Competition Bureau comments on clearing eOne’s Alliance takeover

The government agency concluded a merged entity will be constrained from offering film producers reduced minimum guarantees or charging higher distribution fees.

Never mind the Hollywood films Entertainment One and Alliance Films release in Canada.

Canada’s Competition Bureau on Friday said it focused on local film distribution during its recent probe of the pending merger of the industry’s two biggest players.

And the Bureau concluded that a merged entity “might distribute slightly fewer Canadian films than the total currently distributed by eOne and Alliance.”

At the same time, the Competition Bureau expects smaller Canadian distributors to fill any void left in the market.

“… the Bureau is of the view that if the merged entity chooses to distribute fewer Canadian films, it will likely create an opening in the market for these smaller distributors who are looking to expand,” the government agency wrote Friday as it explained a decision to not take action against Entertainment One as it moves to acquire Alliance Films for around $230 million.

“Furthermore, in light of the very low volume of sales associated with some films, the Bureau has concluded that any associated anti-competitive effects from the proposed acquisition would likely be very small, particularly relative to the efficiencies that are likely to result from the proposed acquisition,” the bureau added.

The government agency said it interviewed around 50 market players as it probed the takeover of Alliance Films from owners Goldman Sachs Capital Partners and Investissement Quebec.

The probe found Alliance Films and Entertainment One are crucial to Canadian film producers as they pay the biggest minimum guarantees to trigger government funding.

The Competition Bureau said it had early concerns about a merged entity impacting producers by increasing distribution fees or reducing minimum guarantees.

“However, as a result of its examination, the Bureau determined that the merged entity will likely be constrained in its ability to implement more restrictive distribution terms due to the role of government funding programs,” the bureau concluded.

The agency said distributor need to offer a “material” upfront minimum guarantee to a producer to show they have skin in the game.

“Together, the Bureau considered that these requirements will significantly constrain the ability of the merged entity to reduce the minimum guarantee or increase distribution fees,” the bureau added.

Entertainment One on Thursday said it expected to shortly complete its takeover of Alliance Films after securing the required approval of the Competition Bureau.