How Cinema 21 group does business in Indonesia

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.