Brussels, 27 October 2014
Mergers: Commission approves acquisition of US producer of digital cinema solutions Doremi by rival Dolby
The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Doremi by Dolby, both of the United States. The Commission's investigation confirmed that, despite the overlap between the two companies' activities in the production of digital cinema servers (DCS) worldwide and in the European Economic Area (EEA), the proposed transaction would not lead to any anticompetitive effects because of the presence of alternative suppliers, the fast-moving nature of the market and the ease of switching for customers. The Commission's investigation also confirmed the absence of any anti-competitive conglomerate effects resulting from the combination of the parties' activities in the production of DCS and digital cinema audio processors.
DCS are one of the main components of a digital cinema system, along with a projector and an audio processor. DCS are used to load, store, decrypt, decode and re-encrypt digital film files. On this market, Dolby's and Doremi's activities overlap to a significant extent. However, the Commission concluded that the proposed transaction would not have anti-competitive effects because of the presence of alternative suppliers of DCS, a number of which recently entered the market, and the existence of industry specifications to which producers adhere in order to be able to sell their products, and that facilitate customer switching between competing suppliers.
The Commission also investigated whether the merged entity's strong market position in DCS could be leveraged on the market for digital cinema audio, a neighbouring market where Dolby but not Doremi is active. In the audio market, Dolby is currently marketing an innovative 3D audio or "Immersive Sound" solution called Atmos. The Commission's investigation confirmed that the merged entity would not have the ability or incentive to exploit its large installed base of DCS to shut out suppliers of competing 3D audio solutions from access to customers. This is because the merged entity lacks market power over new DCS sales and control over the installed base of DCS. Moreover, even if the merged entity were able to pursue a strategy aimed at shutting out 3D audio competitors, exhibitors faced with the choice between different 3D audio solutions would have strong economic incentives to stick to their respective 3D audio preference as the cost of replacing the DCS is marginal compared to the cost of upgrading cinemas to 3D audio.
The Commission therefore concluded that the transaction would not raise competition concerns.
The transaction was notified to the Commission on 25 September 2014, following a referral request by the Spanish competition authority, subsequently joined by the UK competition authority. The US Department of Justice had granted early termination to the transaction in August 2014.
Companies and products
Dolby is a US company active globally and specialised in the design and manufacture of audio, video, and voice technologies.
Doremi is a US company active at global level in the digital cinema sector and especially in the market for the production and design of DCS.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).