How Cinema 21 group does business in Indonesia

Abdul Salam Taba, Alumnus, School of Economics, University of Newcastle, Australia

A report that Monopoly Watch has sent to the Business Competition Supervisory Commission (KPPU) regarding monopolistic practices in the screening of imported films by the Cinema 21 network, particularly films distributed by the Motion Pictures Association (MPA), has led to controversy. On the one hand, the report is allegedly true. The premiere of imported and box office films has always been dominated by the Cinema 21 network. Only when a film has been screened throughout the entire company's network will it be made available to non-21 network. On the other hand, the report is deemed to be baseless because it is actually the limited number of film copies that has made it impossible to screen the films at other cinemas at the same time.

There is a strong indication that the 21 network has resorted to monopolistic practices and unfair business competition, which goes against legal laws, particularly Law No. 5/199 on the prohibition of monopolistic practices and unfair business competition.

The law states that every citizen is entitled to equal rights and opportunities to participate in a process of producing and marketing goods and services. The law also demands that businesses should compete fairly and naturally and that they should prevent the concentration of economic forces in the hands of certain business players only.

However, the presence of the 21 network has not only limited but also killed business opportunities for rival cinema owners.

Many non-21 cinemas in many regions have gone bankrupt owing to the presence of the 21 network. Monopoly Watch reports that 19 cinemas in seven major cities have been closed down, including Kencana in Plaza Cipulir, South Jakarta, Nelayan in Jl. Tegal Alur, West Jakarta and Johar Baru in Central Jakarta (The Jakarta Post, July 19, 2992).

The 21 network has nation-wide outlets and also controls the distribution rights of imported and box-office films. Economically, the 21 network becomes the market leader in the cinema industry in Indonesia and at the same time it can 'dictate' the market and do whatever it wishes to non-Cinema 21 owners.

As a result, non-Cinema 21 owners find it difficult either to develop their businesses or are forced to declare bankruptcy.

As a market leader in the cinema business, the 21 network can set the ticket prices unilaterally, based merely on rent seeking, without having to take market equilibrium into consideration.

The result is economic concentration which hampers fair, efficient and effective business competition.

The 21 network business practices have particularly violated some articles of Law No. 5.

First, Article 17 -- on monopolies -- prohibits a business from controlling the production and marketing of goods and services in a way that will give rise to monopolistic practices and unfair business competition. According to this article, the business of the 21 network could be classified as a monopolistic business.

Why a monopolistic business? The reason is that the total market share exceeds 50 percent. In some regions, it even controls 100 percent of the market share. Research by Monopoly Watch (The Jakarta Post, July 18, 2002) shows that the 21 network controls 100 percent of the cinema market in Jambi, Batam, Balikpapan, Samarinda and Manado. It also controls the cinema market in some major cities like Jakarta (61 percent), Bandung (77 percent) and Surabaya (91 percent).

Second, Article 18 on monopolies prohibits business players from controlling the supplies of goods and services or becoming their sole buyers. The 21 network and PT Subentra Nusantara have become both the importers and sole agents of foreign films. According to Article 18 (2), the 21 network can be considered as having monopolized supplies and acted as a sole buyer. It controls more than 50 percent of the single-item or single- service market.

Third, Article 19 on market control. This article prohibits business players from conducting activities which may lead to monopolistic or unfair business competition practices. The 21 network's reluctance to screen MPA films simultaneously may be construed as unfair business competition.

Fourth, Article 25 on the dominant position. As a business group or business player with a dominant position, the 21 network should not have made use of its dominant position to restrict the market and hamper other business players. The 21 network has in fact made use of its dominant position to limit the market and prevent other cinema owners from maneuvering.

It is expected that cinema goers criticize not only this monopolistic practice but also other unfair business competition practices, which may lead to monopolistic practices and unfair business competition in the cinema and film business.

As guaranteed by Law No. 8/1999 on consumers' protection, all layers of the film-viewing community must monitor and be critical so as to overhaul any monopolistic and oligopolistic structure of the market.

There is still another way, though. A regional regulation which bans monopolistic practices and unfair business competition in the film and cinema areas may be stipulated.

According to Law No. 8/1992, the government shall delegate all film matters to the region. This delegation is meant to ensure that the film business can preserve and also develop the nation's cultural values.

Efforts to issue regional regulations coupled with consistent monitoring and criticism by all layers of the film-viewing community will only intensify the competition in the cinema and film businesses in Indonesia. These efforts will prevent 'squabbles' among cinema owners, and benefit the audience. In economic rationality, the higher the competition level goes, the bigger the chances of the audience getting cheaper tickets because, then, the viewing audience will have a large selection to choose from. On the other hand, if the competition level is low, the tickets will become more expensive. The reason is that the number of cinemas is limited so that the cinema owners can freely determine the price of their tickets.