Why SARFT’s Order for Price Limit on Movie Ticket Daily Deal Is Illegal?

As reported, the State Administration of Radio, Film & Television (“SARFT”) has issued the Exposure Draft of “The Guideline on The Further Regulation of The Movie Tickets Management” (the “Exposure Draft”) to its affiliated industry associations, which says that the price of the member ticket, group ticket and the preferential ticket shall not be less than 70% of the listed price in the cinema. The regulation has aroused wide argument for it focusing on the heating ticket group buying business. In our opinion, the Exposure Draft is to establish the price cartel, which is suspected to violate the Price Law, Anti-trust Law and Anti Unfair Competition Law. And the following is the opinions from Bridge IP Law Commentary: (the image above is the logo of NUOMI.COM, the first daily deal website selling movie ticket in China)

II. Why the daily deal of movie ticket is legally permitted?

By the PRC Constitution, the socialist market economy is adopted in the country, by which any transaction shall be legal, effective and protective in the law once it is agreed by the dealing parties and is in conformity to the mandatory law. And the daily deal of the movie ticket is the typical market conduct. The group buying websites, in the name of group tickets or major customers, sign the agreements with cinemas, which hereby provide preferential tickets to the website, and then customers could purchase the low priced tickets on the website.

The most likely involved legal problem in the transaction is the price. By the Anti-unfair Competition Law of China, “An operator may not sell goods at a price below cost for the purpose of excluding his competitors.” That means it’s only illegal when the tickets are sold below their cost. Actually, however, the ticket price may decrease to some extent of the group buying, which is the classical example of the invisible hands theory of Adam Smith.

In consideration of the increased purchase of the tickets, the cinema is not likely to suffer deficit for the group buying. That is to say the sale of the ticket is higher than its cost. Meanwhile, the sole responsibility of profit and loss is solely taken by the cinema itself, therefore is could not sustain for long when suffering long-term losses. Furthermore, just like the air ticket, the unsold movie ticket may be valueless after the beginning of the movie, and the cinema could gain no profit in this phrase. Therefore, it could be estimated that the cinema still gains profit even the selling prices seem to be low.

Obviously, group buying of movie tickets is win-win, for the customer buys the ticket with a low price, the cinema attracts audiences and profits and the daily deal website earns the profits. During the process, the SARFT may even obtain the benefit thereby for more audience and improved taste towards fine art, and also the culture industry charged by SARFT is developed.

II. Why SARFT’s supervision over the ticket price is illegal?

First, the SARFT is suspected to exceed its legal power. The price department in PRC is the National Development and Reform Commission and local price bureaus, and the legal power of the SARFT does not include the movie ticket price supervision. Therefore once it managed the price beyond its authority, which will not only lead to the disorder of the administrative management but also an illegal conduct by which the chief of the organ shall take the administrative liability.

Second, the management by SARFT is kind of the establishment of the Cartel, which is against several laws. By the Price Law, only the price of an extremely small number of commodities vital for the development of the national economy and people’s life, a small number of commodities the resources of which are rare or short, commodities under natural monopoly management, essential public utilities and essential non-profit services could be adjusted by the administration.

The movie ticket shall obviously be the product adjusted by market, which price could be set by the operator and adjusted by the market competition. To the market priced product, the operator shall not manipulate the price. By the Price Law, the operator shall not conduct the manipulation of market price in collusion to the detriment of the lawful rights and interests of other operators or consumers, also it’s provided in the Anti-Trust Law that competing undertakings are prohibited from concluding the monopoly agreements on fixing or changing commodity prices.

The document issued by SARFT for the price limit on the movie ticket is the interference of the market operation and the administration of the lowest transaction price, which is to develop the price cartel by the administrative order. And the regulation may lead to the illegality of the operator, and also violates Article 36 and 37 of the Anti-Trust Law, administrative organs may not abuse their administrative power to formulate regulations with the contents of eliminating or restricting competition, or abuse their administrative power to compel undertakings to engage in monopolistic conducts that are prohibited by this Law.

Finally, mandatory regulations in relevant laws concerning the price cartel are to guarantee the healthy development of the market. For the regulation of this time, without considering the suspected illegality of SARFT, it will no doubt increase the price of the movie ticket, damaging the established order of the market as well as excluding the customers from the cinema, and that could finally jeopardize the healthy and orderly development of the culture industry of PRC with the piracy take the advantage.

Author: Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Law Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
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Bridge IP Law Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works. And all news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works. You may contact us shall you have any opinions or suggestions.

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