Allegations that Hollywood film studios are illegally colluding to ensure that British and continental film buffs pay more for their digital video discs, or DVDs, than their American counterparts have persuaded the European commission to launch an investigation, it emerged yesterday.
British consumers pay up to £4 more for the high quality replacement for video cassettes than do US shoppers and the EC wants to know why. It has written to all the large Hollywood studios demanding an explanation. In Britain prices start at £13 and can be as high as £20.
Disney Buena Vista, AOL Time Warner, Twentieth Century Fox, Vivendi Universal, Paramount and Sony MGM have all received a letter from Brussels and will now be investigated to see whether they are engaged in an illegal price-fixing cartel.
"We have received a significant number of complaints from private citizens on this matter," the competition commissioner, Mario Monti, said yesterday. "In each case, the complaint is virtually the same - that DVD prices are significantly higher in the EU than in the US."
Another source of concern for Brussels is that the studios have struck a deal with distribution companies under which DVDs are allocated different technical codes around the world, meaning that discs bought in the US cannot be played on a standard British DVD player.
"The thrust of the complaints that we have been receiving is that such a system allows the film production companies to charge higher prices in the EU because EU consumers are artificially prevented from purchasing DVDs from overseas," Mr Monti said.
The world has effectively been carved up into six regions, he added, each of which has a slightly different technical specification for DVDs meaning that there is no potential for cross-border shopping due to the lack of compatibility.
The film companies argue that such a system is necessary to protect themselves from piracy and illegal copying and to make the collection of royalties easier. But Mr Monti suspects that it is a pretext for overcharging.
"It is important that if the complaints are confirmed by the facts [that] we do not permit a system which provides greater protection than the intellectual property rights themselves, where such a sys tem could be used as a smokescreen to allow firms to maintain artificially high prices or to deny choice to consumers."
Mr Monti is also sceptical of why DVD prices for old films taken from studio archives are sometimes just as high as the latest releases.
Brussels disclosed that it has been in contact with the Australian authorities, which had carried out a similar investigation and had found that the regional coding system imposed "a severe restriction of choice" on consumers.
It could take the commission up to two months to reach initial conclusions, at which point it will either drop the case or issue a formal warning and step up its inquiries.
If it found concrete evidence that price fixing was taking place it has the power to fine companies a maximum of 10 % of their annual turnover and force them to change their ways.
A parallel investigation into allegations that the world's big five record companies operate an illegal cartel to keep compact disc prices artificially high is continuing and Mr Monti said yesterday officials had uncovered some evidence of sharp practices.
These practices had ceased, however, as soon as Brussels announced its inquiry in January of this year, which showed, he said, that the European commission was able to protect the consumer and to shame companies into changing their behaviour.
