EU claims 'most-favored nation' clause illegally limits competish

As if they didn’t have enough problems selling their movies and series into the European market, the Hollywood studios may soon face another one.

European Competition Commissioner Mario Monti is apparently set to charge the studios with breaching European Union antitrust laws regarding sales to pay-TV platforms.

Per a statement of objections to the film companies, the EU will claim that standard industry contracts which include “most-favored nation” clauses illegally limit competition.

In other words, the Brussels-based regulators are questioning whether contracts that commit Euro stations to offer the same terms to multiple studios may reduce competition and raise prices for cable and satellite subscribers.

The commission began the investigation into the contracts a year ago. The pay TV biz in Europe brings in several billion dollars to the studios each year. The main players under scrutiny are the seven MPA companies plus DreamWorks.

Ironically, however, prices for Hollywood movies have come down sharply in several European countries over the last three years because pay-TV platforms have imploded or merged.

“The real question isn’t our being in cahoots on the selling side but that there is very little competition on the buying side because there’s often only one player in each territory,” said one L.A.-based international TV exec.

In addition, Rupert Murdoch’s role as both movie buyer and seller in the U.K., where he controls satcaster BskyB, and in Italy, where he controls SkyItalia, further muddies the waters abroad.

The studios have adamantly refused to comment officially on the antitrust issue, but they have said from time to time that the so-called most-favored nation clause was rarely if ever “held to account” in negotiations.

Still, independent observers of the international scene saymost of the majors’ long-term deals included the same inevitable B-tier material packaged alongsidetop titles — something buyers have increasingly bristled at — and that the formula for determining the value of a particular movie abroad was remarkably similar from contract to contract. Even press releases announcing such deals all seemed to read alike.

The EU probe could force the Hollywood studios to change the way they price films, which in turn could benefit payboxes like France’s Canal Plus or Spain’s Sogecable.

It could also lower monthly fees for subscribers.

Once the studios receive the statement of objections, they have two months to respond and can demand a hearing in front of national antitrust authorities, commission officials, rivals and customers.

If they are unable to persuade the commission to change its opinion on the contracts, they will have to amend them or risk sanctions. There is no deadline to finish the process.

Monti has established a reputation for cracking down on cartels and other abuses of antitrust rules.

In the past three years, his department has levied more than E3.5 billion($4.5 billion) in fines.

Companies found guilty of EU antitrust violations face fines as high as 10% of their sales, though typically the commission opts for much less.

(Bloomberg News contributed to this report.)

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