Holiday Co., Ltd. and Cashbox Partyworld Co., Ltd. violates the Fair Trade Law by consenting to jointly procure karaoke video tapes, which was a concerted action that may affect the specific market functions of demand and supply of licensed karaoke tapes

Case:

Key Words:

concerted action, karaoke tape

Reference:

Fair Trade Commission Decision of April 8, 2004 (the 648th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 093041

Industry:

Audiovisual and Singing Services (9002)

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

According to the media report, Taiwan Securities Investment Co., Ltd. (hereinafter called "Taiwan Securities") continued selling approximately 12,500 shares of stock commissioned by shareholders of Holiday Co., Ltd. (hereinafter called "Holiday KTV") on January 8, 2003, and the result is that all of those shares were bought by Taiwan Securities that was commissioned by Cashbox Partyworld Co., Ltd. (hereinafter called "Cashbox KTV"). This batch of stocks, along with those sold several days ago, total 58,800 shares and account for 32% of stake of Holiday KTV. It was reported that in the future, if any companies wish to have their songs played at the said two major karaoke parlors, they must go through the agent of both parlors, Young Sound Multimedia Co (hereinafter called "Young Sound"). The idea led to the objections from MDS Multimedia Corp. (hereinafter called "MDS") and Meihua Multimedia Technology Co., Ltd. (hereinafter called "Meihua"). In addition, some record companies also took it as a type of market monopoly. According to Article 26 of the Fair Trade Law (FTL), the Fair Trade Commission (FTC), upon complaints or ex officio, may investigate and handle any violation of the FTL that harms the public interest. After reviewing relevant circumstances, the FTC investigated and handled the portion of this case involving public interest under its authority.
Findings of the FTC after investigation:
On December 19, 2002, President Yen-Hsien Lu of Holiday KTV invited the general manager of MDS, Chao-Kui Hsu, for a business meeting at "Royal Garden" that is located at the second of floor of 206 Sung Chiang Rd., Taipei City at 11 a.m. on December 20, 2002. In the said meeting, the representative of Cashbox KTV, Ying Liu, indicated that Cashbox KTV had reached a consensus with Holiday KTV, and that both companies had the same grounds on all matters, so Yen-Hsien Lu would be the spokesman for both companies, who then informed MDS that from that day on, the above two major karaoke parlors would not play karaoke video tapes distributed by MDS and suggested that MDS give up the business of karaoke video tape agency for record companies to be taken over by Young Sound. The 18 new songs delivered to Cashbox KTV by MDS on December 19, 2002 have not yet been played, and Cashbox KTV no longer accepted karaoke video tapes delivered by MDS. According to some record companies, "Cashbox and Holiday are two major karaoke chains in Taiwan. Their audiovisual products are all procured through Young Sound. If record companies wish to enter the market of the said two karaoke parlors, they must cooperate with Young Sound. Working through other agents will not get them into the market to trade," "since early January, 2003, the two major KTV chains of Cashbox and Holiday have begun to obtain karaoke video tapes for business purposes through an agent with no price competition at all," and "Cashbox and Holiday are two major domestic karaoke chains, of which the audiovisual products are all procured through Young Sound; all record companies that wish to enter the market of these two karaoke parlors need to cooperate with Young Sound, because it is impossible for them to enter the market of the two major chains through other agents." Finally, based on the result of the questionnaire survey conducted by the FTC, most karaoke businesses also believed that Cashbox KTV and Holiday KTV engaged in joint procurement, because during March and April of 2003 these two major KTV businesses stopped dealing with MDS and Meihua at the same time, and instead they dealt exclusively with Young Sound. Moreover, the karaoke video tapes procured by the said two karaoke parlors are completely identical.
Grounds for disposition:
1. Holiday KTV and Cashbox KTV are both domestic businesses engaging in the audiovisual and singing service, which are in a status of horizontal competition that conforms to the term of "any other competing enterprise" stated in Article 7 of the Fair Trade Law. The conduct of the companies agreeing to jointly procure karaoke video tapes during 2003 is a conduct of one enterprise with another competing enterprise jointly determining the trading counterparts and thereby restricting each other' s business activities. In terms of the amount of karaoke tape licensing, the said companies have reached a market share of 60%. Additionally, according to the Industry, Commerce and Service Census promulgated by the Directorate General of Budget Accounting and Statistics on April 4, 2003, the two companies occupied 41% of the audiovisual and singing market share. Based on the Letter of Hsin-Pan-Tze No. 0920420138 promulgated by the Government Information Office on February 6, 2003, the total sales volume of Holiday KTV and Cashbox KTV accounted for 80% of the KTV market. In light of the potential impact and outcome of the two companies'joint procurement of karaoke video tapes, their concerted action may affect the relevant market function of karaoke tape licensing, which constitutes the regulated horizontal concerted action described in the Fair Trade Law. Moreover, no approval was applied for with the FTC by the companies for the said concerted action, and the liabilities for the impacts on the relevant market function of supply and demand cannot be eliminated, either.
2. Although Cashbox KTV argues that "up until April 2003, the Company's person-in-charge, Ying Liu, had been negotiating with the person-in-charge of Meihua for signing a contract; MDS had incurred very serious delay in goods delivery since October 2002 and the Company had received no response after sending several notices, so the Company cancelled the contract in December 2002 and brought a lawsuit. Because the Company was handling disputes with major karaoke tape vendors, it cannot use their tapes temporarily, and can only sign a contract with the newly emerging vendor of Young Sound" and Holiday KTV claimed that "before the right and obligation relation with MDS is clarified, this Company, Yung Chang Company, shall not complete the trade with MDS from 2003. The Company started to contact Meihua for the contract since January 2003. However, due to a much higher amount of licensing fees than 2002 and a decrease in distributed record companies, there is also a hearsay that Meihua is having a financial crisis, so we are still negotiating with discretion." Nevertheless, in consideration that Cashbox KTV bought 32% stake of Holiday KTV on January 7, 2003, that both companies declared to merge on January 1, 2004, that both karaoke parlors concurrently stop playing new songs distributed by Meihua and MDS against customary practice while only playing new songs distributed by their exclusive dealing counterpart, Young Sound, and that according to the testimony of other KTV businesses in the FTC's survey affirming that songs in karaoke video tapes jointly procured by Holiday KTV and Cashbox KTV now are completely identical, we find that the above all support the factual evidence of a joint procurement of karaoke tapes. Therefore, we believe the statements of Holiday KTV and Cashbox KTV are merely excuses used to avoid liability, which cannot exclude the fact that the said companies consented to jointly procure karaoke tapes through a specific agent. In conclusion, such conduct is a concerted action that is able to affect the market functions of supply and demand of licensed karaoke video tapes, and thus violates Article 14 of the FTL.
3. After considering the intent, purpose, and extent of harm to trading order of the unlawful conduct, enterprise scale and operating condition, market position, records of law violation and attitude after the misconduct, the FTC hereby orders Holiday KTV and Cashbox KTV to immediately cease such unlawful conduct, and imposes a fine of New Taiwan Dollars (NT$)2,500,000 on each company.

Appendix:
Holiday Co., Ltd.'s Uniform Invoice Number: 84256265
Cashbox Partyworld Co., Ltd.'s Uniform Invoice Number: 22327867

Summarized by Tai, Pei-Yi; Supervised by Lu, Li-Na

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