Mexico’s competition watchdog (Cofece in Spanish) is probing potential “illegal agreements” between distributors and exhibitors in the film industry. This investigation may put to a test the precedents where the regulator acknowledged the strong competition between Cinemax and Cinépolis.
Investigation into Illegal Agreements in the Film Industry
In May, Cofece’s public officials visited the offices of major cinema exhibitors in Mexico, including Cinemex and Cinépolis. The timing of the visit is significant, as it coincided with the government’s expropriation of a railway concession belonging to Grupo México (the parent company of Cinemex). Cofece’s investigation centers on the “Fiesta del Cine” promotion, during which all cinemas offered tickets at a significantly reduced price. The investigation aims to uncover possible anticompetitive practices in the market.
Surprise Within the Film Industry
The investigation has raised eyebrows within the film industry, as it marks the first time the sector, known for its relatively low consumer prices, is being scrutinized for antitrust issues. Mexico ranks fourth globally in terms of the number of screens and ticket sales, with last year’s ticket sales exceeding the total population of Mexican residents.
Precedents In the Industry Signal Strong Competition
In February 2013, Cinemex sought to acquire Cinemark (two of the three main participants in the operating of movie theaters), but Cofece denied the authorization for the transaction. Yet, after an appeal from the parties (RA-029-2013), the Commission cleared the deal.
Interestingly, the regulator defended in the decision that a smaller number of companies in a specific market does not necessarily indicate less competition; more accurately, the merger of two competitors, in certain cases, could represent a more intense competition against other economic agents. The regulator also stated that the concentration did not represent risks to competition because both Cinemex and Cinépolis competed in the cities where Cinemark operated, so competition would not cease to exist.
Perhaps, the most relevant part of that decision for the current investigation is where the Commission pointed out that even though the transaction would reduce the number of main competitors from three to two, in the specific case, it was not anticipated that the merger would create incentives that would facilitate coordination between the two remaining competitors in the market. The ongoing investigation will determine whether this statement is still true.
Germán Larrea’s Challenges
Germán Larrea, the second-richest man in Mexico with an estimated fortune of $29 billion, faces a series of challenges in recent weeks. The government’s expropriation of 120 kilometers of railway in Veracruz, belonging to Grupo México’s subsidiary Ferrosur, has put Larrea’s companies in the spotlight. Ferrosur expressed concern about the takeover, warning of potential negative consequences for the company, its employees, customers, and the free market. Additionally, Larrea’s attempted acquisition of Banamex, Citigroup’s retail bank, fell through after negotiations failed to yield the desired guarantees.
