radio stations cater to a specific city keeping cultural

diversities, consumer preferences, and tastes in mind and therefore, relevant

geographic market should be each of the cities for which the operator has a

license, however, for ease of reference, the geographic market may be limited

to the metros.

19. The informant, after submitting that the relevant market should be

‘broadcasting rights of new Bollywood film music over FM radio in the

Metros’ has further claimed that the opposite party is in a dominant position in

the said relevant market as it owns and commands a substantial share of the

music market with a catalogue of over 200,000 songs; it is considered to be

the largest non-governmental music copyright holder in India with a turnover

of over 400 crores; it has acquired music rights of all major Bollywood films

produced in the past; incomes of its competitors like Sony Music, SaReGaMa

are one-fourth or less the size of the opposite party’s turnover; FM radio

stations are heavily dependent on the content owned by the opposite party and

there are huge barriers to entry in the music industry as there are high sunk

costs involved in establishing a successful music industry.

Directions to the DG

20. The Commission after considering the entire material available on

record vide its order dated 13.10.2011 directed the Director General (‘DG’) to

cause an investigation to be made into the matter and to submit a report.

Case No. 40 of 2011 Page 7 of 93

Investigation by the DG

21. The DG, upon receiving the directions from the Commission,

investigated the matter and filed an investigation report.

22. In the report, the DG, after presenting an overview of the music

industry, determined ‘sale of rights of Bollywood music to private FM radio in

the territories of India where Bollywood music is prevalent’ as the relevant

market. Further, after conducting a detailed assessment, the DG concluded that

the opposite party is in a dominant position in the said relevant market.

23. The investigations revealed that the opposite party was abusing its

dominance by imposing unfair and discriminatory conditions in supply of its

music in the relevant market. The investigation also established that the

opposite party by virtue of its dominance was charging excessive and unfair

prices from the consumers i.e. private FM channels in the relevant market.

Further, it was noted by the DG that the opposite party was abusing its

dominant position in violation of the provisions of section 4 of the Act in the

market for broadcast of Bollywood music on FM radio stations in the

geographical areas where Bollywood music is prevalently played by FM

channels. It was also found that conditions imposed on Radio operators like

MCC and mandatory payment of performance license fee by T-Series bore no

relation to the actual quantity of T-Series' music broadcast by FM channels.

The conduct of the opposite party was also found to foreclose the market at

both i.e. the upstream and downstream levels to other music providers and

radio stations respectively, as by imposing the condition of minimum

committed needle hours of its songs the opposite party was distorting the

competition in the relevant market. Lastly, it was noted by the DG that the

opposite party was not able to justify its conduct by way of any procompetitive

reasons

for

imposing

these

conditions.

Case No. 40 of 2011 Page 8 of 93

24. In the result, the DG concluded that the opposite party contravened the

provisions of section 4(2)(a)(i) and 4(2)(a)(ii) of the Act.

Consideration of the DG report by the Commission

25. The Commission, after considering the investigation report submitted

by the DG, decided to forward copies thereof to the parties for filing their

replies/ objections thereto. The Commission also directed the parties to appear

for oral hearing, if so desired. Subsequently, arguments of the parties were

heard on various dates.

Replies/ Objections/ Submissions of the parties

26. On being noticed, the parties filed their respective replies/ objections to

the report of the DG besides making oral submissions. The parties have also

filed written submissions.

Replies/ Objections/ Submissions of the opposite party

27. Assailing the findings of the DG, the opposite party, at the outset, has

submitted that the reliance by the DG on EC’s decision in Universal/ BMG

Music Publishing case is erroneous because the said case was a merger

decision and not an abuse of dominance case. A relevant market assessment

for a merger is based on the narrowest market possible because a conservative

regulator would like to assess competition concerns prospectively on the

narrowest. In Universal/ BMG Music Publishing case such a narrow market

was considered to be each of the five rights i.e. mechanical rights (for

reproduction of a work in a sound recording); performance rights (for

commercial users such as broadcasters including TV and radio stations);

synchronization rights (for commercial users such as advertising agencies or

film companies); print rights (for reproduction of work in sheet music) and

online rights (combination of mechanical and performance rights for online

applications). Even in that case, the market considered was the market for

performance rights. Universal/ BMG Music Publishing case did not find that a

Case No. 40 of 2011 Page 9 of 93

market could be assessed from the point of view of different genres of music,

and the DG has gone a step further on the genre by concluding that the

relevant product market for assessment is the market for sale of rights of

Bollywood/film music to private FM channels and then relies on data relating

to a narrower market (hit Bollywood music) to determine dominance. Such an

assessment is incorrect as it is not based on sound principles of competition

law as applicable to abuse of dominance cases.

28. The opposite party has submitted that while in most cases, relevant

market will be delineated by referring to demand side substitutability, the fact

that suppliers are able to switch production processes to produce the relevant

products can have a considerable disciplinary effect on the competitive

behaviour of the companies producing products which are demand

substitutable. The DG has, therefore, failed to consider supply side

substitutability and an absence of such assessment demonstrates the extremely

narrow and internally conflicting approach in delineating the relevant market.

Based on both demand and supply side substitution, it is evident that the

product market should be defined in a broader manner as the market for

licensing of all music content to FM radio broadcasters in India (including

AIR FM).

29. The opposite party has submitted that the DG made a manifest error in

assessing market dynamics at the stage of radio stations broadcasting to end

consumers (the listeners) to assess competition issues at the higher level of

licensing of music content by the opposite party to radio stations. The DG

should have focused his attention on the market for the licensing of music

content to FM radio broadcasters in India including AIR and not merely ‘sale

of rights of Bollywood music to private FM radio in territories of India where

Bollywood music is prevalent’. The DG has reached the conclusion on relevant

market by considering the extent to which the medium of music are

substitutable/ interchangeable for listeners/ consumers. However, this is the

wrong level to assess the relevant market. The supply of goods where the

Case No. 40 of 2011 Page 10 of 93

opposite party is alleged to be dominant is the upstream flow of A (content

owners providing licenses to radio stations) and therefore, what is required is

to test the extent of the opposite party’s market power by looking at the ability

of its customers (radio stations) to switch and the ability of its rivals (other

content providers) to expand. However, the DG analysed the substitution in

respect of the downstream flow of B (radio stations providing broadcasts to

consumers). Even if the DG’s methodology is adopted, the relevant market

should have been defined in a broader manner. From an end consumer

perspective, it is immaterial whether a particular song is played over a private

FM channel/ station or over AIR FM as long as the consumer is able to listen

to the song. The relevant market for assessment should therefore, be the

market for licensing of music content to FM radio broadcasters in India,

including AIR. The DG provides no relevant evidence to justify this exclusion.

The DG claims that AIR is distinct from FM radio because (among other

reasons), AIR has a wider range of content, a greater reach and less

restrictions, however, this is not evidence to support a narrow market.

30. The opposite party has further submitted that the DG does not justify

restricting the market to Bollywood music. The DG’s conclusions are based

upon the ‘strong genre of preference by Indian radio listeners’. This was

stated to be the wrong level to consider substitution. From a demand side

perspective radio stations may switch to alternative types of content. Although

a given customer may be particular about the music he listens to, a radio

station is likely to have weaker preferences. The ultimate goal of a radio

station is to attract listeners in order for it to attract advertisers and therefore,

the radio station is likely to be indifferent between types of content mixes so

long as it can attract an equal number of listeners. The evidence shows that

radio stations are prepared to substitute to alternative content. There are many

stations that are not based on Bollywood music, as the report identifies around

20% of stations which are not based on Bollywood music. Even those stations

that have a higher content of Bollywood music still play other types of popular

music, so they could easily increase the amount of non Bollywood music they

Case No. 40 of 2011 Page 11 of 93

play. Furthermore, it was submitted that there are examples of radio stations

that have switched their focus from Bollywood music to other types of music.

31. The opposite party has submitted that in so far as the geographic

market is concerned, sound competition law assessment can be carried out

after delineating a clearly defined product and geographic market and then

assessing the competitive conditions present therein. In the present case the

DG has defined the geographic market as ‘areas of Indian territory where the

Bollywood music is prevalently played on FM channels’. Such a definition is

extremely vague and cannot be used for any competition law assessment as

there does not exist any objectively verifiable standard of norm to determine

what is ‘prevalent’ form of music in any given territory of India especially

considering the fact that the same music/ content is available through internet

radio, mobile radio, TV etc., across territories of India.

32. The opposite party has submitted that even if the DG’s definition of the

relevant market is accepted, there is no evidence in the DG Report that the

opposite party holds a dominant position in the relevant market. The DG fails

to shows that the opposite party has held persistently high market share in the

relevant market over a period of time and the DG also failed to provide any

robust evidence of barriers to entry or expansion or other factors identified in

section 19(4) of the Act to support a finding of dominance.

33. The opposite party also submitted that the DG has erred in concluding

that the opposite party holds a dominant position. The market share data relied

upon by the DG itself shows that the market share of the opposite party in the

relevant market does not exceed 27%. It has been held by the European Court

that very large market shares are in themselves, save in exceptional

circumstances, evidence of a dominant position. A share of over 50% is

generally considered as a strong evidence of a dominant position (Akzo v

Commission). But the Akzo test is rebuttable and not conclusive. Numerous

factors must be analyzed and evaluated and not merely market shares. A

Case No. 40 of 2011 Page 12 of 93

market share of around 27% in the total music segment for all FM radio

stations (i.e. FM radio stations that have been licensed by the opposite party

and FM radio stations that have not been licensed by the opposite party) can

never be considered as an indicator of dominance. The opposite party has

further submitted that dominance is more likely when the firm has a

persistently high market share which means it is more robust to look at the

market shares over a longer period (3-5 years) based on verifiable, consistent

data, which does not exist in this case.

34. It was contended that the DG has erred in concluding that the opposite

party has the largest market share in the Bollywood film music or even for that

matter the ‘hit’ Hindi film music and as such is the dominant player in the said

market. The DG has further erred in not relying upon and taking into account

the data showing the market share of the opposite party on an all India basis in

respect of the private FM stations whether or not licensed by the opposite

party.

35. The DG has erred in not taking into consideration and assessing the

data which shows that the opposite party does not have the size and resources

or economic power to be dominant. The category wise revenue generated

alongwith the percentage of FM revenue clearly shows that the opposite

party’s revenue has been decreasing over the years, which information was

ignored by the DG.

36. The data on revenues of the opposite party based on the category of

cities where FM is played clearly shows that the revenues of the opposite party

from FM radio stations have been decreasing over the years. The decrease in

revenues of the opposite party despite increase in number of FM radio stations

clearly shows that the FM radio stations are not dependent on the opposite

party and as such the opposite party is not in a dominant position. It is further

evident that the sales and revenues for the opposite party from the physical

sales of cassettes, CDs, micro cards and others have gone down. Likewise the

Case No. 40 of 2011 Page 13 of 93

revenue for the opposite party from license fees from radio broadcasters has

also been falling substantially over the years.

(Rs. In

Lacs)

Physical

Sales

Consumer

Electronic

Cassettes/

CD/

VCD/

DVD/

Blueray/

Pendrive

etc.

Case No. 40 of 2011 Page 14 of 93

20102011

20092010

SCIL (Segment wise Sales)

2008-

2009

2007-

2008

2006-

2007

2005-

2006

7330.75

37. It was argued that the DG has focused only on the customers of the

opposite party and not on the competition faced by the opposite party. The DG

should have noted that the opposite party faces competition at two levels, i.e.

initially from the music companies at the stage of acquisition of content and

subsequently from PPL and other music companies for licensing of such

content. The DG should have realized that the opposite party is not foreclosing

competition but creating and intensifying competition in the market. The

biggest competitor of the opposite party at the stage of licensing of the music

rights is PPL which has more than 200 companies as its members.

38. The DG has wrongly stated that the opposite party is a lifeline for the

radio stations and that no radio station can survive without obtaining license

from the opposite party. The data already before the DG showed that there

were many radio stations that have not received any license from the opposite

party and these radio stations are experiencing higher growth levels than other

radio stations that have licenses from the opposite party.

2004-

2005

4916.84 5432.65 5527.95 6832.18 7292.30 6271.20 7784.32

6090.81 9592.53 12323.48 16252.78 17160.42 20272.92 21919.40 21552.51

Others 675.49

Sub Total

(Physical

Sales (A)

14097.0

856.63 1023.34 1242.29 1678.24 1261.36 1177.05 921.25

15366.0

18779.47 23023.02 25670.84 28826.58 29367.65 30258.08

2003-

2004

39. The DG has erred in observing that the conduct of the opposite party

has resulted in barriers to entry for the FM radio stations. In this regard, a

review of the annual report of Big FM and Radio Mirchi shows that Big FM’s

(which does not have a license from the opposite party) growth in revenue was

nearly 16% while radio stations with the opposite party’s licensed content like

Radio Mirchi and HT Media grew by only 10% and 6% respectively. The DG

provides little evidence of barriers to entry and expansion. The DG also fails

to consider the possibility of expansion by current rivals such as Sony. Many

of the opposite party’s competitors are vertically integrated (such as Sony and

YRF) and have natural access to the music content of the films produced by

their affiliates. The opposite party does not possess this strategic advantage

and must vigorously compete and bid for every film’s music content. The DG

also makes no analysis of buyer power. The opposite party is becoming

increasingly dependent on these radio broadcasters for revenues and that

implies a degree of buyer power, which factor has not been considered by the

DG at all.

40. The opposite party has submitted that a perusal of publicly available

documents on the Radio Industry, annual reports of certain radio stations etc.,

demonstrates that this industry is growing at a steady (if not exponential) rate

and does not reflect any indication of any anti-competitive injury or even a

remote possibility of foreclosure as a result of the anti-competitive conduct of

the opposite party. Such data itself should be sufficient to demonstrate that

there exists no case of excessive pricing. As such, no anti-competitive harm

can be found in an industry that is as robust as the radio industry due to the

alleged conduct of the opposite party. Furthermore, the opposite party’s

alleged conduct does not have any impact on the end consumer. It should also

be noted that exploitative conduct like excessive pricing, is no longer the focus

area of anti-trust regulators in mature anti-trust jurisdictions like the EU and

the US, where the focus is on exclusionary conduct.

Case No. 40 of 2011 Page 15 of 93

41. The opposite party has submitted that under MCC clause, the licensee/

radio station is liable to pay an assured sum of royalty to the opposite party. It

may be noted that since radio companies more or less end up playing music

equal to and in most cases more than the amount that MCC accounts for, MCC

raises no competition law issues. Thus, it is incorrect to say that radio stations

are ‘forced’ to play the opposite party’s content as a result of MCC clause.

Opposite party has denied that it has imposed MCC of 50% on any FM radio

station. Furthermore, the DG should not have relied upon the agreement with

Big FM for the reason that an agreement is not an indicator of the true MCC

charged by the opposite party. The approximate MCC charged by the opposite

party does not exceed 35% of the total needle playout hours. The DG has

failed to show how MCC is exploitative. It is based on the playout of the radio

station for the previous year and therefore, rather than forcing customers to

buy content that the broadcasters do not want, it reflects their actual demand.

The DG has failed to show that imposing MCC is exclusionary as there is no

evidence that rivals are being foreclosed.

42. The DG has erred in failing to consider the efficiency explanations for

MCC. There are potential efficiency benefits from MCC that arise from

inherent uncertainties in the music industry. The content owners invest in new

content before knowing what value listeners will place on that content. This

uncertainty is a cost to investors and creates a disincentive to invest in new

content. The MCC reduces the uncertainty that content owners face. Knowing

that there is more certainty around the amount of airplay they can expect,

content owners can invest in new content with more confidence.

43. The opposite party has lastly submitted that assessment of the DG is

incorrect as there are conflicting decisions of various High Courts on this issue

and the Supreme Court is presently seized of the matter. The DG has failed to

note that dominance has no causal link to the payment of performance license

fees. At present the opposite party does not charge any performance license

fees from radio broadcasters and is awaiting the Supreme Court’s decision in

Case No. 40 of 2011 Page 16 of 93

the matter. There is no decision or court order, to which the opposite party is a

party which prevents or prohibits it from charging a performance license fee

and there is no court order that makes the charging of performance license fees

illegal.

Replies/ Objections/ Submissions of the informant

44. The informant has submitted that the DG has conducted a thorough

investigation and that the DG’s conclusion is correct and well founded. On the

issue of relevant market, the informant has submitted that FM radio is distinct

from other forms of music media for the following reasons:

(a) FM radio stations are free-to-air

Given that radio is free, a consumer would not consider other forms of paid for

entertainment as being substitutable with radio as a source of entertainment. If

one were to conduct a Small but Significant Non-transitory Increase in Prices

(‘SSNIP’) test to radio, consumers (i.e. listeners) would not switch to

television or mobile VAS. Further, if one were to conduct a SSNIP test on

radio, this would not cause advertisers to switch to advertising on television or

mobile VAS. This is because the localization and ease of access of radio is far

more than the other modes of broadcast and since consumers do not consider

the two mediums as substitutable, advertisers would not switch their

advertising preferences.

Case No. 40 of 2011 Page 17 of 93

(b) Broadcast restrictions imposed on radio

Pursuant to GOPA entered into between Government of India and private

radio stations, the content allowed to be broadcast on radio is severely

restricted. FM radio stations are prohibited from broadcasting news or current

affairs except for music. This places private FM stations on a different plane

compared to television broadcasters, as television has far greater liberty in

relation to the content it is permitted to broadcast. Further, mobile VAS is an

ancillary service to primary telecommunications services. Mobile VAS also

has fewer restrictions than radio and does not have the scale, content, ease of

accessibility or usage that FM Radio currently has across India.

Radio broadcasting is therefore, localized and specific to a particular city. On

the other hand, TV channels transcend national boundaries and mobile VAS is

increasingly becoming available nationally and also does not require licenses

to operate in cities.

Case No. 40 of 2011 Page 18 of 93

45. Accordingly, the informant has submitted that in addition to reasons of

expenditure incurred, accessibility, broadcast restriction, licensing

requirements also indicate that music entertainment on radio and TV/ mobile

VAS are not substitutable and therefore, radio as a medium for music

broadcast is in itself an altogether different product market.

46. The informant has also submitted that AM is a distinct market from

FM. Transmission over radio can take various forms such as Amplitude

Modulation (‘AM’) and Frequency Modulation (‘FM’). These are two

different and most popular methods of broadcasting content. Due to the

inherent limitations of AM radio (low quality, lack of clarity, susceptibility to

deteriorate due to weather conditions, interference with other channels), a new

model of transmission was introduced (FM). Further, since GOPA permits

private radio stations to only use FM frequencies and since FM license holders

cannot switch to AM, the two are very different forms of radio broadcast in

India. With FM radio’s superior audio quality and stereophonic sounds,

cheaper availability, wider collection of radio channels, FM frequencies

cannot be considered as interchangeable or substitutable with AM frequencies.

47. The informant has submitted that AIR is distinct from private FM

channels. AIR is a nationally available radio station run by Prasar Bharti and

has been in operation for over 60 years whereas FM radio stations by

comparison have been in operation since 2001 and are granted licenses for

limited geographies. The DG has found that AIR is distinct from private FM

radio stations inter alia because of (i) no restrictions on content (ii) pan-India

presence and (iii)huge listenership and earns approx. 40% of total advertising

revenue of the FM industry. The informant has supported the finding of the

DG that private FM radio stations are not substitutable for AIR in India.

48. The informant has submitted that non-music content is broadcast on

FM radio for the purposes of complementing music content and therefore, is

not substitutable or interchangeable for music content. All music channels

advertise themselves as music channels or have tag lines relating to more

music content than their competitors. Thus, it can be seen that the main focus

of radio stations is on music and it is an essential branding and marketing

proposition for them to have the latest music content. As a result, music

content is an essential ingredient for the survival of FM radio stations besides

being the most popular and primary source of entertainment on free-to-air

radio. The informant has further submitted that the very demand for FM radio

stations is to broadcast music, which is not substitutable for non-music content

and therefore, music and non-music content are not inter-changeable and

cannot be said to form part of the same relevant market.

49. The informant has submitted that Bollywood music is a distinct

relevant product market on FM channels. In the radio industry, markets can be

delineated by different genres/ categories of music. This is because a listener’s

tastes i.e. consumer preferences can be strong enough to warrant segmentation

of markets. Such an approach has been followed by the EC in Seagram/

Polygram case and Thorn EMI/ Virgin case, where the EC has identified

different relevant markets according to the genre of music concerned.

Similarly, the DG has also found Bollywood music to constitute a product

Case No. 40 of 2011 Page 19 of 93

market separate from other genres of music as (a) 80% of the 240 private FM

radio stations in India play a majority of Bollywood music (b) the most

popular songs on radio are Bollywood songs and (c) a majority of radio

listeners in India are under 50 years old and therefore, the target audience for

radio who strongly prefer Bollywood music.

50. The informant has submitted that out of the various genres of Indian

music, Hindi Bollywood film music stands out as the most popular genre of

Indian music.

51. The informant, therefore, has submitted that in India, access to

Bollywood music is necessary for FM radio stations to be viable and operate

successfully. This is evidenced by the falling revenues of Radio City, Radio

Mantra and Big FM, during the periods that the opposite party had terminated

its licenses to these radio stations, which had resulted in Radio City having to

renew its license with the opposite party in order to operate and remain

financially viable in the radio market. The informant submits that Bollywood

music is a separate relevant market for the purposes of assessing conduct

under the Act.

52. The informant has submitted that the DG has erred in finding that a

lack of clarity on the definition of ‘new music’ does not allow it to conclude

that ‘new’ Bollywood music is a separate relevant market. It was submitted

that the popularity of Bollywood music in fact stems from ‘new’ music which

is broadcast on private FM radio stations and this forms the essence of a

private FM radio stations’ revenue. Any radio station which wishes to carry on

a viable and successful business in a market where they provide Bollywood

music to listeners must necessarily broadcast the latest songs demanded by the

youth or ‘new’ music which the opposite party has admitted has a shelf-life of

only 6-8 months.

Case No. 40 of 2011 Page 20 of 93

53. The informant has also submitted that ‘new’ can be defined as music

which is released in the last 6-8 months as that is the normal shelf-life for

Bollywood music in India. However, a longer period of reference, say around

one year would also yield no different competition law analysis as the opposite

party owns or controls the majority of Bollywood music in India. The vast

catalogue of music allows the opposite party to control what content FM radio

stations necessarily require to stay in business. In any event, the informant has

submitted that the Commission need not come to a definite determination of

‘new’ music even if the DG’s product market definition were to be adopted,

the opposite party would still be found to enjoy a dominant position.

54. On geographic market, the informant has submitted that while it agrees

with the market definition of the DG, the relevant geographic market can be

defined even more narrowly due to the unique regulatory environment and

strong customer preferences which form an integral part of the FM industry in

India. In India, customer preferences vary from city to city and from State to

State. As radio stations are licensed to operate in particular cities and do not

broadcast on a nationwide basis, their programs and scheduling are tailormade

particular

cities.

for

this

reason

that

the

songs

played

Chennai

are

different to those played in Delhi even if the same company has a radio

station in both cities. While it is the informant’s position that the geographic

market to assess the opposite party’s conduct in the licensing of Bollywood

music rights to private FM radios is the ‘individual cities in which FM radio

stations are granted licenses to operate’, the DG’s geographic market

definition of areas ‘where Bollywood music is prevalent’ would nonetheless

demonstrate the opposite party’s dominant position in such geographic market.

55. The informant submits that the DG’s findings on the opposite party’s

dominance are correct and conclusive.

56. Supporting the findings of the DG it was submitted that the opposite

party’s website itself announces that the opposite party is India’s dominant

Case No. 40 of 2011 Page 21 of 93

music label which represents over 70% of upcoming Indian entertainment

content including Bollywood. Publicly available reports also state that the

opposite party commands a lion’s share of 80% of the music market with a

catalogue of over 200,000 songs. The informant submits that in terms of

‘relativity of market shares’, it is important to look at the largest firm’s market

share relative to its competitors and in this case the opposite party’s market

share is a multiple of its competitors’ market shares which clearly establishes

its dominant position. Evidence provided by the opposite party itself

demonstrates that the market share of total songs played on 210 radio stations

is between 32.5% and 34.1%. Evidence provided by the opposite party also

demonstrates that it owns the rights to approximately 46% of the top 100

songs played in category ‘A’ cities between July 2011 to June 2012. The

informant has also submitted that the opposite party’s position in the market

allows it to purchase the highest percentage of films and in relation to

blockbuster of ‘hit’ films, the opposite party holds the rights to the music of

most of these films which cements its position in the market as a dominant

enterprise.

57. The informant has submitted that the opposite party’s size, resources

and economic power place it in a position of dominance in the relevant

market. The opposite party is considered to be the largest non-governmental

music copyright holder in India with a turnover of over 400 crores of the 750

crore Indian music industry. Furthermore, the opposite party has acquired

exclusive music rights of all major Bollywood films produced in the recent

past. The DG has compared the turnover of the opposite party to the turnover

of its competitors and found that the opposite party’s turnover is almost 3

times that of its closest competitors SaReGaMa.

58. It was submitted that it is evident from the investigation carried out by

the DG that private FM stations cannot survive in the relevant market without

the opposite party’s music. FM radio stations play contemporary hit music to

Case No. 40 of 2011 Page 22 of 93

attract listeners which attracts advertisers who provide their sole source of

revenue. The informant has further submitted that private FM radio stations

are dependent on the opposite party in view of its music repertoire, strong

preference of their listeners and the lack of viable alternative options. The

dependence of radio stations can clearly be demonstrated by how Radio

Mantra, Big FM and Radio City’s businesses have been affected by the

opposite party’s refusal to license on fair and reasonable terms to them.

59. The informant has argued that there are significant barriers to entry in

the music industry. There are large sunk costs involved in establishing a

successful music company, including the infrastructure set up, acquisition of

music rights, marketing and promotion and above all, breaking into the tightly

knit fraternity which deters and prevents new companies from entering the

music industry. It is not easy to obtain ownership rights of music due to the

high costs involved and the vast distribution network required to exploit such

rights. In fact, the opposite party has increased acquisition costs to protect its

dominant position in the relevant market.

60. The informant has submitted that the opposite party has abused its

dominant position by excessively and unfairly licensing its music content.

Excessive price is covered under the Act as an ‘unfair price’ under section

4(2)(a)(ii) of the Act. The informant has further submitted that excessive

pricing by a dominant undertaking is universally recognized as abuse of

dominant position. The European Court of Justice has explicitly recognized

that excessive prices imposed by a dominant undertaking will be an abuse of a

dominant position in cases such as General Motors, United Brands.

61. The informant has further submitted that that in order for the copyright

license to be fair it must bear a reasonable relation to the economic value that

the license provides to the licensee and consequently it must correspond to/

reflect a proportion of the revenue generated by the exercise of a license. It

was submitted that the broadcast license fee of INR 660 per needle hour and

Case No. 40 of 2011 Page 23 of 93

performance license fee of INR 666 per needle hour which is not payable as

per the recent judgements of the Delhi, Bombay and Kerala High Courts

imposed by the opposite party is unfair and excessive and in violation of

section 4(2)(a)(ii) of the Act.

62. The informant has argued that imposition of MCC on the informant is

an unfair condition in violation of section 4(2)(a)(ii) of the Act. An enterprise

is held to abuse its dominant position if it exploits the opportunities arising out

of its dominant position in such a way so as to reap trading benefits which it

would not have reaped had there been normal and sufficiently effective

competition. The MCC imposed by the opposite party has no relation to the

music content that is actually broadcast nor is it necessary or indispensible for

such broadcast and the opposite party is abusing its dominant position by

imposing unfair and discriminatory conditions which are unconnected to the

actual service provided by the license.

63. It was submitted that the opposite party as a holder of the copyrights to

a majority of ‘new’ Bollywood music is an unavoidable trading partner for FM

radio stations. As a result of the dominance in the relevant market, the DG has

found that the opposite party is the only music company that dictates such

unfair conditions for provision of its license to FM radio stations. No other

music provider including PPL requires the payment of MCC from FM stations

for grant of a license to broadcast their music. Given this overwhelming

dependence of the informant and other private FM radio stations and the

weakness of their position vis-a-vis the opposite party, it is submitted that the

opposite party is imposing an excessive and unfair condition in violation of

section 4(2)(a)(ii) of the Act.

64. The opposite party’s insistence on payment of a performance license

fees is an abuse of its dominant position under section 4 of the Act. It is now

settled law that FM radio stations do not have to pay a performance license fee

for broadcast of music on radio stations. This position has been clarified by the

Case No. 40 of 2011 Page 24 of 93

High Courts of Kerala, Bombay and Delhi. However, the opposite party’s

position has been that it is entitled to performance license fees contrary to the

rulings of the High Courts. The opposite party’s conduct leads to a foreclosure

of market at the upstream level of music providers and the downstream level

of radio stations. This foreclosure adversely affects the final consumer as it

discourages entry at both levels and has led to exit in the downstream level,

causing consumer harm.

65. The informant has contended that the anti-competitive terms and

conditions imposed by the opposite party amount to refusal to supply its music

on fair terms in violation of the Act. The DG noted that section 31 of the

position to refuse to supply radio stations. The informant disagrees with the

findings of the DG and submits that the informant’s ability to approach the

exclusive from the Commission being able to come to a finding that the

opposite party has abused its dominant position by constructively refusing to

supply music to radio stations. In fact, the terms and conditions of a license

agreement can be unfair or unreasonable qua the Act and separately, the

Case No. 40 of 2011 Page 25 of 93

66. The informant has further submitted that excessive royalties charged

by the opposite party, MCC and the imposition of performance license fees

which the opposite party is not entitled to in the license agreement are

unreasonable restrictions on competition and consequently the license

agreement between the parties is an anti-competitive vertical agreement in

violation of section 3(4) of the Act. Furthermore, these restrictions can neither

be considered to be ‘reasonable’ nor ‘necessary’ to protect the rights of the

therefore, cannot fall under the exemption under section 3(5) of the Act.

67. The parties, apart from filing detailed replies, have also submitted

reports of economists in support of their respective submissions. Further, the

parties filed written submissions and a gist thereof is noted below:

Written submissions of the opposite party

68. The opposite party filed detailed written submissions reiterating its

stand and a brief note thereof is made below.

69. It was urged on behalf of the opposite party that the DG has defined

the relevant market in an arbitrary, vague and narrow manner. The opposite

party also challenged the submission of the informant taking relevant market

for ‘new’ Bollywood music. It was submitted that a relevant product market

for competition law assessment cannot be defined in terms of business model

of one single consumer.

70. It was further contended that the assessment made by Genesis, the

economist hired by the informant, which argued that ‘the tastes and

preferences of listeners in the preferred demographic determine what content

the particular station is willing to purchase’ and that the ‘station is further

constrained by the format and content positioning it has chosen to attract its

demographic’, is flawed as a radio station in India is not constrained to a

particular genre or the target demographic in the musical content it broadcasts.

Additionally, it was submitted that though the Genesis Report observed that

the opposite party engages in price discrimination while supplying content to

AIR and private FM stations, it failed to show that price discrimination has

occurred or why price discrimination would imply a narrow market definition

in this case.

71. In so far as the relevant geographic market is concerned, the opposite

party submitted that a relevant geographic market is required to be defined in a

clear manner, delineating an area where the competitive conditions are largely

Case No. 40 of 2011 Page 26 of 93

homogeneous. The present case involves an intangible item, the right to play

certain musical content. Given that any radio station can choose to broadcast

any musical content it desires (based on the repertoires available to it), the

relevant geographic market cannot be taken as ‘areas where Bollywood music

is prevalent’. The relevant geographic should be the entire territory of India.

72. On the issue of dominance, the opposite party reiterated the pleas taken

in the reply filed to the report of the DG and impugned the findings of the DG

on this count besides making a detailed rebuttal to the assessment done by the

DG in terms of the provisions contained in section 19(4) of the Act.

73. On the abusive conduct also, the opposite party made detailed

submission and the same are noted below.

74. According to the opposite party, clearly the entire focus of the DG has

been on the fact that the opposite party, by virtue of not being a part of the

Second Order of the Copyright Board has continued with rates determined

over a decade ago without adjusting for inflation and this conduct of the

opposite party has been held to be an abuse of dominant position. It may be

noted that the opposite party’s agreements with radio stations contain a clause

to the effect that if there is an order of the Copyright Board then the terms of

the license agreement will be automatically replaced by those terms. There is

no contradiction in the opposite party’s conduct because of the presence of the

above mentioned clause. Furthermore, given that Copyright Board has the sole

jurisdiction to set the rate for licensing of content, the Commission is not and

cannot be in a position to exercise jurisdiction or make a finding with respect

to the rate of licensing of content and therefore, cannot rely on the Second

Order of the Copyright Board as a benchmark for the market price in

connection with licensing of content. There can be no case of excessive

pricing because there is a sectoral regulator present that can set the reasonable

terms and conditions for licensing of content.

Case No. 40 of 2011 Page 27 of 93

75. The opposite party has further submitted that the DG has erred in

observing that the opposite party has abused its position in the market by

continuing to charge ‘per needle hour’ and not the royalty rate fixed by the

Second Order of the Copyright Board. The DG report fails to comprehend that

the said order is against PPL and not the opposite party. Furthermore, PPL has

challenged the said order. It is also submitted that DG has failed to

demonstrate any anti-competitive harm resulting from the alleged conduct of

the opposite party. The data demonstrates that even after the license was

cancelled, Big FM saw a high growth in revenue of about 16% whereas radio

stations licensed by the opposite party like Radio Mirchi and the informant

grew only by 10% and 6%. Perusal of annual reports of certain radio stations

clearly shows that this industry is growing at a steady rate. In fact, the end

consumer is not at all affected by the alleged conduct of the opposite party

because the content is available for free to the end consumer. The conduct of

the opposite party only affects the profitability of radio companies and any

intervention by the Commission will only help to increase the profits of such

stations and adversely affect the income of composers/ lyricists who have not

been called upon for their inputs as also the income of the opposite party and

its ability to compete in the market of music content licensing.

76. The opposite party has further submitted that exploitative conduct like

excessive pricing is no longer the focus of area of anti-trust jurisdictions like

the EU and the US where the focus is on exclusionary conduct.

77. It was contended that there was no objective assessment by the DG.

The competition authorities in Europe have devised a two stage test to

determine whether a dominant form has abused its dominant position by

charging excessive prices as laid down in United Brands case. They are first

required to assess whether the difference between the cost incurred and the

price charged is excessive and if the answer to the question is in the

affirmative, they must assess whether a price has been imposed which is either

unfair in itself or when compared to the prices of competing products. It was

Case No. 40 of 2011 Page 28 of 93

therefore submitted that the DG did no such assessment to determine whether

the rates charged were reasonable and conducted no assessment with respect

to the costs involved in promotion and acquisition of content. Data

demonstrate that the opposite party has not even recouped its costs for the

movie Rockstar and Zindagi Na Milegi Dobara which was considered a ‘hit’

in terms of music.

78. The opposite party also submitted that rate per needle hour is not a flat

rate and bears a reasonable relation to listenership and hence, advertisements

revenues, 600 being simply a weighted average.

79. Further, MCC was neither ‘imposed’ nor ‘unfair’ and that the business

rational for imposing MCC was simply that the opposite party could now be

assured of some revenue to offset costs. The MCC was based on objective

criteria, the basis being the previous year’s playout. This is itself sufficient

evidence that the same is not imposed on radio stations.

80. The opposite party has submitted that the very fact that MCC are

negotiated annually and based on the playout of the previous year, in itself

sufficient evidence that the same is not ‘imposed’ on radio stations.

Furthermore, MCC have been declining over the years which further

demonstrate that they are the result of negotiation between the opposite party

and radio stations. It is critical to note that despite the fact that several radio

stations have given evidence before the DG, yet for the period 2006-2011,

there is no request on record before the Commission by any radio station to

modify or eliminate MCC, which has not been accepted by the opposite party.

81. Dealing with the argument that the opposite party has established a

‘grand scheme’ to entrench its dominant position in the market by charging

MCC from radio stations so that it can artificially inflate the cost of

acquisition of content by bidding higher than rivals and thereby exclude rivals

from the market and use the content to impose higher prices on radio stations,

Case No. 40 of 2011 Page 29 of 93

it was submitted that not a single competitor of the opposite party has stated

on record that the opposite party’s conduct is exclusionary. In fact, it was

submitted that the ‘grand scheme’ described by the informant is in reality a

failure because the opposite party’s revenues from the radio business have

witnessed a sharp decline since 2012 from approximately INR 33 crores to

INR 18 crores. Furthermore, numerous companies have entered and thrived in

the market since the introduction of MCC in 2008 and therefore, evidence of

the informant does not support its allegations.

82. The opposite party has further submitted that MCC are only contained

in some contracts and those contracts only require around 33% or less airplay.

Thus, with whatever MCC are, the actual playout of the opposite party content

is 27% in 2011 and declining year-on-year. Therefore, the part of the market

that is actually affected by MCC is only 27%. In other words, the opposite

party’s rivals can compete to supply nearly 73% of the market which

percentage is increasing year on year. Given that such a large part of the

market is fully contestable, it is highly unlikely that MCC are capable of

foreclosing rivals.

83. The opposite party has further submitted that loyalty rebate argument

of the informant is incorrect. A loyalty rebate is typically designed to either

entrench an existing dominant position or assist the dominant enterprise in

gradually increasing market shares. In the present case, both the factors are

absent. The opposite party has further submitted that the Genesis Report fails

to provide any evidence that MCC are exclusionary. The only evidence that

the Genesis Report offers is a speculative theory that MCC might function in

the same way as a conditional or loyalty inducing rebate. As mentioned

before, no competitor has complained about exclusion, nor is there any

evidence to support exclusion of competitors.

84. The opposite party has further submitted that the argument of the

informant that it is engaging in discriminatory conduct by imposing

discriminatory MCC on radio stations in the same city is misleading. If in a

Case No. 40 of 2011 Page 30 of 93

particular city a radio station wishes to play more content from the opposite

party’s repertoire then MCC may be set at a higher playout limit as opposed to

a radio station in the same city that wishes to use less of the opposite party’s

repertoire. This aspect cannot be viewed as discriminatory conduct as

discrimination requires treating like entities in an unlike manner, not treating

different entities with different business models.

85. The opposite party has submitted that whether a performance license

fee is chargeable or not for underlying literary and musical works is purely a

legal issue. The informant’s submission on this aspect leads to the absurd

situation that the performance license fee will be held to be abusive as a matter

of competition law if the chargeability of the same is held to be not valid by

the decision of the court and at the same time performance license fee will be

held to be not abusive as a matter of competition law if the court rules that the

same is chargeable by the opposite party.

86. The opposite party has further submitted that the informant had never

raised the issue of performance license fees in the information except for one

paragraph. The opposite party has further submitted that at present it has

stopped the practice of charging performance license fees from the radio

operators subject to the radio operators furnishing a bank guarantee to that

extent.

Written submissions of the informant

87. The informant has submitted that defining markets on the basis of a

particular genre finds support in European competition assessment and the EC

in Seagram/ Polygram case and Thorn EMI/ Virgin case recognized that it was

possible that different music genres could constitute separate markets.

88. The informant further submitted the following arguments in response

to the opposite party’s contention that the relevant market should not be

Case No. 40 of 2011 Page 31 of 93

limited to Bollywood music because radio stations have the ability to shift to

non-Bollywood music:

(i) Radio stations’ decisions are intrinsically linked to their customer

preferences

Once a radio station has positioned itself to attract a certain demographic,

repositioning away from that demographic is risky and costly. The informant’s

ability to substitute one genre of music for another is constrained by its

targeted listener demographic. Further, the only form of revenue for private

FM radio stations is the advertising and broadcast decisions are based on

potential listener base. Additionally, costs of switching from Bollywood to

non-Bollywood music can be significant and therefore, they should result in

defining narrower markets.

(ii) Music providers cannot easily switch to providing increased Bollywood

content

Assuming that supply side substitutability could be considered, the opposite

party suggests that that all music providers offer a repertoire of music which

consists of Bollywood and non-Bollywood music and therefore, it is easy for

the informant to increase or decrease the amount of Bollywood music

purchased at the upstream level depending on market circumstances. As per

the informant this is a failed hypothesis because to ‘create’ songs, music

providers would have to expand into film production.

(iii) New Bollywood music

The DG has erred in finding that a lack of clarity on the definition of ‘new’

music leads to a conclusion that ‘new’ music cannot be a separate relevant

market. The opposite party itself has put on its website that it represents 70%

of upcoming Indian entertainment content including Bollywood and therefore,

Case No. 40 of 2011 Page 32 of 93

considers it to be a separate market. The informant has shown that most

popular songs on FM Radio in India are those which are recently released.

(iv) T-Series offers its entire repertoire

In response to the contention of the opposite party that since its competitors

offer their entire repertoire to radio stations, one particular genre cannot be

demarcated as a relevant market and since the informant also plays devotional

music, it cannot be said to be playing only new Bollywood music; the

informant has submitted that it does broadcast Ghazals and Bengali music in

Kolkata and Punjabi music in New Delhi; however, the fact that radio stations

play limited amounts of non-Bollywood music on their radio stations does not

take away from Bollywood music being defined as a relevant market. It is

important to note that the music relevant for every private FM radio station is

limited to a particular genre and FM radio stations do not compete for

obtaining the entire repertoire of music companies.

89. The informant has submitted that private FM channels constitute a

distinct relevant product market and AIR FM should be excluded because the

opposite party’s ability to price discriminate justifies the delineation of a

distinct product market on the basis of different customer groups and AIR

FM’s content and social motives make it distinct from private FM Radio

stations.

90. The informant has submitted that markets are regularly defined on the

basis of customer groups and if one set of customers receives a wholly

different price from others, such customer does not participate in the same

market and therefore, be excluded from competitive assessment. This is

confirmed by European Commission’s position that ‘[a] distinct group of

customers for the relevant market may constitute a narrower, distinct market

when such a group could be subject to price discrimination’. As per the

informant, on the basis of statement of Shri Neeraj Kalyan, the opposite party

Case No. 40 of 2011 Page 33 of 93

has admitted that rates charged to the Government. FM stations is

approximately INR 400-450 per needle hour, which is different from the rates

charged to private FM stations and in fact rates charged to private FM radio

stations are at a significant premium of 47-65% more therefore, making it

clear that the opposite party price discriminates.

91. The informant has submitted that listeners tune into AIR FM for

educational and entertainment content which cuts across society. It is for this

reason that no AIR FM station focuses on ‘new’ Bollywood music in the way

that private FM radio stations do. The opposite party’s contention that the

private FM stations can broadcast news is misleading, as the implementing

notifications have delayed the process even further. Private FM radio stations

and listeners do not consider AIR FM to be a competitor as a lack of broadcast

restrictions and its social mandate make its content substantially different and

therefore, not substitutable/ interchangeable for that of private FM. The

opposite party also does not consider AIR to compete with private FM radio

stations as its content is provided at a significant price differential with wholly

different negotiation abilities and market dynamics at play. Thus, according to

the informant, AIR FM is a distinct product market from private FM radio

stations.

92. On the geographic market, the informant submitted that the relevant

geographic market for assessing the opposite party’s conduct in the present

case is ‘individual cities in which radio stations have licenses to broadcast’.

This is because the Government of India only licenses radio stations on a city

by city basis. In addition, radio station owners are only allowed to own one

radio station per city. If a listener is not within city limits, they cannot receive

a radio broadcast.

93. The informant has submitted that in applying SSNIP test to a

geographic market definition, the question to be asked is if the price of the

opposite party’s music were to increase in New Delhi would a radio station

Case No. 40 of 2011 Page 34 of 93

shift its operations to a music company in another city? The answer is no,

especially since Government grants licenses to private FM stations on a per

city basis and regulatory barriers preclude a radio broadcaster from operating

in another city. Further, if SSNIP test was applied to advertisers in New Delhi,

such advertisers would not shift their advertisements to a radio station outside

New Delhi. This is because advertisers target local preferences. Lastly,

applying SSNIP test to listeners, if there was a price increase in the price of

receivers in New Delhi, listeners would not switch to receiving content from

another city as the regulatory and technical restrictions imposed on radio

stations do not allow them to do the same.

94. In view of the above, the informant has submitted that the relevant

geographic market should be limited to individual cities where radio

broadcasters are licensed to operate and therefore, the relevant market to be

investigated is the ‘market for the broadcast of new Bollywood music on FM

radio stations in every city in which FM radio stations are licensed to

operate’.

Case No. 40 of 2011 Page 35 of 93

95. The informant has submitted that it is important to note that the test for

dominance is contained in section 4 of the Act and that the factors listed in

section 19(4) of the Act are relevant only in as much as they aid the

application of the section 4 test. In the event that the informant can provide

direct evidence of the opposite party’s ability to act independently of

competitive forces, it need not establish dominance on the basis of such

factors. The informant has also submitted that the opposite party’s conduct in

the instant case satisfies the test for dominance laid out in explanation (a) to

section 4 and on the basis of factors listed in section 19(4) of the Act.

96. The following actions of the opposite party have been shown by the

informant to demonstrate that the opposite party is unconstrained by the

conduct of its competitors:

(i) The opposite party’s royalty rates are set on a needle per hour basis,

whereas PPL and most other competitors provide licenses at a rate either

determined by or equivalent to the Second Order of the Copyright Board.

(ii) The opposite party’s royalty rates are approximately 63.6% higher than

those paid by the informant to other music providers. This however, has not

led to a shift in demand from the opposite party to its competitors.

(iii) The opposite party imposes MCC ranging from 30%-50% of playout

which radio stations are required to pay irrespective of whether they play that

amount of music. No other music provider can or has imposed such MCC.

(iv) The opposite party imposes performance licensee fees whereas numerous

High Courts in India have held that companies have no right to impose

performance license fees. The opposite party is the only music provider which

imposes performance license fees despite the High Court orders holding the

contrary.

97. The informant has further submitted the following actions show that

the opposite party is acting independently of its customers:

(i) During oral arguments, the opposite party stated that it lost contracts with

82 of the private FM radio stations (not necessarily radio companies/

broadcasters) after the Second Order of the Copyright Board, which reduced

its market share by 15%. The informant has contended that what is important

to note is that this reduction has not led to any change in behaviour, rates or

terms and conditions offered by the opposite party. This is direct evidence that

indicates that the opposite party is unaffected by losing 1/3rd of its customers

(due to the supra normal profits derived from the other 2/3rd).

Case No. 40 of 2011 Page 36 of 93

(ii) Radio City (one of the contracts that were terminated as a result of the

opposite party’s conduct) returned to the opposite party after a year on

unchanged terms. This shows that even when one of the largest radio

broadcasters in the country with 20 radio stations seeks to return after a year of

not playing the opposite party music, the terms and conditions offered remain

unchanged by the opposite party, indicating a blatant disregard for customers

including the ability to act independently.

(iii) The opposite party argued that Big FM’s listener ratings increased when it

switched from new Bollywood music to retro music. The opposite party

however, failed to inform that Big FM suffered a reduction in their revenue by

a substantial margin of INR 4,38,92, 761 over the January-March quarter of

2012 compared to 2011, where Big FM was licensed with the opposite party.

Big FM stated that the major cause/ reason for the fall in revenue was on

account of its inability to play the opposite party’s music and compete with

other radio channels present in the same cities on a level playing field. As per

the informant this shows that more listeners do not necessarily translate into

more revenue, if the content broadcast is not as desirable. It is also evidence of

the opposite party’s ability to be unaffected by the loss of radio stations which

may gain additional listeners, but cannot monetize the same without the

opposite party content.

(iv) MCC imposed on customers range from 30-50% of playout when actual

playout of the opposite party music was lower. Radio stations are therefore,

required to play the opposite party content more than they would have in a

counterfactual without MCC. Radio stations have indicated a strong resistance

to the imposition of MCC. The fact that MCC are still imposed by the opposite

party indicates that it can act independently of its customers.

(v) The imposition of performance license fees, which are not payable to the

opposite party, forces radio stations to pay double the royalty they normally

have to pay music providers. The fact that despite such a gulf in royalty

Case No. 40 of 2011 Page 37 of 93

payments, radio stations have not been able to effectively switch to non-

opposite party music is indicative of the opposite party’s ability to act

independently of its customers.

(vi) The opposite party also conveniently decides to follow the rate set by the

First Order of the Copyright Board as a ‘market standard’ while disputing the

rate set by the Second Order of the Copyright Board by the same authority.

The opposite party’s argument that the rate set in the Second Order of the

applies equally to the First Order of the Copyright Board, where the opposite

party again was not a party. The opposite party is the only music provider who

is charging such rates to radio stations. This is despite the fact that the entire

industry has expressed dissatisfaction with these rates and has applied to the

(vii) In terms of the opposite party’s business model, the opposite party

artificially increases acquisition costs of music so much that its competitors

cannot afford the same. Higher acquisition costs make the opposite party more

attractive to composers and film producers, but also distort market dynamics.

Normally, such a price increase would be fraught with risk of not being able to

recoup the same; the opposite party, however, can guarantee that radio stations

will play between 30-50% of its music through its MCC scheme, minimizing

the risk of not being able to recoup the high costs of acquisition. In addition,

by imposing both broadcast and performance license fees, the opposite party

earns double the revenue per song than any of its competitors.

(viii) The only reason why the opposite party can implement such a nefarious

scheme is its dominant position in the market. No customer can force the

opposite party to negotiate its terms and conditions as the opposite party, by its

own admission, is unaffected by 1/3rd of its customers moving away.

Case No. 40 of 2011 Page 38 of 93

98. The informant submits that in addition to the direct evidence

highlighted above, an analysis of the factors set out in section 19(4) of the Act

is also demonstrative of the opposite party’s dominance.

99. Market share is an important factor in assessing dominance of an

enterprise. As per the DG Report, the opposite party owns more than half of

the popular content that has become the staple diet for music played by FM

stations run by the informant. There has been a considerable dispute between

the parties as to the opposite party’s market shares in the relevant market. The

opposite party has questioned the veracity of the data but it has never

requested cross-examination of any radio station though such a request is

provisioned for under the Act. The opposite party should not be allowed to

question the veracity of the data provided while at the same time having given

up its right to cross-examine all the radio stations which provided evidence.

100. Market shares in terms of playout are relevant and important basis on

which dominance can be assessed. The opposite party’s own evidence shows

that its market share of total playout on 210 private FM radio stations licensed

by it is between 32.5% to 34.1%. This evidence however, includes radio

stations licensed with the opposite party but which do not play much

Bollywood music, such as stations in South India which may play a few

Bollywood songs, but focus on South Indian music. Therefore, when

analyzing the opposite party’s market shares in the relevant market, all stations

which broadcast non-Bollywood music should be excluded. The informant

also submits that calculating market shares on the basis of all licensed FM

stations is inaccurate because radio stations licensed with the opposite party

are a better reflection of the opposite party’s position in the market because

they are more likely to constitute the relevant market. Radio stations which

play no or minimal Bollywood music should be excluded from the relevant

market. Consequently, by reducing the number of radio stations to more

accurately account for the relevant market, the opposite party’s share of the

same would consequently be higher.

Case No. 40 of 2011 Page 39 of 93

101. Furthermore, an analysis of the opposite party’s market share based on

the most popular songs may be an even better and more accurate indicator of

the opposite party’s market power as this would focus on the relevant market.

Data provided by AirCheck shows that the opposite party held rights to 46%

of the top 100 songs played in 18 A category cities between July 2011 and

June 2012. It is important to reiterate that broadcasting the Top 100 and Top

20 songs per week are essential for radio stations to remain viable in the

business and therefore, highlights the market power of the opposite party.

102. The informant submitted that the opposite party acquires the rights for

the maximum number of films (almost 4 times that of its nearest competitor,

YRF) and that CBFC data is only for films certified and not released and the

number of films in a year are likely to be fewer than the number of films

certified for release. Furthermore, any discrepancy between the two is likely to

be minimal and the opposite party’s market share of approximately 38% as a

result of the data submitted by private FM stations is not inconsistent with the

data provided by the opposite party itself. The opposite party focuses its

attention on films of bankable ‘superstars’ which maximize the possibility of

the music being a hit and minimizes the risk of losses.

103. It was also submitted that the opposite party has a turnover of

approximately INR 400 crores in the INR 750 crore music industry. That is

approximately 700-1300% higher than that of its competitors. The

Commission has previously recognized a turnover of 300-700% higher than

competitors is indicative of dominance in Belaire Owners’ Association v. DLF

Limited, Huda & Ors. (Case No. 19 of 2012). In response to the opposite

party’s contentions to the DG report, the informant submits that the DG has

analyzed the opposite party’s data compared to the turnover of PPL and IPRS

and found that the opposite party’s turnover is still higher. Secondly, PPL

represents over 200 music companies and therefore, the opposite party’s actual

position in the market qua individual music providers is considerably

Case No. 40 of 2011 Page 40 of 93

enhanced. Thirdly, IPRS and PPL redistribute fees to their members whereas

the opposite party provides no evidence that it redistributes its fees for owners

of the underlying works. Finally, it is the radio stations position that the

opposite party and IPRS are not entitled to performance license fees and

accordingly, the informant is not paying IPRS and the fact that the opposite

party imposes the same, makes it liable to be included in calculating its

turnover. The informant further submits that the opposite party’s conduct

shows that it acts independently of such powerful and vertically integrated

competitors which are dispositive of dominance.

104. It was argued by the informant that the opposite party has alleged that

there are no barriers to entry or expansion and competitors like Sony are

significant competitors. The opposite party has failed to explain why in an

industry with no barriers to entry or expansion and where the opposite party’s

prices are considerably higher than its ‘significant competitors’, the market

shares of those competitors have not increased dramatically as a result of a

shift in demand. The conduct of the opposite party in increasing acquisition

costs, focus on superstar films and imposing performance license fees and

MCC on radio stations are significant barriers to entry and expansion in the

market.

105. The informant has submitted that it agrees with DG’s finding on

excessive pricing and further states that the opposite party has abused its

dominant position by charging unfair and excessive prices of INR 1260 per

needle hour as broadcast and performance license fees for the broadcast of the

opposite party’s music on fever 104 radio stations in Delhi, Mumbai, Kolkata

and Bangalore.

106. Challenging the submissions of the opposite party on ‘excessive price’,

it was argued that the concept of excessive price has been recognized by the

European Union in United Brand, General Motors, Scadlines and British

Horseracing Board cases as well as other cases. In fact, in the music industry

Case No. 40 of 2011 Page 41 of 93

itself, there has been recognition of excessive royalties as amounting to an

unfair price and an abuse of dominance.

107. United Brands case, which is the seminal case on excessive pricing,

has laid down the test for excessive price, first limb of which is that the price

bears no reasonable relation to the economic value of the product. This

economic value is the value of the product to both the seller and the purchaser.

An equitable royalty rate would be one that bears a correlation to the revenue

generated by the informant by exercising the license provided to it by the

opposite party. In fact a revenue share arrangement has been expressly found

to satisfy the United Brands case test as bearing a reasonable relation to the

economic value of the service provided by the licensor (Kanal 5 v. STIM). Just

as the copyright board has recognized in Second Order, the informant submits

that a revenue share structure takes into account the listener and the advertiser,

two important components of the radio licensing stream, which a flat fee fails

to account for. A flat fee also fails to account for inflation or increasing

revenues.

108. The second limb of the United Brands case test is whether the

difference between the costs actually incurred and the price actually charged is

excessive. However, this exercise is not possible because of the opposite

party’s failure to provide its costs to the DG, despite being expressly asked to

do so. In response to the DG’s request, the opposite party had stated that the

cost analysis for fixing up royalty rates is not possible. The situation is similar

to the MCX Stock Exchange v. National Stock Exchange of India Limited &

Ors. case where the Commission has held that ‘this cavalier attitude of not

allocating cost of operation for a clearly segregated operation can come from

a position of strength’.

109. The last limb of the United Brands case argument lays down the

benchmarks to compare an alleged excessive price i.e. the assessment of

whether a price is excessive is by comparing the excessive price to other

Case No. 40 of 2011 Page 42 of 93

competitive prices. The Genesis Report has conducted this exercise and has

compared the opposite party’s broadcast license fee of INR 661 per needle

hour and has found that the opposite party charges a premium ranging from

45-65% in comparison to (a) an industry standard (Second Order of the

2011-12 the license fees payable to PPL equated to a rate of INR 404 per

needle hour); (b) different customers such as AIR FM (INR 400-450 per

needle hour); and (c) competitors such as YRF (INR 450 per needle hour for

the year 2011-12). Thus, it is evident that a royalty of INR 661 per needle hour

is excessive.

110. The very fact that the opposite party can continue to charge higher

license fee per needle hour to private FM stations despite losing 82 of 245

private FM stations and which loss results in no change to its pricing model,

shows that there is no competitive pressure to drive the opposite party prices

down to competitive levels-such conduct is in itself demonstrative of

dominance and consequent abuse. The very fact the opposite party’s profits

are approximately 700-1300% higher than that of its competitors is

demonstrative of the excessiveness of the opposite party’s prices.

111. It was urged that the opposite party’s primary argument on why its

license fees are not excessive and should be considered as an abusive practice

is based on increasing revenues of radio stations. It would be noted that if

revenues of radio stations were indeed growing at an exponential rate, a

revenue share model would also reflect corresponding exponential royalties to

the opposite party. The opposite party’s reliance on the informant’s growth

rate of 62% is incorrect as the informant has incurred losses for the first 8

years of operation, which losses were caused by the excessive royalty rate of

INR 661 per needle hour.

112. The opposite party has stated that it incurs significant acquisition costs

but has provided no evidence to justify the same with the exception of a few

Case No. 40 of 2011 Page 43 of 93

carefully selected sample albums which it is yet to recoup costs. Furthermore,

the opposite party is not a lone artist or creative enterprise which faces

uncertainty in the acquisition of music. The portfolio licensing model in fact

corrects for any uncertainty/ risk incurred by the opposite party in the

acquisition of music.

113. The loss of revenues from physical sales cannot be attributed to music

being played on the radio and more importantly cannot be used to justify why

excessive license fees are important. While the opposite party’s revenues

arising from the physical sales of CDs, cassettes etc., may have been

decreased its sales through digital exploitation of music rights has also

increased multi-fold over the last 3 financial years.

114. The argument that price set by a regulatory authority cannot be abusive

cannot be accepted as the very fact that the opposite party was not a party to

the First Order of the Copyright Board itself shows that this argument should

be rejected.

115. According to the informant, from 2006 to October 2012, the opposite

party imposed MCC on the informant as a necessary precondition for the grant

of a license to its music repertoire. No other music provider charges MCC,

which are both exploitative and exclusionary and their imposition, an abuse of

a dominant position.

116. Further, MCC are exploitative on customers as they are forced to play

the opposite party content for a minimum amount of playout irrespective of

how much of the opposite party’s music it wishes to actually broadcast. The

opposite party has alleged that MCC is not exploitative as radio stations in any

event broadcast the pre-determined amount. This is a blatant attempt to

mislead the Commission. For example, in the year 2009-2010, the informant

has, with the exception of the month of November (for all three radio stations)

Case No. 40 of 2011 Page 44 of 93

and in December for the Kolkata radio station and January for the Mumbai

radio station, never broadcast the full MCC target. Therefore, the informant

was forced to pay the opposite party MCC amount in excess of actual music

broadcast for three radio stations and furthermore, similar submissions have

been reiterated by Big FM and Radio One.

117. The informant has further submitted that MCC also result in significant

exclusionary effects. Since radio stations are coerced into paying the opposite

party a minimum guarantee, they would naturally broadcast the amount of

music that they are forced to pay for. Therefore, a certain amount of music

playout on private FM radio stations is already fixed for the opposite party.

This results in the opposite party competitors being other music providers not

being able to compete for and being foreclosed from broadcasting their music

on this prefixed playout of 30-50% reserved for the opposite party.

118. The informant has further submitted that MCC is a carefully designed

loyalty rebate scheme imposed by the opposite party to perpetuate and abuse

its dominance to the detriment of competitors. As a result, a radio station

which was already paying for 40% of the opposite party’s airtime would

naturally play 40% of the opposite party’s music. In addition, where a radio

station achieves MCC target, it is provided an additional 20% of free airtime

of the opposite party’s music. As a result of the 20% of free airtime granted, a

radio station would face the same choice between zero additional cost the

opposite party music as against the positive additional cost songs of all other

music channels. As a result, whenever possible the opposite party’s song

would be substituted for a non-opposite party song. This business model or

scheme ensured that the opposite party’s content is a must-have content for

radio stations.

119. According to the informant, the opposite party has stated that it

imposed MCC to compensate for losses in physical sales. If the opposite party

was genuinely concerned about the repeated playout of its music why would it

Case No. 40 of 2011 Page 45 of 93

reserve an MCC and furthermore, offer another 20% of free playout.

Furthermore, the opposite party has sought to justify the clearly anticompetitive

MCC on the grounds that no radio station has complained of it,

which is incorrect as DG Report finds that Radio One, My FM, Radio Mantra

and Radio Mirchi had requested the opposite party to do away with MCC.

120. The informant has submitted that the opposite party’s position is that

the issue regarding performance license fees is purely a legal issue pending

before courts and is not a competition issue at all. The informant submits that

the opposite party’s insistence on the payment of performance license fees,

when it is clear that the same are not payable, is an abuse of its dominant

position for being an unfair condition in the purchase of goods and for making

the conclusion of contracts subject to acceptance of supplementary obligations

which have no connection to the subject of such contracts. The DG has

concurred with the informant that imposition of performance licensee fees is

an abuse.

121. The informant has further submitted that all High Courts other than the

Madras High Court have held that performance license fees are not payable for

the broadcast of sound recordings on FM radio stations. The matter is

currently pending before the Supreme Court. Till the Supreme Court

determines this issue, the law in 3 out of 4 High Courts is that such fee is not

payable.

122. The informant has further submitted that being the only music provider

who is imposing performance license fees, the opposite party earns twice the

royalty than its competitors for the same type of music. This impedes effective

competition from existing competitors as the opposite party has used this

increased revenue to raise acquisition costs of music and controls most of

Bollywood music output. Furthermore, such conduct dissuades new radio

stations from entering the market, since entrants cannot maximize the

expected revenue on making an investment in the radio business due to the

Case No. 40 of 2011 Page 46 of 93

imposition of an illegal requirement to pay royalties. Therefore, the conduct of

the opposite party results in foreclosure, both at the upstream and downstream

levels.

123. The informant has submitted that that licensing Bollywood music to all

private FM radio stations are ‘equivalent transactions’ as the opposite party

bears no additional cost in providing a license to its music repertoire to such

stations. The opposite party also does not gain any efficiencies by licensing its

music content to multiple radio stations owned by the same radio broadcaster.

This being the case, the opposite party should offer identical terms and

conditions to radio stations in the same city. In fact during their rejoinder on

excessive pricing, the opposite party stated that it applies identical terms to

radio stations in the same city. According to the informant, this is untrue due

to many reasons including that Shri Neeraj Kalyan has admitted that they do

charge differential rates for the underlying works for many reasons.

124. The informant has submitted that the anti-competitive terms and

conditions imposed by the opposite party amount to refusal to supply its music

on fair terms in violation of the Act and further those terms and conditions can

be unfair qua the Act and separately unreasonable qua the Copyright Act.

Therefore, while section 31 of the Copyright Act provides for a statutory

ground to apply for a compulsory license, section 4 of the Act prohibits the

abuse of dominance including a prohibition on the denial of market access

under section 4(2)(c) of the Act.

125. The informant has further submitted that excessive royalties charged

by the opposite party, MCC and the imposition of performance license fees

which the opposite party is not entitled to in the license agreement are

unreasonable restrictions on competition and consequently the license

agreement between the parties is an anti-competitive vertical agreement in

violation of section 3(4) of the Act. Furthermore, these restrictions can neither

be considered to be ‘reasonable’ nor ‘necessary’ to protect the rights of the

Case No. 40 of 2011 Page 47 of 93

therefore, cannot fall under the exemption under section 3(5) of the Act.

Jurisdiction

126. Before adverting to the competition concerns projected in the present

case, the Commission deems it appropriate to deal with the jurisdictional

challenges raised by the counsel for the opposite party to the present

proceedings. It has been contended by the opposite party that the Commission

does not have the jurisdiction to entertain the present matter for the following

reasons:

(i) Under section 4(2)(a) of the Act, there is an abuse of dominant position if

the dominant enterprise imposes unfair or discriminatory conditions in the sale

of goods or service or the price of goods or services. The present case involves

a license of rights, and such a right cannot be considered to be a ‘good’ or a

‘service’, it cannot be brought under the purview of the section 4 of the Act.

(ii) The appropriate authority to address the grievances of the informant is the

where the informant is seeking to obtain what would in effect be a compulsory

license indirectly through the Commission, and that the facts stated, issues

raised and reliefs prayed for before the Copyright Board are identical/

substantially overlapping.

(iii) The exclusive jurisdiction in the matter vests with the Copyright Board as

the Copyright Board is the only authority to decide whether the terms (not just

rates) of a license between copyright owner and a radio broadcaster are

reasonable, and set new terms if existing terms are unreasonable. The

pertaining to copyright including and especially issues relating to the

reasonableness of copyright royalty as well as all other terms of licenses

Case No. 40 of 2011 Page 48 of 93

between copyright owners and users of copyrighted works are contained

within the four corners of the provisions of the Copyright Act.

(iv) The appropriate sectoral regulator is already seized of the dispute a year

prior to instituting the present information as the informant itself had

approached the Copyright Board for a compulsory license on terms considered

reasonable by the complainant.

(v) The opposite party has further submitted that even if the Commission does

indeed have the jurisdiction to hear the matter, it should not exercise

jurisdiction for the simple reason that any finding of the Commission will

heavily prejudice the proceedings between the parties at the Copyright Board,

the Delhi High Court and the Supreme Court. For instance, the issue with the

performance license fee is presently before the Supreme Court and if the

Commission were to hold that charging of performance license fee by the

opposite party is reprehensible and should be prohibited; such finding may be

used against the opposite party before the Supreme Court.

(vi) The opposite party has further submitted that where the free play of the

forces of demand and supply do not give rise to a market price but instead the

market forces of demand and supply are suppressed by the orders of the

a benchmark for an abuse of dominant position, it would be a travesty of

justice to invoke the competition rules of section 4 of the Act to regulate the

opposite party’s conduct. Where the market is so overwhelmingly regulated by

the Copyright Board and where the market mechanism is nearly substituted by

a regulatory body, the role of competition law is greatly diminished and in this

case completely ousted.

127. To recapitulate the events, it may be noted that the Commission vide

its order dated 22.12.2011 dismissed the application of the opposite party for

framing and deciding the issue of jurisdiction of the Commission as a

Case No. 40 of 2011 Page 49 of 93

preliminary issue. Aggrieved thereby and dissatisfied therewith, the opposite

party approached the Hon’ble High Court of Delhi by way of Writ Petition

No. 1119 of 2012, Super Cassettes Industries Limited v. Union of Indian &

Ors. The Hon’ble High Court vide its order dated 04.10.2012 directed the

Commission to determine and pass an appropriate order on the issue of

jurisdiction of the Commission after hearing the parties. Accordingly, the

Commission heard detailed submissions of the parties pertaining to the

jurisdiction and vide order dated 28.01.2013 held that it had the jurisdiction to

consider the issues raised before it by the informant. The opposite party once

again approached the Hon’ble High Court of Delhi by way of Writ Petition

No. 2037 of 2013, Super Cassettes Industries Limited v. Union of Indian &

Ors., challenging the said order dated 28.01.2013 and praying for a stay on the

proceedings before the Commission. The Hon’ble High Court, vide its order

dated 01.04.2013, while dismissing the application for a stay of the

proceedings before the Commission held as follows:

Case No. 40 of 2011 Page 50 of 93

Having examined the impugned order, in my view, prima facie

the CCI has considered the aspect of jurisdiction. In this respect,

they have referred to their earlier order wherein after

considering the scope and ambit of the Copyright Act and the

Competition Act (see paragraphs 7 and 8 of the impugned order)

it has opined as follows:

‘9. A reading of the above section would show that none of

the areas covered by section 3 of the Competition Act is

covered by the Copyright Act. No doubt under the

obligation to determine licence fee and the reasonableness

of the licence fee but apart from that none of the other

issues as envisaged by section 3 of the Competition Act

can be decided by the Copyright Board. Similarly, Section

4 of the Competition Act casts an obligation on the

Case No. 40 of 2011 Page 51 of 93

Commission to adjudicate the issue of dominance of an

enterprise and to give a finding on the alleged abuses due

to dominance. Abuse may be there due to one sided,

discriminatory or unfair terms of the agreement or

otherwise. The Copyright Board has no such jurisdiction.

10. The rights of a person protected under the Copyright

Act have also been taken care of by section 3(5) as is

evident. It is true that the applicant has also made a

prayer in the information about unreasonableness of the

licence fee, but that was not the sole criteria for referring

the matter. The Commission had referred the matter for

observing as under:-

The Commission finds merits in the submission of the

informant that the radio stations have no choice but to

accede to the arbitrary and unfair conditions imposed by

T-Series because of it being a dominant enterprise.

Considering the fact that T-series is the only music

company which charges MCC from the radio stations

unlike any other licensers including PPL, IPRS, SIMCA

etc., prima facie it appears that T-series is in position to

dictate such terms only because of its position

of dominance. Considering the facts and allegations in the

information and position discussed as above, the

Commission feels that an investigation in the matter by the

Director General, CCI is required.

11. From the above initial order of the Commission, it is

apparent that the Commission had intended to exercise its

jurisdiction only within the four walls of the Competition

Act and had no intention to encroach upon the area where

Case No. 40 of 2011 Page 52 of 93

the Copyright Board has sole and exclusive jurisdiction.

The Competition Commission is well within its domain of

jurisdiction while considering the issues raised before it

and rightly exercised its jurisdiction of referring the

matter to Director General for investigation.’

Having regard to the above, I am of the view that no case is made

out for grant of interim stay of the proceedings before the CCI.

This was also what was agreed to by the petitioner when it had

approached this court in the earlier round; a fact which is

recorded hereinabove. At this stage, Mr Sibal says that while he

does not seek a stay of the proceedings before the CCI, all that

the petitioner is seeking is that no final order be passed. This

submission of the petitioner cannot be accepted. The only

protection that the petitioner can be given is that, if CCI were to

come to a conclusion, which is adverse to the interest of the

petitioner, the CCI will give at least a week’s time to the

petitioner to approach the appropriate forum for grant of relief,

if any, in the matter. With the aforesaid observations, the

captioned application is disposed of.

128. In light of the aforesaid observations of the Hon’ble High Court

noticing the order of the Commission holding jurisdiction nothing survives in

the jurisdictional plea of the opposite party.

129. Suffice to note that as per the legislative framework, the duty of the

competition authority as envisaged in section 18 of the Act is ‘……to

eliminate practices having adverse effect on competition, promote and sustain

competition, protect the interests of consumers and ensure freedom of trade

carried on by other participants, in markets in India’, thereby giving the

Commission a very wide mandate. It is therefore, the duty and responsibility

of the Commission to eliminate practices in the market that have an adverse

effect on competition and to promote and sustain the competition so as to

protect the interest of consumers and ensure freedom of trade.

130. As observed in the earlier order, none of the areas covered under

section 3 or 4 of the Act is covered under the Copyright Act. Therefore, the

powers of the Commission and Copyright Board govern different aspects of

law and the Copyright Board cannot serve as an effective instrument for

promotion of competition. The Copyright Board is a body constituted under

section 11 of the Copyright Act for the discharge of certain functions under

the Act. The main functions of the Copyright Board as per the Copyright Act

include deciding whether a work has been published or as to the date on which

the work was published for the purposes of chapter V; deciding whether the

term of copyright for any work is shorter in any other country than that of the

compulsory licenses in respect of Indian works withheld from the public;

granting compulsory licensing to publish unpublished works; granting

compulsory license to produce and publish translation of literary or dramatic

works; granting compulsory licenses to reproduce and publish certain

categories of literary, scientific or artistic works for certain purposes;

addressing the complaints of the aggrieved persons or the Registrar of

functions of the Copyright Board reveal that while the Board obviously

performs important judicial/ quasi-judicial functions, under no circumstances

can it be said that the Copyright Board is tasked with eliminating market

practices which have an adverse effect in the market of works protected by the

131. Having said that, the Commission notes that it recognizes the role and

importance of sectoral regulators and exercises its jurisdiction keeping in mind

the role of sectoral regulators. Therefore, the allegation of the opposite party

of encroachment by the Commission on the powers of the Copyright Board is

completely without merit. The Commission is a market regulator and has the

Case No. 40 of 2011 Page 53 of 93

jurisdiction to look at all issues affecting competition in the market.

Furthermore, it must be understood that the exercise of jurisdiction of a

regulatory authority to consider a matter and the crafting of remedies by the

same authority in the matter, after considering the impact of such remedies on

various ongoing proceedings before other sectoral regulators/ courts are two

very different and distinct issues. The concern of the opposite party therefore,

as to the nature of remedies that the Commission will prescribe and its

consequences thereof on matters before other sectoral regulators/ courts is not

relevant for the determination of the jurisdictional question.

Issues for determination

132. The Commission has given due consideration to facts given in the

information, the investigation report of the DG, the detailed written and oral

submissions made by the concerned parties along with opinions and analysis

of experts relied upon by the informant and the opposite party. The relevant

material available on record and the facts and circumstances of the case throw

up the following issues for determination in this case:

Case No. 40 of 2011 Page 54 of 93

(i) What is the relevant market in the present case?

(ii) Is the opposite party dominant in the above relevant

market?

(iii) If so, is there any abuse of its dominant position by

the opposite party in violation of section 4 of the Act?

Determination of Issue No. 1

133. The edifice of competition law rests upon dynamics of competition in

one particular market. Benefits or harm to competition has to be assessed with

respect to that market. In the Act, the term used for such a market where the

status of competition has to be evaluated is ‘relevant market’. This term has

been defined in section 2(r) of the Act read with sub sections (s) and (t) of

section 2. Furthermore, ‘relevant product market’ is defined in section 2(t) of

the Act as ‘a market comprising of all those products or services which are

regarded as interchangeable or substitutable by the consumer, by reason of

characteristics of the products or services, their prices and intended use’.

Furthermore, the Commission shall, as per section 19(7) of the Act while

determining the ‘relevant product market’, have due regard to all or any of the

following factors, viz.:

(a) physical characteristics or end-use of goods;

(b) price of goods or service;

(d) exclusion of in-house production;

(e) existence of specialized producers;

(f) classification of industrial products.

134. Since the allegation of the informant pertains to certain conduct of the

opposite party in licensing its repertoire of songs to the informant, the market

for licensing of music content (protected as intellectual property) is a good

starting point for determination of the relevant market in this case.

135. The Copyright Act is the statutory enactment dealing with copyright in

India. There are four categories of works in which copyright subsists namely

(i) original literary, dramatic and musical work (ii) original artistic works (iii)

cinematograph films and (iv) sound recordings. It may be noted that section 14

of the Copyright Act, which lays down the exclusive rights available to each

category of work, states as follows:

Case No. 40 of 2011 Page 55 of 93

Section 14. Meaning of copyright: For the purposes of

this Act, ‘copyright’ means the exclusive right subject to

the provisions of this Act, to do or authorise the doing of

any of the following acts in respect of a work or any

substantial part thereof, namely:-

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(a) in the case of a literary, dramatic or musical work,

not being a computer programme,--(i) to reproduce the

work in any material form including the storing of it in

any medium by electronic means; (ii) to issue copies of

the work to the public not being copies already in

circulation; (iii) to perform the work in public, or

communicate it to the public; (iv) to make any

cinematograph film or sound recording in respect of the

work; (v) to make any translation of the work; (vi) to

make any adaptation of the work; (vii) to do, in relation

to a translation or an adaptation of the work, any of the

acts specified in relation to the work in sub-clauses (i) to

(vi);

(b) in the case of a computer programme,-- (i) to do any

of the acts specified in clause (a); (ii) to sell or give on

commercial rental or offer for sale or for commercial

rental any copy of the computer programme: Provided

that such commercial rental does not apply in respect of

computer programmes where the programme itself is not

the essential object of the rental.

work in any material form including depiction in three

dimensions of a two-dimensional work or in two

dimensions of a three-dimensional work; (ii) to

communicate the work to the public; (iii) to issue copies

of the work to the public not being copies already in

circulation; (iv) to include the work in any

cinematograph film; (v) to make any adaptation of the

work; (vi) to do in relation to an adaptation of the work

Case No. 40 of 2011 Page 57 of 93

any of the acts specified in relation to the work in subclauses

(i)

to (iv);

(d)

in the case of a cinematograph film,-- (i) to make a

copy of the film, including a photograph of any image

forming part thereof;(ii) to sell or give on hire, or offer

for sale or hire, any copy of the film, regardless of

whether such copy has been sold or given on hire on

earlier occasions; (iii) to communicate the film to the

public;

(e) in the case of a sound recording,--(i) to make any

other sound recording embodying it; (ii) to sell or give

on hire, or offer for sale or hire, any copy of the sound

recording regardless of whether such copy has been sold

or given on hire on earlier occasions; (iii) to

communicate the sound recording to the public.

Explanation.--For the purposes of this section, a copy

which has been sold once shall be deemed to be a copy

already in circulation.]’

Thus, it is evident that copyright consists of a bundle of different rights in the

same work, which can be exploited by the owner of the work collectively or

separately.

136. The object of copyright law is to encourage authors, composers and

artists to create original works by rewarding them with the exclusive right for

a limited period to reproduce the works for the benefit of the public. Authors/

owners commercialize these rights inter alia by licensing or assignment. Each

such right conferred upon a protected work is distinct and cannot be

interchanged or substituted with another right. For example, exclusive rights

available to the owner of a musical works include inter alia the right to

perform the work in public, to communicate the work in public, to make any

translation of the work or any adaption of the same. If a customer wanted to

translate a song into a different language, such a customer would have to

procure a license to translate the work from the owner; procurement of a

license to communicate the work would not be usable. From a demand-side

perspective there is clearly no substitutability between the different categories

of rights. Therefore, different types of rights may constitute different markets

based on the facts and circumstances of the case and markets involved.

137. The issue of narrowing down the relevant market based on the medium

of broadcasting may now be considered.

138. The Commission notes that DG has concluded in his investigation that

radio is distinct from other media of broadcasting. According to the DG the

main distinguishing factor between radio and other forms of media which

broadcast music such as TV and mobile VAS is that radio is free-to-air while

TV broadcasting and VAS are subscription based services. Furthermore, as per

the DG, radio broadcasting is more localized whereas TV broadcasting and

mobile VAS is available nationally; and costs associated with radio as a source

of entertainment is much lower than TV and/ or mobile VAS as a radio

operates by way of a receiver which is cheaper and more easily available as

opposed to TV or mobile VAS which are expensive and subscription based.

Additionally the DG has also observed that TV channels generate revenue

through advertising and subscription fees whereas radio being free-to-air is

limited to advertising revenues. On the other hand, the DG has also observed

that in case of mobile VAS, it is an ancillary service to the main service of

providing phone facilities and is subscription based where a part of revenue

generated by the telecom industry is shared with the music company.

Furthermore, as per the DG, the contents of radio stations in different cities

cater to the cultural diversities in each city.

139. The informant has agreed with the DG in this regard and submitted that

due to the fact that FM radio stations are free-to-air as opposed to TV or

Case No. 40 of 2011 Page 58 of 93

Mobile VAS, consumers would not consider other forms of paid for

entertainment as being substitutable with radio as a source of entertainment;

furthermore, pursuant to the GOPA entered into between Government of India

and private radio stations, the content allowed to be broadcast on radio is

severely restricted which places private FM stations on a different plane

compared to television broadcasters, as television has far greater liberty in

relation to the content it is permitted to broadcast; additionally radio

broadcasting is localized and specific to a particular city. On the other hand

TV channels transcend national boundaries and mobile VAS is increasingly

becoming available nationally and also does not require licenses to operate in

cities. The opposite party has not made any specific arguments on the issue of

distinction between different media of broadcasting.

140. In view of the distinguishing features as detailed above, the

Commission holds that radio as a medium is distinct from other media of

broadcasting.

141. The issue whether music content played on radio can be considered

substitutable/ interchangeable with non-music content, may now be examined.

The DG has also examined the content played on radio channels and observed

that since inception the radio companies, to broadcast over FM waves, have

had various restrictions imposed on them including with regard to the content

including news and current affairs on their channels as a result of which they

have no alternative but to play entertainment content in the form of music.

Furthermore, as per the DG, other than news and current affairs (which is

prohibited under the Government policy), the main non-music content is in the

nature of radio dramas, jokes, interview, weather news, games and contests.

However, majority of the listeners tune into radio stations to follow music

content.

142. The informant has agreed with the DG and submitted that non-music

content is broadcast on FM radio for the purposes of complementing music

Case No. 40 of 2011 Page 59 of 93

content and therefore, is not substitutable or interchangeable for music

content. All music channels advertise themselves as music channels or have

tag lines relating to more music content than their competitors. Thus, it can be

seen that the main focus of radio stations is on music and it is an essential

branding and marketing proposition for them to have the latest music content.

The opposite party has not made any specific arguments on the issue of

distinction between different forms of content broadcast on radio.

143. After considering the rationale advanced by the DG and the informant,

the Commission is of the view that music content cannot be considered as

substitutable/ interchangeable with non-music content.

144. The Commission now considers whether in the radio industry, a

distinction may be made between AIR and FM radio, and if further, also

between AIR FM and private FM channels. However, before dealing with the

issue, it would be apposite to notice evolution of the industry as highlighted in

the report of the DG.

145. AIR was established in 1936 which is one of the largest radio networks

in the world. Radio broadcasting is a one way transmission over radio waves

intended to reach a wide audience. The transmission over radio takes various

forms, AM and FM. AM is the oldest of the technologies used to broadcast

music, while FM is a development over AM broadcasting. FM receivers are

cheaper than those with AM receiving capabilities. FM radio has superior

audio quality and stereophonic sounds, cheaper availability, wider collection

of radio channels in comparison to AM radio.

146. In 1999, the Government of India launched the first phase of private

sector involvement in FM radio broadcasting with the following objectives: (i)

to open up FM broadcasting for entertainment, education and information

dissemination by commercial broadcasters; (ii) to make available quality

programmes with a localized flavour in terms of content and relevance; to

Case No. 40 of 2011 Page 60 of 93

encourage new talent and generate employment opportunities directly and

indirectly and (iii) to supplement the services of AIR and promote rapid

expansion of the broadcast network in the country for the benefit of the Indian

populace.

147. In July 2005, the Government of India launched the second phase of

the policy on expansion of FM radio broadcasting services through private

agencies with a view to give FM radio business a boost. Phase II covered as

many as 90 cities. It is seen that the FM radio stations across the country have

entered into licenses with the Government on the same terms and conditions

provided therein. Consequently out of these 337 channels, 284 were

successfully bid and after scrutiny, permission was granted for

operationalization of 245 channels spanning 87 cities. The number of

operational private FM stations has increased to 245 stations as on September

30, 2008.

148. AIR has been in operation for over 60 years as opposed to FM

channels which have been in operation since 2002 and that AIR is not

restricted in terms of content and can broadcast news programmes etc.,

wherein FM channels can broadcast only music. AIR earns about 40% of the

total advertising revenue in the radio industry and other channels share the

remaining 60% and that AIR is having a big network of broadcasting set up

throughout India and thus has huge listenership resulting into major share of

advertisement income out of the whole radio industry.

149. Based on the documents filed by the parties, the Commission observes

that the technical distinctions between AM and FM frequencies as well as the

fact that private FM stations can only broadcast on FM and not on AM as per

Government policy coupled with the limitation on content imposed on private

FM stations makes it clear that AIR and FM radio channels are distinct. The

Commission therefore, concludes that for the purposes of determination of the

Case No. 40 of 2011 Page 61 of 93

relevant product market, AIR (AM as well as FM) is distinct from private FM

stations.

150. The next question which arises for consideration is whether the market

needs to be further restricted in terms of the type/ genres of music that are

broadcast on the radio. The DG observed that the music business in India is

different from the rest of the world as film music has a history of more than 70

years and is part of the Indian culture. The DG further observed that India has

a vast range of music but the most popular is Bollywood music which

accounts for about 70% of music sales in India, and that it is an established

fact that out of 240 FM channels about 80% of the channels are largely based

on Bollywood music and it is also established that more than 200 channels

play the music of the opposite party. The DG also found that the maximum

music played on more than 200 channels is Bollywood music.

151. The opposite party has alleged that the DG has assessed the wrong

level of the market. The DG has reached the conclusion by considering the

extent to which the mediums of music are substitutable and/ or

interchangeable for listeners/ consumers. However, this is the wrong level to

assess the market. The supply of goods where the opposite party is alleged to

be dominant is the upstream flow of A (content owners providing licenses to

radio stations) and therefore, what is required is to test the extent of the

opposite party’s market power by looking at the ability of its customers (radio

stations) to switch and the ability of its rivals (other content providers) to

expand. However, the DG analyses the substitution in respect of the

downstream flow of B (radio stations providing broadcasts to consumers). The

customer for purposes of competition assessment is the radio stations and

therefore, the assessment should have been done at level A.

152. Section 2(t) of the Act defines relevant market as ‘a market comprising

of all those products or services which are regarded as interchangeable or

substitutable by the consumer, by reason of characteristics of the products or

Case No. 40 of 2011 Page 62 of 93

services, their prices and intended use’. For the purposes of an effective

competition law analysis, the Commission must look at the working of the

radio industry to understand the radio station-listener-advertiser dynamic. The

Commission notes that the purpose/ function of a radio station is to provide

content to its listeners and the number of listeners that they attract has direct

implication on their ability to attract advertising, which is a radio stations main

source of revenue. Therefore, in order to attract more listeners, the radio

stations will attempt to provide content that is popular with the listeners. Since

private FM channels are restricted to certain type of content that may be

broadcast due to government policy, they are largely focused on broadcasting

music. The role and tastes of the audience in music therefore, becomes

relevant. Since majority of the listeners like to listen to Bollywood music, and

given the cultural importance of Bollywood films music in the Indian context,

as has been established by the DG, and also by the evidence of the radio

stations, the radio stations as customers of the opposite party, who are

dependent on the patronage of their listeners to attract maximum advertisers,

will not consider Bollywood music substitutable with other kinds of music.

The opposite party’s contention that around 20% of the stations are not based

on Bollywood music is without merit. Simply because there is a market for

content that is non-Bollywood music does not imply that such content is

substitutable with Bollywood music from the point of view of the customer

who broadcasts Bollywood music based on tastes/ listening preferences of its

audience. Furthermore, the contention of the opposite party that even those

stations that play Bollywood music also play other types of music and can

therefore, increase the amount of non- Bollywood music is also without merit

for the same reason. The opposite party has further submitted that from a

demand perspective, what is considered substitutable by radio stations are the

various repertoires made available to it by the various music companies and

stated how RAM data shows that Big FM, Radio City and Radio One switched

to playing music from repertoires other than the opposite party’s repertoire

without suffering any appreciable dip in the market share. Even if this is

accurate, the Commission notes that 3 radio stations (even though Radio City

Case No. 40 of 2011 Page 63 of 93

switched back to the opposite party’s repertoire and should not be counted) out

of a total of 210 stations which have a license with the opposite party do not

constitute a sufficient number of customers switching to indicate that any

attempt by the firm to increase the prices for a product becomes unprofitable,

which is an important consideration for market definition purposes.

153. The Commission therefore, holds that Bollywood music can be

distinguished from the possible alternatives comprising of non Bollywood

music by virtue of specific characteristics as a result of which Bollywood

music is not interchangeable with non Bollywood music. Therefore, the

Commission concludes that the relevant product market in this case is the

‘market for licensing of Bollywood music to private FM radio stations for

broadcast’. For the purpose of section 4, the boundaries of relevant market

freeze the moment the products cease being interchangeable or substitutable.

In the instant case, non-Bollywood music and Bollywood music cannot be said

to be ‘interchangeable or substitutable’. It must be kept in mind that market

definition is not a mechanical process and is specific to the facts and

circumstances of each case.

154. The Commission notes that one of the major objections of the opposite

party in determination of the relevant product market is that the DG has failed

to consider supply side substitutability. Supply side substitutability considers

whether other content owners in the market would switch to providing

Bollywood music. However, the opposite party’s argument fails to consider

the dynamics of the industries in question. In order to provide effective

competition constraints in the downstream market of licensing of music, the

licensors would have to acquire more Bollywood music, which would require

them to either purchase more film music or produce more films. As the

dynamics of the film industry are such that sums of money involved in the

acquisition of music/ production of films are huge, with the opposite party

already being the largest buyer of film music, the opposite party’s contention

Case No. 40 of 2011 Page 64 of 93

of supply side substitutability is not probable in the context of the industry in

question and therefore, without merit.

155. Insofar as the relevant geographic market is concerned, the DG

concluded that the relevant geographic market in the present case as the

‘territories of India where Bollywood music is prevalent’. As per the DG, the

music played by FM channels in each station depends upon the choices and

preferences of listeners on the basis of local language, dialect and preferences

and although the film music dominates the music played on FM channels

across the country, yet the music played on FM can be categorized on the

basis of region:

(a) Region where Bollywood/ Hindi music occupies the maximum share:

Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh, Uttar Pradesh,

Uttaranchal, Bihar, Jharkhand, West Bengal, Rajasthan, Haryana, Himachal

Pradesh, Punjab and Jammu & Kashmir

(b) Region where regional language film occupies the maximum share: Tamil

Nadu, Kerala, Andhra Pradesh, Karnataka

are played: Bangalore, Hyderabad, Odihsa and North-East States

According to the DG, the relevant geographic market cannot be taken as India,

as the music played in the southern and eastern part of the country is distinct

from the music played in the rest of the territory where Bollywood is the

choice of radio listeners. The opposite party has, however, contended that such

a definition is extremely vague and cannot be used for any competition law

assessment as there does not exist any objectively verifiable standard or norm

to determine what is ‘prevalent’ form of music in any given territory of India

especially considering the fact that the same music/ content is available

through internet radio, mobile radio, TV etc., across territories of India.

Case No. 40 of 2011 Page 65 of 93

156. The Act defines 'relevant geographic market' in section 2(s) of the Act

as ‘a market comprising of an area in which the conditions of competition for

supply of goods or provision of services or demand of goods or services are

distinctly homogenous and can be distinguished from the conditions prevailing

in the neighboring areas’ and as per section 19(6) of the Act, the Commission

shall, while determining the ‘relevant geographic market’, have due regard to

all or any of the following factors, namely:

(a) regulatory trade barriers;

(b) local specification requirements;

(d) adequate distribution facilities;

(e) transport costs;

(f) language;

(g) consumer preferences;

(h) need for secure or regular supplies or rapid after-sales services.

157. The Commission notes that the ‘relevant geographic market’ is the area

in which conditions of competition for supply of goods or provision of

services or demand of goods or services are ‘distinctly homogenous’ from

prevailing areas. Geographic market definition involves the identification of

those firms, selling the products within the relevant product market, to which

customers in the area will turn in the event of a significant price increase, and

may also include firms that would enter the geographic area in response to

such an increase. Since any radio station operating in any city in India can

purchase a license from the opposite party or any of the opposite party’s

competitors, the geographical area should be the entire territory of India. The

Commission therefore, conclude that the ‘relevant geographic market’ is the

‘territory of India’.

Case No. 40 of 2011 Page 66 of 93

158. The Commission therefore, concludes that the ‘relevant market’ in this

case is the ‘market for licensing of Bollywood music to private FM radio

stations for broadcast in India’.

Determination of Issue No. 2

159. Having delineated the relevant market in consideration for the instant

case, it is now possible to examine facts to determine whether the opposite

party enjoys a ‘dominant position’ in such relevant market. ‘Dominant

position’ is defined under explanation (a) of section 4 of the Act. The same is

reproduced below for ready reference.

‘Dominant position’ means a position of strength, enjoyed by an enterprise, in

the relevant market, in India, which enables it to (i) operate independently of

competitive forces prevailing in the relevant market; or (ii) affect its

competitors or consumers or the relevant market in its favour.’

160. Unlike in some international jurisdictions, in India, the evaluation of

the strength has to be ascertained not merely on the basis of the market share

of the enterprise but on the basis of a host of factors such as size and

importance of competitors, economic power of the enterprise, entry barriers

etc., as mentioned in section 19 (4) of the Act. This wide spectrum of factors

provided in the section indicates that the Commission is required to take a

very holistic and pragmatic approach while inquiring whether an enterprise

enjoys a dominant position.

161. Thus, ‘the position of strength’ is not some objective attribute that can

be measured along a prescribed mathematical index or equation. Rather, it has

to be a rational consideration of relevant facts, holistic interpretation of

statistics or information and application of several aspects of the Indian

economy.

Case No. 40 of 2011 Page 67 of 93

162. In view of the aforesaid, the Commission now examines as to whether

the opposite party has a dominant position in the relevant market.

Market share of the enterprise

163. As per the DG, the market share of the opposite party in terms of the

relevant market is about 50% in terms of revenue. According to the DG, the

revenue of the opposite party from FM Radio when compared to its

competitors PPL, YRF, Sony and SaReGaMa shows that the opposite party

has been enjoying more than 50% market share from the relevant market over

a long period. Furthermore, the information collected during the investigation

shows that even the combined revenue of PPL and IPRS (INR 31 crores

during 2010-11) from radio license fee is less than the revenue of the opposite

party (INR 33.23 crores) during the same period. The DG has found that in

terms of songs played on all the FM channels across the country varies from

between 25% and 60% from one station to other. The information submitted

by the opposite party shows that the overall percentage of the needle hours of

all the songs played on 210 channels where it has granted license is about 30%

during 2012-11.

164. According to the opposite party however, the DG erred in not relying

upon and taking into account the data showing the market share of the

opposite party on an all India basis in respect of the private FM stations

whether or not licensed by the opposite party. If such data is considered, then

the market share of playout of the opposite party is 28.11 % (2008-2009);

27.34% (2009-10) and 26.85% (2010-11) and not 34.11%, 32.84% and

32.58%. Therefore, clearly with just an average of 25% market share on

overall playout of the music on all private FM radio stations, whether or not

licensed by the opposite party, the DG was in error in holding that the opposite

party had a dominant position by virtue of market share.

165. As per the opposite party, the data relied upon by the DG clearly

indicates that the revenue derived by the opposite party from FM radio stations

Case No. 40 of 2011 Page 68 of 93

is almost comparable to the revenue from the FM radio stations derived by

PPL. DG does not appreciate that the total revenue of the opposite party is

higher because the opposite party charges both for sound recording and

performance license and PPL is based only on sound recording license fee.

Size and resources of the enterprise

166. According to the DG, as compared to the opposite party, which has a

turnover of approximately 400 crores, incomes of competitors like Sony,

SaRaGaMa and TIPS are almost one-fourth or less than the size of the

opposite party’s turnover. The fact that the opposite party has acquired music

rights from the major movie production houses provided the opposite party

with sufficient market power to dictate terms to the private radio stations.

167. The opposite party has contended that the data showing the revenue of

the opposite party for the period 2003-2011 shows that revenue from physical

sales has gone down and likewise the revenue from radio have also been

falling substantially over the years and therefore, the DG wrongly concluded

that the opposite party is dominant. The opposite party has contended that

according to the DG, in 2012 and 11, the opposite party purchased rights about

48 Bollywood Films in each year while the closest competitors, SaRaGaMa

and Sony were not able to purchase more than 10-11 films every year during

the same period. However, it may be noted that as per the annual report of the

CBFC, the total no. of Hindi films released during 2009-11 were 656 as

compared to 464 stated by the DG. The opposite party therefore, owned music

content of about 25% of the Hindi Films released as per the data released by

CFFC. It is therefore, denied that the opposite party is dominant based on the

acquisition of Bollywood film/ music. DG report stated that the opposite party

has purchased the rights of the big budget and star cast films and the opposite

party controls ‘hit’ Bollywood music. The opposite party submits that there

cannot exist any segment such as hit Hindi film music and in any event, DG

has not relied upon credible data to arrive at the conclusion that the opposite

party has dominance in the ‘hit’ hindi film music segment. Furthermore, the

Case No. 40 of 2011 Page 69 of 93

assessment made by the DG presupposes that at the stage of the acquisition of

the music rights in a film, the music is a hit. This observation of the DG is

without merit, since at the stage of the acquisition of the music rights in a film,

more often than not the songs are not even in existence.

Size and importance of the competitors

168. The data gathered during the investigation has revealed that none of

the competitors of the opposite party are comparable in terms of size and

importance. The revenue of the opposite party is 4-5 times of its nearest

competitors. In terms of the number of Bollywood films acquired by the

opposite party in a year, none of its competitors have been able to acquire

more than 10-11 films in year. Thus, in terms of relevant market, the opposite

party is in such a position that no competitor is able to demand the terms and

conditions for sale of its music to FM channels.

169. As per the opposite party, the DG has erred in not analyzing the

vertical integration of the competitors of the opposite party such as YRF and

Sony. DG should also have noted that the opposite party faced competition at

two levels, from music companies at the stage of acquisition of content and

then from other licensing agencies such as PPL. The opposite party is

therefore, not foreclosing competition but creating it in the market. The

biggest competitor of the opposite party at the stage of licensing of music

rights is PPL which has more than 200 companies as its members. The royalty

income of PPL for the last 3 years as well as the turnover of PPL shows that it

is the opposite party’s biggest competitor.

Dependence of consumers on the enterprise

170. As per the DG Report, the information gathered during the

investigation has confirmed that the radio stations are dependent upon the

opposite party. The data provided by the opposite party itself shows that as per

AirCheck Top 100 and Top 20 songs/ music broadcast on radio, the opposite

party owns majority of the music labels and that it has 58% share of the top

Case No. 40 of 2011 Page 70 of 93

100 songs played on private FM channels. If the radio stations were to

discontinue playing the opposite party’s music, there being no demand side

substitutability of latest Bollywood songs, it would cause irreparable damage

to the market share of the radio station as customers would immediately

switch to other radio stations. This aspect was confirmed by the radio stations

during the course of the investigation.

171. According to the opposite party, there is data which shows that there

are many radio stations that have not received any license from the opposite

party and these radio stations are experiencing higher growth levels than other

radio stations that have licenses from the opposite party. DG has merely relied

upon statements made by radio stations to arrive at a finding about over

dependence of the radio stations on the opposite party. However, responses

filed by radio stations are contradictory and not supported by verifiable data.

Barriers to entry

172. The DG has noted that although there are no major entry barriers to

become a music company or music producer in the Indian music industry and

to grant license in the relevant market, yet in Bollywood music Industry it is

not easy to obtain the ownership rights on account of the huge cost and

distribution network is required. Every film producer want to either sell his

music at a higher price which may go up to 10 crores for a film and also wants

to take advantage of distribution network of companies like the opposite party.

According to the DG Report, the opposite party is the only independent music

company which holds a lion’s share in the Bollywood film music and due to

its dominance has the ability and the bargaining power to deal with

broadcasters, independent of industry organizations and copyright societies.

173. According to the opposite party, the DG fails to consider the possibility

of expansion by current rivals such as Sony. Many of the opposite party’s

competitors are vertically integrated and have natural exclusive access to

music content produced by their affiliates. Notably, the opposite party does

Case No. 40 of 2011 Page 71 of 93

not possess this strategic advantage and must vigorously compete and bid for

every film’s music content. Furthermore, the Report only addresses the threat

of entry and not the threat of expansion

174. As per the informant, the opposite party has failed to explain why in an

industry with no barriers to entry or expansion and where the opposite party’s

prices are considerably higher than its ‘significant competitors’, the market

shares of those competitors have not increased dramatically as a result of a

shift in demand. The conduct of the opposite party in increasing acquisition

costs, focus on superstar films and imposing performance license fees and

MCC on radio stations are significant barriers to entry and expansion in the

market.

175. Having heard the submissions of the parties and considering the report

of the DG and other material available on record, the Commission proceeds to

determine the issue of dominance.

Market share

176. The market share of the opposite party in terms of revenue from FM

Radio for the last 3 years is over 50%.

Case No. 40 of 2011 Page 72 of 93

Revenue from FM Radio by major music providers (Rupees in crores)

Year

2008-9

2009-10

2010-11

OP PPL YashRaj Sony Saregama

36.75 8.19 3.29 3.52 6.6

36.29 23.72 2.43 3.39 5.4

33.23 21.87 1.62 1.58 2.7

The table above reveals that as compared to its main competitor companies

YRF, Sony and SaReGaMa, the market share of the opposite party is over

50% for the last 3 years. The fact that the revenue of PPL is close to the

revenue of the opposite party in itself does not detract from the market power

of the opposite party because PPL is a copyright society which has over 200

members and collects royalties on behalf of their members, and then

distributes it to them. On the other hand the opposite party is a single entity

which is directly earning such revenue.

177. The market share of the opposite party in terms of playout of

Bollywood music on FM channels across the country is disputed by the

opposite party. The Commission notes that based on the information collected

by the DG, the market share of the opposite party in terms of playout cannot

be determined with any kind of exactitude. Even if the contention of the

opposite party is accepted and the market share in terms of playout of music of

25% is accepted, this does not detract from the fact that songs of the opposite

party played on all the FM channels across the country varies from between

25% and 60% from one station to other, and that the opposite party has been

able to maintain this share over the last few years.

178. It is important to consider that market shares provide information about

a firm’s past market success in relation to its competitors. Market shares

provide useful first indications of the market structure and of the competitive

importance of various undertakings active on the market. In most markets, an

enterprise’s absolute market share is an important factor that allows for initial

indications about its market power. However, market shares alone do not

determine whether an undertaking is dominant or has substantial market

power. Therefore, these initial indications are put in perspective by other

factors when making an overall assessment of the market power of the firm

under investigation.

Size, resources and economic power of the enterprise

179. As compared to the opposite party, which has a turnover of

approximately 400 crores, incomes of competitors like Sony, SaRaGaMa and

TIPS are almost one-fourth or less than the size of the opposite party’s

Case No. 40 of 2011 Page 73 of 93

turnover, which is an important indicators of the economic strength of the

opposite party.

180. It has been established that the opposite party purchased rights about

48 Bollywood Films in each year in 2010 and 2011 while the closest

competitors, SaReGaMa and Sony were not able to purchase more than 10-11

films every year during the same period. Even if the percentage of films that

the opposite party has purchased in the last 2-3 years cannot be determined

accurately due to the disputed fact of the number of films which have released

every year, it is clear that the opposite party managed to purchase the rights of

almost 4 times the number of films of its closest competitors. Furthermore, the

opposite party has purchased a number of films of bankable stars (as per the

DG, investigation has found that the opposite party has procured almost all the

films of Sharukh Khan, Salman Khan and Aamir Khan), and while the

Commission notes that the purchase of music rights of films which have

‘bankable’ stars does not guarantee that the music is a hit, it has to be

recognized that because of the presence of ‘bankable’ stars, the interest in such

movies is a much more than a normal film without superstars and therefore,

the likelihood of its success is more than a film which has lesser known actors.

The Commission, therefore, notes that the superior financial strength in the

market coupled with superior resources as in this case is an important indicator

of dominance of an enterprise.

Size and importance of competitors

181. The Commission notes that when compared to its competitors in terms

of revenue, acquisition of movies, ownership of popular content, the opposite

party is definitively is a superior position as the opposite party’s revenue of

the opposite party is 4-5 times of its nearest competitors. In terms of the

number of Bollywood films acquired by the opposite party in a year, none of

its competitors have been able to acquire more than 10-11 films in year. The

opposite party has also been able to purchase the movies of most of the

Case No. 40 of 2011 Page 74 of 93

superstars. These factors again indicate that the opposite party is in a position

of strength in the market.

Dependence of consumers on the enterprise

182. As per DG, the data provided by the opposite party itself shows that as

per AirCheck Top 100 and Top 20 songs/ music broadcast on radio, the

opposite party owns majority of the music labels and that it has 58% share of

the top 100 songs played on private FM channels.

Case No. 40 of 2011 Page 75 of 93

Top 100 Songs Analysis in 18 Cities Analysis

(Ahmadabad, Bengaluru, Chennai, Coimbatore, Delhi, Hyderabad, Indore,

Jaipur, Kanpur, Kolkata, Lucknow, Nagpur, Pune, Surat, Thiruvanthapuram,

Vadodara, Visakhapatnam)

Week Total Songs T-Series Song Percentage

04-10 July 2011

11-17 July 2011

18-24 July 2011

25-31 July 2011

01 Aug 07 August 2011

08-14 Aug 2011

15-21 Aug 2011

22-28 Aug 2011

29 Aug – 04 Sep 2011

05-11 Sept 2011

12-18 Sept 2011

19-25 Sept 2011

26 Sept – 02 Oct.2011

03-09 Oct 2011

10-16 Oct.2011

85 49 57

79 46 58

86 46 53

85 45 52

85 49 57

83 46 55

76 47 61

78 44 56

80 50 62

78 52 66

81 47 58

77 42 54

79 40 50

80 39 48

17-23 Oct 2011 71 43 60

Case No. 40 of 2011 Page 76 of 93

24-30 Oct.2011

78 42 53

31 Oct -06 Nov.2011

07-13 Nov.2011

14-20 Nov. 2011

21-27 Nov.2011

28 Nov.04 Dec.2011

05-11 Dec. 2011

12-18 Dec. 2011

76 42 55

84 44 52

77 45 58

79 45 56

82 43 52

74 46 62

77 47 61

19-25 Dec. 2011 78 47 60

26 Dec.01 Jan.2012

81 51 62

02-08 Jan.2012

09-15 Jan.2012

16-22 Jan.2012

23-29 Jan. 2012

30 Jan. - 05 Feb.2012

06-12 Feb.2012

13-19 Feb. 2012

20-26 Feb.2012

27 Feb -04 Mar.2012

05-11 Mar. 2012

12-18 Mar 2012

19-25 Mar 2012

26 Mar– 01 Apr 2012

02-08 Apr.2012

09-15 Apr 2012

16-22 Apr.2012

23-29 Apr.2012

30 Apr – 06 May 2012

07-13 May 2012

14-20 May 2012

83 42 50

78 44 56

84 44 52

79 43 54

79 51 64

80 53 66

77 49 63

74 49 66

77 49 63

80 49 61

81 50 61

80 46 57

73 48 65

79 48 60

81 48 59

80 47 58

81 48 59

79 50 63

84 48 57

21-27 May 2012 83 48 57

Case No. 40 of 2011 Page 77 of 93

28 May – 03 Jun 2012

84 50 59

04-10 Jun 2012

11-17 June 2012

18-25 June 2012

82 51 62

84 52 61

77 56 72

TOTAL 4073 2395 58

While the Commission notes that AirCheck data changes from day to day, and

is only collected in 18 cities, the data gathered is a strong indicator, coupled

with other factors that the opposite party’s repertoire comprises of Bollywood

music that is extremely popular with the listener and resultantly popular with

the advertisers and that due to such popular content, the opposite party

commands a position of a strength. Due to the ownership of popular content,

the opposite party’s customers are heavily dependent on the content of the

opposite party, as is also evident from the evidence collected from the radio

operators.

Barriers to entry

183. The Commission notes that there are significant barriers to entry in the

market. In order to be successful in the business of licensing of music,

particularly Bollywood music, a company needs to buy the music rights of

Bollywood movies which according to the evidence can go upto 10 crores.

Even after the purchase of music rights, vast investments are required in the

promotion of music as well in a distribution network. Finally, in order to

become competitive in the market, a music company needs to be able to build

a repertoire of music that takes time and more investments. There are

therefore, barriers to entry in the market and the Commission holds that in this

case there are substantial barriers to entry which make it impossible/ more

difficult for a firm to enter the market.

184. In addition to the above, the Commission considers certain evidence in

the relevant market which shows, that in fact, the opposite party was in a

position of strength in the relevant market.

185. Moreover, the following factors and the conduct of the opposite party

further strengthen that the opposite party is indeed in a position of strength in

the market which is allowing it to operate independently of competitive forces.

186. The opposite party’s royalty rates are set on a needle per hour basis,

whereas PPL and most other competitors provide licenses at a rate either

determined by or equivalent to the Second Order of the Copyright Board. The

opposite party also conveniently decides to follow the rate set by the First

Order of the Copyright Board as a ‘market standard’ while disputing the rate

set by the Second Order of the Copyright Board by the same authority. The

opposite party’s argument that the rate set in the Second Order of the

applies equally to the First Order of the Copyright Board, where the opposite

party again was not a party. The opposite party is the only music provider who

is charging such rates to radio stations. This is despite the fact that the entire

industry has expressed dissatisfaction with these rates and has applied to the

187. The opposite party imposes MCC ranging from 30%-50% of playout

which radio stations are required to pay irrespective of whether they play that

amount of music. No other music provider has imposed such MCC. The

evidence of the radio stations also reveals that they have showed a strong

resistance to the imposition of MCC; however, MCC continue to be imposed.

188. During oral arguments, the opposite party submitted that it lost

contracts with 82 of the 245 private FM radio stations (not necessarily radio

companies/ broadcasters) after the Second Order of the Copyright Board,

which reduced its market share by 15%. However, the Commission notes that

Case No. 40 of 2011 Page 78 of 93

the loss of contracts did not lead to a change in the prices or imposition of

MCC by the opposite party.

189. In this connection, it is instructing to notice that Radio City (one of the

radio stations whose contract was terminated as a result of the opposite party’s

conduct) returned to the opposite party after a year and that too on unchanged

terms. When asked about Radio City’s license, the response of Shri Neeraj

Kalyan is telling:

‘.....As regards Radio City, their license expired in December 2010 which they

refused to renew unless we agreed to apply the rates stated in the Copyright

Board Order. We refused to accept the same. However our refusal had no

effect on their profitability and RAM ratings. On their own accord they once

again approached us for a license in January 2012 which we granted on

mutually agreed upon terms which shows that we have never refused a license

to anyone provided that they are reasonable in their negotiations with us’.

190. This shows that even after refusing to apply rates of the Second Order

of the Copyright Board, Radio City renewed their contract with the opposite

party. According to Radio City, ‘…….As a result of the termination/ expiry of

the MOU dated 26th December (that stood amended from time to time) our

company’s business was considered hampered as we were able to broadcast a

huge repertoire of music owned by SCIL......Further, during the entire period,

i.e. 2011, when we were not broadcasting the music of SCIL but the other

radio stations were, the other radio stations performed considerably better

than our radio stations in terms of revenues as we did not have the license to

play the music of SCIL, which included most of the top songs of that period

and as such was detrimental to our interests’. Radio City’s response is also

evidence of the fact that the radio station could not effectively compete

without playing the opposite party’s music.

Case No. 40 of 2011 Page 79 of 93

191. Based on the above assessment, the Commission concludes that it is

clear that the opposite party is a dominant enterprise, having the strength to

operate independently of competitive forces and affect its competitors and

customers in its favour.

Determination of Issue No. 3

192. The Commission now looks at the allegations of abuse of dominant

position by the opposite party.

Excessive Pricing

193. The DG’s investigation has revealed that post the Second Order of the

per the Second Order of the Copyright Board; (ii) rates negotiated by FM

channels with other music companies like YRF; and (ii) the rate that the

opposite party charges, which have been found to be the highest rates in the

radio industry at present.

194. The DG has also noted that during the course of investigation it was

contended by the opposite party that one of the reasons for charging higher

price from radio operators or charging fixed or minimum charges is to

compensate the loss on account of decrease in sales of music in physical

format. It was argued that repeated airplay by radio has adversely affected the

physical sale. However, this contention has not been backed by any evidence

and during the investigation Shri Neeraj Kalyan from the opposite party was

asked to clarify whether they request the radio operators to not repeat the same

song on their channel and he confirmed that it was not so. The DG also found

that after the release of music, FM radio is used as a platform to promote

music.

195. The DG also found that the opposite party has not reduced its rate

despite the non-renewal of licenses by some of the operators such as Radio

Case No. 40 of 2011 Page 80 of 93

City, Big FM, Radio Mantra. The DG has further observed that the opposite

party has also raised the issue of high acquisition cost and the decrease in sales

of physical form to justify its conduct of charging prices above the benchmark

or industry norms. Further, the opposite party has itself stated that the cost of

music and royalty rates for FM channels cannot be correlated directly. Thus, it

may be seen that the opposite party has not been able to justify the reason for

charging higher price than the competitors in the market. It has conveniently

chosen to stick to the prices determined by the First Order of the Copyright

Board, as detailed earlier. Therefore, according to the DG, it is evident that the

only reason for charging the excessive price is the dependence of consumers

on the music of the opposite party and that the investigation has revealed that

there is no reasonable relation between the prices charged by the opposite

party and the economic value of the product. As per the DG, the prices

charged by the opposite party are much higher than the industry norms or the

prices charged by its competitors. The DG has thus concluded that the

opposite party is charging excessive and unfair prices in violation of section

4(2)(a)(i) of the Act.

196. The Commission notes pricing abuses may come under the purview of

competition law as abuse of dominance. Pricing abuses may be ‘exclusionary’

i.e. pricing strategies adopted by dominant firms to foreclose competitors.

Such strategies include a wide variety of measures, such as predatory pricing,

price squeezes, loyalty rebates. Pricing abuses may also be ‘exploitative’ i.e.

which cover instances where a dominant firm is accused of exploiting its

customers by setting excessive prices. This case deals with the issue of pricing

abuse which is exploitative i.e. excessive prices charged by a dominant firm to

its customers.

197. The prohibitions or the abusive conducts including both ‘exclusionary’

and ‘exploitative’ practices are set out in section 4(2) (a), (b), (c), (d) and (e)

of the Act. Imposition of unfair price has been explicitly stated as an abusive

act under section 4(2)(a)(ii) which states that there shall be an abuse of

Case No. 40 of 2011 Page 81 of 93

dominant position, if an enterprise or a group directly or indirectly imposes

unfair or discriminatory price in purchase or sale (including predatory price)

of goods or services. Evidently, a dominant firm, under the Act, abuses its

dominance if it charges ‘unfair prices’ to its customers, which may include

both unfairly high or excessive price and unfairly low or predatory price.

Thus, excessive price forms a subset of ‘unfair price’ in the Indian context.

198. The Commission notes that determining whether a price is excessive is

an uncertain and difficult task. The opposite party has submitted that cost

analysis for setting the license fee is not possible as the cost of a sound

recording is reflected in the acquisition price paid as ‘royalty’ to the owners,

whereas if the sound recording is developed in-house, the cost is categorized

as ‘recording expenses’. As against the said direct costs, the opposite party has

various avenues for commercially exploiting the same and it is very difficult to

apportion the cost of acquisition of sound recording to different revenue

streams. Moreover, certain sound recording may be expensive to acquire but

the music may turn out to be a flop, the reverse may also be true. Therefore,

the value of a particular sound recording would depend upon its popularity and

not its cost.

199. The Commission notes that in the absence of the cost data it will be

difficult, neigh impossible, to term the price charged by the opposite party at

661 INR per needle hour as unfair being excessive solely on the basis that it is

higher than the price charged by the competitors of the opposite party. In view

of all factors discussed in the preceding paragraphs above, the Commission

holds that a case of excessive pricing has not been made out against the

opposite party.

MCC

200. The DG’s investigation has revealed that the opposite party requires

MCC to be paid by the informant irrespective of the actual number of needle

Case No. 40 of 2011 Page 82 of 93

hours of the opposite party’s music that is broadcast. The opposite party

imposes an amount of INR 2,16, 667 per month per radio station (excluding

Bangalore) as MCC for both sound recording and performance rights and

therefore, the informant is bound to pay a total of INR 6,50,000 per month for

three radio stations to the opposite party, irrespective of the actual quantity of

the opposite party’s music broadcast. The statement of Shri Neeraj Kalyan

from the opposite party explaining the reasoning for imposing MCC is

reproduced as under:

Case No. 40 of 2011 Page 83 of 93

‘.............As far as the issue of minimum guarantee in terms of

playout of our music is concerned, it is not mandatory on

anyone to accept this condition and there are instances wherein

we have offered our licenses without minimum guarantee of

music playout also. Minimum guarantee is sought from the FM

stations based on our playouts in the immediately preceding

year by the FM station and it acts as a mere assurance to us

that the losses suffered by us by way of ever decreasing

physical sales is somehow compensated for which FM stations

are the main reasons for such decline because they have been

belting out music of our albums and films so much during the

whole day that the consumer do not feel the need to buy or

consume such music in any other manner when the same is

available free of cost. However, it has been noticed that FM

stations have been playing our music invariably in excess of the

minimum committed needle hours which in itself is proof that

the same is not a deterrent, exploitative or anti-competitive in

any manner. In addition to this we have also been offering the

FM stations some complementary needle hours in exchange of

the minimum committed needle hours playout which also helps

the FM stations to bring down their cost of music and it is in

our mutual benefit.....’

201. The DG’s investigation further revealed that except the opposite party,

no other music company is imposing MCC, neither is PPL imposing MCC and

furthermore, that since the opposite party has a position of strength in the

relevant market the radio operators have no choice but to accept the conditions

imposed by the opposite party. The agreements for granting licenses to the FM

channels contain the provision for MCC. On perusal of some of the

agreements, the DG found that the minimum committed needle hours for

playoff of the songs of the opposite party imposed by it are as high as 50%.

According to the DG, this reveals the modus operandi of the opposite party is

to ensure its business share in the relevant market and that if half of the total

songs played by the FM stations have been fixed by the opposite party, the

other music companies will be left with only 50% of the total market share of

the relevant market.

202. The opposite party has contended that when they impose a condition of

minimum play out of more than 35% they also allow a complementary needle

hour upto 20%. Therefore, they are not abusing but giving a royalty discount

of extra free music for the benefit of the FM radio stations. According to the

DG, the contention of the opposite party has no merit as they by virtue of their

market power are imposing restraints on the FM stations by not allowing the

music companies to play music as per their choice. It has been found during

the course of investigation by the DG that while taking the broadcasting rights,

the private FM radio stations have to accept MCC as it is an essential

precondition before grant of broadcasting rights by the opposite party to the

radio stations.

203. As per the DG, the investigation has further revealed that the condition

of MCC is distorting the competition in the relevant market. On one hand it

increases the cost of music for FM radio stations as they are forced to pay

extra money even if they are not playing songs of the opposite party, on the

other hand it also forces FM stations to play at least the minimum guaranteed

needle hour even though there is no demand of such songs from the listeners.

Case No. 40 of 2011 Page 84 of 93

The opposite party has argued that they decide MCC on the basis of the

percentage of songs actually played by the FM stations. Therefore, they are

not hindering the competition, as the FM stations will anyway play their song

of the same needle hour. According to the DG, the contention of the opposite

party is devoid of any merit because the investigation has indicated that the

obvious purpose behind imposing the condition of MCC is to protect its

dominance in the relevant market and to maximize its profit. In the music

industry, nobody is sure about the popularity of a song unless it is released and

played in the market. By way of ensuring the minimum play out, the opposite

party also gets advantage in procurement of music from film producers. Thus,

the opposite party due to its dominant position in the market also gains a

position or strength and bargaining edge over its competitors while purchasing

the rights of film music. According to the DG, the opposite party has not been

able to put forth any explanation to justify that the conditions of MCC are

imposed for any pro-competitive reason. It is evident that the terms and

conditions are imposed only to maintain and abuse the dominance of the

opposite party in the relevant market. Thus, the DG has concluded that the

opposite party is imposing an unfair condition in violation of section 4(2)(a)(i)

of the Act.

204. The Commission notes that the prohibitions or the abusive conduct

including both ‘exclusionary’ and ‘exploitative’ practices set out in section

4(2) (a), (b), (c), (d) and (e) of the Act include the imposition of ‘unfair’ or

‘discriminatory’ condition in purchase or sale of goods or service. Therefore,

imposition of unfair/ discriminatory trading condition has been explicitly

stated as an abusive act under section 4(2)(a)(i) which provides that there shall

be an abuse of dominant position, if an enterprise or a group ‘directly or

indirectly imposes unfair or discriminatory condition in purchase or sale goods

or services’.

205. The opposite party has alleged that the condition of MCC is not

exploitative as radio stations in any event broadcast the pre-determined

Case No. 40 of 2011 Page 85 of 93

amount. According to the informant, this is a blatant attempt to mislead the

Commission; for example in the year 2009-2010, the informant has, with the

exception of the month of November (for all three radio stations) and in

December for the Kolkata radio station and January for the Mumbai radio

station, never broadcast the full MCC target.

206. The Commission notes that MCC, irrespective of whether it is 30% or

50%, is exploitative and exclusionary in nature. It is exploitative as it forces

the customers to pay for music that it may not play. Exclusionary conduct is

characterized by improper strengthening of market power by the dominant

enterprise. In this case the imposition of MCC by the opposite party has an

anti-competitive effect on the market as it forecloses other competitors from a

substantial share of the market. Since the private radio station is contractually

bound to pay the opposite party a minimum guarantee, they are likely to

broadcast the amount of music that they have already paid for. Therefore, a

certain amount of music playout on private FM radio stations is already fixed

for the opposite party. This results in the opposite party’s competitors not

being able to compete for and being foreclosed from broadcasting their music

on this prefixed playout of 30-50% reserved for the opposite party.

207. The opposite party has raised the contention that computation of MCC

is based on the playout of the radio station for the previous year and therefore,

rather than forcing broadcasters to buy content that they do not want, it reflects

their actual demand. In view of the Commission the plea taken by the opposite

party is devoid of any merit as demand of content of opposite party by a radio

station last year does not mean similar or identical demand in the next year

also. Besides, the playout number is manipulated by opposite party in its

favour through incentive scheme.

208. Similarly the argument taken by the opposite party that charging of

MCC is justified as the revenue from the physical sales dipped significantly

due to continuous belting of music by the FM radio stations has no substance

Case No. 40 of 2011 Page 86 of 93

and self defeating as by its own account the opposite party was giving

complementary needle hours of play along with the minimum committed

needle hours.

209. The opposite party has urged that the DG has erred in failing to

consider the efficiency explanations for MCC. The Commission notes that the

opposite party cannot justify MCC on the grounds that MCC reduces the

uncertainty that content owners face, particularly since it is the only player in

the market that is charging MCC.

210. Based on above discussion the Commission concludes that it is

unacceptable for a dominant enterprise to impose such unfair/ discriminatory

conditions in licensing of their content and the Commission holds that the

imposition of MCC on private FM radio stations is an abuse by the opposite

party under section 4(2)(a)(i) of the Act.

Performance license fees

211. According to the DG, it has been submitted by the informant and other

radio operators that the opposite party is charging license fees for both sound

recordings and underlying works whereas various High Courts have held that

no license fee is required to be paid for underlying works. The opposite party

on the other hand has claimed that as per the provisions of the Copyright Act

when a sound recording is broadcast from an FM radio station, two separate

royalties, one for communicating the sound recording to the public and one

towards performance of the underlying works is payable. The opposite party is

relying on the decision of the Madras High Court in Mutooth Finance v.

Indian Performing Rights Society & Ors. to justify its stand. Radio operators

on the other hand have contended that the Division Bench of the Delhi High

Court in IPRS v. Aditya Pandey & CRI Events has taken into consideration the

above case and held that music providers are not entitled to a performance

license fee for the broadcast of music by radio stations.

Case No. 40 of 2011 Page 87 of 93

212. The DG examined a number of music companies and radio operators.

Radio operators have submitted to the DG that they have stopped paying

performance license fees to IPRS for the broadcast of their music; the opposite

party on the other hand continues to impose the payment of performance

license fees for broadcast of its repertoire. PPL and YRF who were asked

about the performance licensee fee. According to the replies received, it was

revealed that there is a there is a separate copyright society, IPRS, which is

responsible for collecting the performance license fees on behalf of its

members for underlying works, and thus PPL has no role in the matter of

performance license fee. YRF (who is not a member of IPRS and therefore,

collects performance license fees directly) on the other hand stated that they

do charge performance royalties as the same is provided for under statute.

According to the informant YRF is not insisting on immediate payment of

performance license fees and on examination of the agreement between the

informant and YRF, the DG found that there is clause in the agreement which

states that if the final decision of the Supreme Court is pronounced in favour

of the music companies, the performance royalty shall be paid by the

informant within 30 days. Thus according to the DG, it may be seen that at

present none of the music companies except the opposite party are able to

impose the condition of performance license fee on radio operators and in

view of the various High Court decisions are awaiting the final decision of the

Supreme Court. In view of the above, according to the DG, the allegation of

the informant regarding violation of provisions of section 4(2)(a)(i) has been

found to be correct on account performance license fees imposed by the

opposite party on the radio operators.

213. According to the opposite party, the DG has not appreciated that the

terms of the agreements entered into between the opposite party and the radio

operators contain a clause in the agreements that if in any Court/Copyright

Board proceedings to which both licensor and the licensee are parties

stipulates a ‘future rate’ that is different from the ‘current rate’ at which the

Case No. 40 of 2011 Page 88 of 93

license fee is payable, whether in any interim or final order, then the rate

payable shall be modified to equal the ‘future rate’ so stipulated by the Court/

clearly has a mutually agreed clause that in proceedings, where both the

opposite party and the informant (or any other radio operators) are parties to

the proceedings, any order passed by the Court/ Copyright Board must be

implemented. The said clause 4.2 of the License Agreement dated October 12,

2006 between the opposite party and the informant is as follows:

Case No. 40 of 2011 Page 89 of 93

‘4.2 The Licensee in consideration of the grant of the license as

mentioned above under Clause 2.2, during the term of this

Agreement agrees to pay to the Licensor a Performance

License Fee at the end of each month starting from the

Commencement date for the designated radio station at a rate

per needle hour of broadcast…..For the removal of doubts it is

clarified that the performance license fee paid in terms of this

clause is separate and in addition to License fee payable under

clause 4.1.

Provided further that if any Court/ Copyright Board in

proceedings to which both Licensor and the Licensee are

parties, stipulates a ‘rate’ that is different from the ‘License fee

rate’ at which the Public Performance License Fee is payable

hereunder, whether in any interim order or final order, then the

rate payable hereunder shall be modified to equal the ‘future

rate’ so stipulated by the Court/ Copyright Board…’

214. The Commission notes that the final determination of whether a

performance license fee is chargeable or not for underlying literary and

musical works is pending before the Supreme Court. Given that at present

there is lack of clarity on the subject as the matter is pending before the

Supreme Court, and the Supreme Court will determine whether owners of

underlying works are entitled to a performance license fee for broadcast of

music by radio stations or not, the Commission does not deem it appropriate to

deal with this issue on merits.

Case No. 40 of 2011 Page 90 of 93

ORDER

215. In view of the above discussion, the Commission holds that the

opposite party is in contravention of the provisions of section 4(2)(a)(i) of the

Act by imposing unfair condition of MCC on private FM radio stations.

216. In view of the findings recorded by the Commission, it is ordered as

under:

(i) The opposite party is directed to cease and desist from formulating and

imposing the unfair condition of MCC in its agreements with private FM radio

stations in India;

(ii) The opposite party is further directed to suitably modify the unfair

condition of MCC imposed on private FM stations in India in its existing

agreements within 3 months of the date of receipt of this order.

217. In terms of the provisions contained in section 27(b) of the Act, the

Commission inter alia may impose such penalty upon the contravening

parties, as it may deem fit which shall be not more than ten per cent of the

average of the turnover for the last three preceding financial years, upon each

of such person or enterprises which are parties to such agreements or abuse.

218. It is evident that the legislature has conferred wide discretion upon the

Commission in the matter of imposition of penalty as can be noticed from the

phraseology employed in the provision noted above. The primary objectives

behind imposition of penalties are: to impose penalties on infringing

undertakings which reflect the seriousness of the infringement; and to ensure

that the threat of penalties will deter both the infringing undertakings and other

undertakings that may be considering anti-competitive activities from

engaging in them. To quantify the penalty, the Commission needs to prepare

an inventory of aggravating and mitigating circumstances/ factors. After

weighing the aggravating and mitigating factors, the Commission has to reach

an appropriate finding on the quantum of penalty. In relation to the imposition

of penalty under section 27 of the Act, the legislative intent seems to provide

strong deterrence to the firms from indulging into practices which are

detrimental to the competitive process in the market resulting not only harm to

the consumes but also retard economic development of the country.

219. The Commission has bestowed its thoughtful consideration on the

issue of quantum of penalty. The Commission has examined the financial

statements submitted by the opposite party of the years 2008-09, 2009-10 and

2010-11 and the same may be noted below:

Case No. 40 of 2011 Page 91 of 93

Name

Turnover for

2008-09

(in Crores)

Turnover for

2009-10

(in Crores)

Turnover for

2010-11

(in Crores)

SCIL 36.74 36.29 33.22 35.41

Average

Turnover for

Three Years (in

Crores)

220. Furthermore, the Commission has also taken note of the aggravating

factor emanating from the finding recorded by the DG that the opposite party

imposed an amount of INR 2,16, 667 per month per radio station (excluding

Bangalore) as MCC for both sound recording and performance rights and

therefore, the informant is bound to pay a total of INR 6,50,000 per month for

three radio stations to the opposite party, irrespective of the actual quantity of

the opposite party’s music broadcast.

221. Considering the totality and peculiarity of facts and circumstances of

the present case, the Commission decides to impose penalty on the opposite

party at the rate of 8% of its average turnover of the last three years of the

company amounting to Rs. 2,83,28,000 (Two Crore Eighty Three Lakhs

Twenty Eight Thousand).

222. The Commission further directs the opposite party to deposit the

penalty amount within 60 days of receipt of this order.

223. The opposite party is further directed to file an undertaking in terms of

the directions contained in para 216 (i) within a period of 30 days from the

date of receipt of this order.

224. It is ordered accordingly.

225. In terms of the order passed by the Hon’ble High Court of Delhi in

Writ Petition No. 2037 of 2013, it is ordered that the operation of the present

order shall remain stayed for a period of one week from the receipt thereof by

the opposite party to enable it to approach the appropriate forum for grant of

relief, if any.

226. The Secretary is directed to inform the parties accordingly.

Case No. 40 of 2011 Page 92 of 93

(Ashok Chawla)

Chairperson

(M. L. Tayal)

Member

New Delhi

Date: 01/10/2014

Case No. 40 of 2011 Page 93 of 93

(S. L. Bunker)

Member

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