The U.S. Competitive Advantage in the Global Television Market: Is it Sustainable in the New Broadcasting Environment?

Colin Hoskins (Faculty of Business, University of Alberta)

Stuart McFadyen (Faculty of Business, University of Alberta)

Abstract: Porter's Competitive Advantage framework is employed to examine whether the advantages that have enabled U.S. television program suppliers to dominate world trade are sustainable in the new broadcasting environment resulting from technological change and de-regulation.

Résumé: La structure mise au point par Porter pour calculer l'avantage compétitif sert à examiner si les avantages qui ont permis aux fournisseurs américains d'émissions télévisées de dominer le marché mondial peuvent s'employer également dans le cadre du marché de la télévision tel qu'il est actuellement, vu les changements techniques et la déréglementation.

Introduction

The U.S. has long dominated international trade in television programming. Exact measures are difficult to obtain but it is estimated that the U.S. accounts for around 75% of world television program exports while the broader entertainment industry had net exports of $5.5 billion in 1988, second only to aerospace. Varis (1985, p. 83) who developed television market share data (on the basis of 1983 broadcast hours) demonstrating U.S. dominance concluded that "...no major changes have taken place since 1973." This continuing U.S. dominance is a matter of concern to some observers because of the presumed cultural consequences.

Our analysis employs Porter's competitive advantage/strategy framework (Porter, 1980, 1985, 1986, 1990) to consider how changes in the broadcasting environment are likely to affect U.S. dominance. These changes include the new distribution technologies which are leading to the rapid expansion of television signal coverage in the Third World and are related to the trend toward deregulation in the West, the new solid-state microelectronic production technology which is being introduced in the Third World almost simultaneously with the developed world, and the trend to international co-ventures.

First, relevant aspects of the Porter framework are described. Next, the sources of current (and past) U.S. competitive advantage are identified and examined to see whether they are likely to be sustainable in the new environment. In the conclusion, the conflicting forces identified are weighed in an attempt to determine the most likely scenario.

Porter's "Competitive Adventage" Framework

Prior to Porter, business policy/strategy was not well grounded in any of the disciplines. Porter's contribution was to base the analysis of management strategy on industrial organization, a branch of economics concerned with the performance of industries as a function of their competitive characteristics. His approach stresses the importance of the external environment, notably the competitive situation within industries. At the firm level, three basic competitive strategies, cost-leadership, differentiation, and focus, are identified. The need to decide clearly between cost-leadership and adding to value through differentiation is stressed. A crucial notion is that it is industries, not nations, that compete globally, and the economic performance of a nation ultimately depends on how successful its industries are at achieving global dominance.

The Porter framework has not been without its critics. Ohmae (1988) argues that the focus of strategy should not be on how to beat the competition but on how to create value for customers. He contends a middle strategic course, between cost-leadership and up-market product differentiation, is consistent with this focus on the customer. In the same vein, Gilbert and Strebel (1988) believe that some firms can successfully pursue cost leadership and product differentiation.

Porter's nation-state focus has been challenged. Ohmae (1989) argues that on a competitive map political boundaries have largely disappeared while Reich (1990) agrees that the notion of national boundaries are becoming obsolete. Reich further contends that the crucial question relevant to national competitiveness is where a company conducts its R & D and other technologically complex activities, and not where the company is headquartered or where a majority of its shareholders are domiciled.

Regardless of these criticisms, we consider Porter's framework to be most suited to our purposes. The world-wide concern, in both communications and public policy circles, has been with the dominance of trade in television programs by producers domiciled in one nation, the U.S. The framework is the best developed for identifying the fundamental determinants of national competitive advantage in an industry, and how dominance based on such determinants is likely to be affected by changes in the external environment. Of course, being economic based, the framework cannot fully accommodate explanations for dominance arising primarily from sociological or other non-economic factors.

Our emphasis will be on those aspects of the Porter framework that lead to geographic concentration of an activity. Such concentration is appropriate if it enables the firm to gain a competitive advantage in the activity in terms of low cost, whereby comparable value is provided to a buyer more efficiently, or differentiation whereby the product produced provides the buyer with more value at a price premium that exceeds the extra cost of being unique. Porter (1985, p. 29) includes economies of scale, first-mover advantage, and comparative advantage as factors favouring the geographic concentration of an activity. In this section we describe each factor in turn, together with a discussion of the sustainability of the factor. We also briefly comment on one common global strategy, that of international coalition.

Economies of scale are usually considered with respect to the production activity and the ability to perform the manufacturing process differently and more efficiently at large volumes, thus resulting in a cost advantage. However, another important source is the ability to amortize (largely fixed) costs of other activities, such as product development and advertising, over a greater sales volume. This source of advantage is reasonably sustainable because of the costs and difficulties associated with challengers achieving a market share equal to that of the leader. If barriers to access to the largest market are found in conjunction with economies of scale, this provides firms located in the largest market with a formidable competitive advantage (Porter, 1980, p. 291). However, a decrease in the largest market as a proportion of the global market can still erode this advantage.

Both cost and differentiation advantages can arise from being the first-mover and benefiting from experience or learning curve efficiencies. Empirical evidence suggests that in many industries average costs decrease with the cumulative output produced using a given technology. These cost reductions result from, for example, improved scheduling, increased labour efficiency, incremental process improvements, and product design modifications that facilitate production (Porter, 1985, p. 73). Being first-mover also leads to more experience with product development and design and a greater knowledge of markets which may facilitate successful differentiation. In addition the leader may have cornered access to the best distribution channels.

The sustainability of cost advantages from being the first-mover vary according to whether the technology or experience improvement can be patented or concealed. However, any advantage of this kind is vulnerable to technological discontinuities whereby a new technology makes previous investment and learning obsolete. If such radical process innovation occurs, the previous first-mover may actually be at a competitive disadvantage. Not only does obsolete technology have to be replaced but there may be difficulties getting labour to adapt to the new technology. The sustainability of differentiation advantages will depend on whether there are patents, how easy it is to imitate the leader's products, and continued perceived value to buyers.

If a location has a comparative advantage in an activity we would expect firms to concentrate the activity in this location and would expect these firms to dominate. Prior to Porter, cheap unskilled labour and natural resources were usually stressed as sources of comparative advantage. However, changing factor prices and exchange rates make cheap labour a difficult to sustain advantage while natural resources may deplete and new sources may be discovered or substitutes found. Some comparative advantages, such as availability of skilled scientific and technical personnel, are likely to be more enduring. Another comparative advantage is unique access to the largest market. The barrier to market access by foreign firms may be institutional, for example government quotas or tariffs, or related to factors such as climate, language, culture or stage of economic development. Such a barrier may be very difficult for a challenger to overcome.

A final source of comparative advantage can arise from the characteristics of a country's demand and operating environment. An optimal environment involves the presence of strong local competition and sophisticated buyers. Such characteristics ensure that the survivors will be formidable competitors in the international market place. An additional advantage ensues if the product attributes demanded by the sophisticated domestic buyers lead to product varieties particularly well suited to the world market. Such a domestic demand and operating environment form a desirable "global platform" (Porter, 1986, p. 39). This advantage is often sustainable as an individual firm located in another country is powerless to create such an environment. Obviously, over time, however, such an environment may evolve elsewhere and foreign government policies may indeed promote such an environment.

An increasingly important element of global strategy is the international coalition. Of course, each partner must anticipate net benefits for an agreement to be reached, although the size and source of benefits may differ. Sources of potential benefits include economies of scale or learning; acquiring or pooling of knowledge, ability or market access; and spreading financing and risk. However, this strategy has its costs. An important one is the risk of creating a new competitor or "making an existing competitor more formidable through the transfer of expertise and market access" (Porter & Buller, 1986, p. 327).

Sources of U.S. Competitive Advantage and their Sustainability

Here the major sources of current (and past) competitive advantage of television program suppliers located in the United States are identified and an assessment made of the sustainability of each source in the face of technical, economic and social changes. Economies of scale, first-mover advantage and comparative advantage are considered.

Economies of Scale

Historical sources of U.S. advantage. What is described as the production cost of a television program, $1 million or so for a one hour episode of a high quality drama, is R & D, a high fixed cost being associated with the first unit (the original print of the film or tape). Units of the program (copies of the film or tape of the episode or special) can then be made at minimal marginal cost for sale to buyers in different markets, with the revenue resulting from each market being a function of its audience size and wealth (Hoskins, Mirus, & Rozeboom, 1989). There are thus huge economies of scale as fixed R & D cost are spread over larger volumes. This gives a competitive advantage to U.S. television program producers who enjoy unique access to much the largest domestic market (according to UNESCO, 1987, the U.S. had 190 million television receivers in 1985, distantly followed by the USSR with 82.4 million and Japan with 70 million). Unique access is crucial and helps explain why U.S. program producers dominate international trade in their industry while U.S. manufacturers of television receivers (who do not enjoy unique access) most certainly do not. As discussed later, the unique access results from language/cultural barriers to foreign programming. Such barriers protect the U.S. domestic market and permit most of the R & D, even of the high cost drama (at least until recently), to be recovered from a network licence fee; this provides the solid domestic base from which foreign sales can be pursued.
Is the advantage sustainable? There is evidence, however, that this competitive advantage is already being eroded, as market sizes converge and the U.S. audience fragments, and that these trends will continue. However, audience fragmentation elsewhere, notably in Western Europe, will have an offsetting effect.

The high cost of providing transmission coverage and the inability of many households to afford television sets has meant that Third World countries such as China and India, despite their huge populations (over 1 billion and 750 million respectively), have until recently been small markets for television programs. This is changing rapidly as the number of viewers in the Third World has been expanding at an annual rate of 20% and now totals about 1.4 billion (Berwanger, 1987, p. 29). Part of the reason for this change is rising income levels and expectations. As important, is technical progress which has substantially reduced the cost associated with developing a television market. Geostationary satellite transmission is the cheapest and most reliable method for countries with a large geographic area and costs of satellite transmission have fallen more than 90% since 1969 (Berwanger, 1987, p. 16). Also relevant are innovations in television set design and manufacture. Sets have become much more reliable, a very important consideration in Third World countries that lack a service and repair infrastructure. They have also become more powerful and hence able to provide acceptable pictures in fringe areas. In smaller sizes, sets have come onto the market that operate on 12 volts and hence are not dependent on the availability of mains electricity (Berwanger, 1987, p. 19).

In 1981 only 17% of the Indian population enjoyed television coverage but, due to the introduction of satellite transmission in 1982 and expansion of the terrestrial transmission network, by 1986 this had risen to 85% of the urban population and 56% of the rural (Berwanger, 1987, p. 29). By 1986 transmitters provided coverage to nearly 80% of the Chinese population with some 30% actually owning a television set. It is estimated there are already some 300 million Chinese viewers (Berwanger, 1987, p. 37).

Aided by increases in domestic market size, there are already indications that China and India could develop into significant competitors. Four Generations Under One Roof, a series set in Beijing during the Japanese occupation, and Rajani, an Indian series following a woman's crusade against corruption were both phenomenally popular in their respective domestic markets (Berwanger, 1987, pp. 51-52). India has long enjoyed a vibrant feature film industry and some of these resources and talents are beginning to switch to television program production. The fact that some Indian programming is in English will not harm its prospects of penetrating some important potential export markets (Hoskins & McFadyen, 1986.)

The example of Brazil has already demonstrated how a developing country, with a large population base, can build up a program production industry that not only pre-empts U.S. programming in its home market but also provides formidable competition in many export markets. The major network, TV Globo, fills 95% of prime time with its own programs, attracts about 80 million viewers and earns annual advertising revenue of $0.6 billion, making it the fourth largest network in the world (Marques de Melo, 1988, pp. 2-4). It made its first export sale in 1975 but by 1985 was selling $12 million of programming to 128 countries. Besides selling to other Latin America countries and Portugal, Italy has been a major purchaser and telenovelas have been very successful in markets that include Poland and China. Very recently TV Globo has begun to sell to the USSR and to the important West German, French and UK markets (Marques de Melo, 1988, pp. 9-12).

Of course, it is not only Third World and developing countries that have been narrowing the market size advantage held by the U.S.; the same applies to Japan and Germany. A somewhat different case is the USSR. Although, it has been the second largest market in terms of number of television sets, this has been irrelevant because, for political reasons, it has largely abstained from world trade in programming (outside the East Bloc). With "glasnost" and "perestroika" and the recent collapse of the East Bloc this could change. If reforms continue and a commercial attitude eventually prevails, competition could eventually emanate from this source.

In determining the extent to which fixed R & D costs can be amortized over domestic sales, not only the size of the domestic market but the market share available to a particular program is relevant. The market share available has been adversely affected by audience fragmentation and this can be expected to continue. Due to inroads by cable delivered satellite channels and by independent stations, the U.S. commercial networks have seen their share decrease from 90% in 1980 to 66% by early 1990. Thus an average network show now gets around a 22% share as opposed to a 30% share 10 years earlier.

The geostationary satellite and cable distribution technologies are also having an impact outside the U.S., most notably in Western Europe where they have often been associated with deregulation; this is no coincidence as the new distribution technologies provide the means to eliminate spectrum scarcity. By 1988 there were seventeen satellite to cable channels operating in Western Europe; eight of the channels rely primarily on advertising revenue. The major players are Sky Channel which reaches eleven million homes, SuperChannel ten million homes and MTV Europe which reaches two million homes, while the German-language RTL-Plus and Sat-1 also have significant reach (Hooper, 1988, p. 17.1). In March 1990 British Satellite Broadcasting began DBS transmission of five additional channels. Additional terrestrial channels have also blossomed, notably in France where the subscription channel Canal Plus became profitable by 1987, its third year of operation. All this is a far cry from the beginning of the 1980s when there were no satellite channels and only Italy and the UK had private television. Thus audience fragmentation can be expected to decrease the market share of long-established broadcasters. However, the revenue effects of loss of audience share will be partially offset by new sources of finance, notably advertising revenue (Wildman and Siwek, 1987).

One effect of the multiplication of outlets has been, and will continue to be, a shortage of programming. The most obvious source remains the U.S. Over two-thirds of Sky Channel's programming is imported with U.S. situation-comedies and feature films predominating (Ferguson, 1986, pp. 60-61). Sky Channel cannot afford to compete for popular new U.S. series but provides a market for older programs such as My Favorite Martian, a moderately successful U.S. fantasy series shown on CBS from 1963 to 1965. The increased demand is already being reflected in prices being paid. In 1987, Lorimar sold 150 episodes of Knot's Landing to France for about $50,000 per episode whereas a year earlier 13 episodes had been sold for only $12,000-$15,000 each. The shortage of programming, however, also provides opportunities for U.S. competitors to gain access to new markets or become better established in existing ones.

First-Mover Advantage

Historical sources of U.S. advantage. Largely as a result of economies of scope with the Hollywood movie industry, the U.S. enjoys first-mover advantages in television program production. The U.S. was the first country to make the switch from live performances of television drama to film; an innovation that made international trade (in a pre-satellite era) possible. The long-established film tradition also provided the U.S. television program producers with the advantages of access to the world's major reservoir of skilled technicians in all aspects of shooting and processing film, access to the Hollywood "star" system, and access to a highly developed world-wide distribution system including the Motion Picture Export Association of America.

Another U.S. innovation was the move from "an artisanal mode of production where products are strongly marked by an authorial signature, whether that of director or scriptwriter, to series production in which it hardly makes sense to ask who is the author of Dallas" (Collins, et al., 1988, pp. 56). This facilitated the production of long-running series (often involving over 100 episodes) that provide a very attractive package for foreign buyers; not only do they fill many broadcast hours with minimal buyer search costs but are popular with viewers who find their consumption investment (time spent getting to know the characters, the plot, and the stars) amply rewarded.
Is the advantage sustainable. U.S. learning curve cost advantages have been largely tied to experience with film technology. Technological discontinuities involving solid state microelectronics are rendering this established technology obsolete and thus nullifying the advantage.

Solid state microelectronic technology is being introduced at virtually the same time in Third World and developed countries. Video production is replacing film. The new equipment includes digital video processing, portable compact video cameras, camera-recorders for electronic news gathering (ENG), digital frame memory, computer video graphics, and electronic field production units (EFP). The new technology is cheaper to purchase and operate; for example, Berwanger (1988, pp. 24-25) estimates that for outside broadcasting, portable camera-recorders involve 10-30% less capital expenditure and reduce staffing costs by 30-50%, while costs of studio production, copying and transporting tape, and dubbing are also reduced. However, even more important, the new equipment is much easier to use, more reliable, and simpler to maintain and service. The equipment has built-in auto-corrective features and defective components are easier to identify and replace. Hence an infrastructure of skilled technical personnel, traditionally one of the major barriers to the diffusion of technology, is no longer a pre-requisite to television production. Berwanger (1988, pp. 81-82) writes:

News and documentary films and, to an increasing degree, entertainment series as well, can be produced in countries that have never known the jobs of film laboratory technicians, film cameramen, nor those of the technicians and skilled workers responsible for producing the equipment they need.

Leapfrogging has occurred for one specialized program type, computerized animations, where Japan has been quicker than the U.S. to adopt new technology, and as a result is now the largest exporter of a program format once dominated by the U.S. (Collins, et al., 1988, p. 54).

When technological discontinuities render the old ways of making the product obsolete, the first-mover may have difficulty adopting the new techniques efficiently because of union and labour agreements wedded to the old technology. This has certainly been the case with television program production. Production costs in the U.S. in the 1980s have grown at double-digit rates, a major reason being that "the studios are strongly unionized and abide by work rules that embody the most flagrant featherbedding this side of London's Fleet Street." To avoid excessive costs, U.S. producers have increasingly been shooting in Canada and Mexico although there is recent evidence of increased flexibility by unions in the U.S. and also a shift to non-union production.

As a result of the escalating production costs, in conjunction with falling network shares, the difference between production costs and network first-run licence fees has been widening. For some expensive action-adventure series such as Miami Vice the deficit has been reported as much as $500,000 per hour episode. The importance of export sales has increased and they tend no longer to be regarded simply as a windfall.

If other countries are to take advantage of high U.S. labour costs, they must themselves adopt the new technologies efficiently. This is often not the case; for example, "Egyptian television employs at least 20,000 people for a work load that could be handled by one-tenth that number of qualified staff " (Berwanger, 1987, p. 77).

Comparative Advantage

Historical sources of U.S. advantage. Characteristics of the operating and demand environment have provided the U.S. television program production industry with a desirable global platform. Competitive production companies vie to supply the commercial networks, sophisticated buyers finely attuned to the tastes of viewers and advertisers. In contrast in many other countries, at least until recently, there has been a sole public broadcaster often producing all of its own domestic production.

The U.S. are the world leaders in using a marketing approach whereby program development is undertaken with audience maximization in mind. To increase the chance that programs exhibited will be popular with viewers (and hence induce advertising revenue) the U.S. networks, from some 9,000 ideas received annually, provide sufficient encouragement to induce about 300 sample scripts. Pilots are made for around 90-100 of these and tested by audiences at special showings. Largely based on this audience reaction, 12 to 20 pilots will be broadcast and about 10 will later be developed into series. If successful the series will be continued for several years. An important consideration here is the economic imperatives of the potentially lucrative U.S. second-run syndication market that requires a minimum of 65 episodes.

Another source of comparative advantage is the heterogeneous nature of the U.S. population. The common denominator drama programming that maximizes the audience share (and advertising revenue) from this "melting pot" population often involves a conflict theme that has universal appeal (Chapman, 1987) and has often been undersupplied by non-U.S. producers (Lealand, 1984). The fact that English comprises much the largest linguistic market, while it is the second language in many more, is another plus (Wildman & Siwek, 1987, 1988, and Collins, 1989). Such factors combine to explain "why the format and type of drama originated by the American entertainment industry have in the most recent era created a new universal art form which is claiming something close to a worldwide audience" (Meisel, 1986).

In contrast to the widespread acceptance of U.S. programs abroad, the most important element of the U.S. market, the commercial networks, has been virtually impervious to imported programming. Perhaps because they have been exposed to so few foreign television programs or movies, U.S. viewers will not tolerate dubbing or sub-titling and are averse to British accents (Renaud & Litman, 1985). Another factor may have been the lack of a commercial orientation by many producers outside the U.S. who have often produced what they believed their domestic viewers ought to watch. Even where a non-U.S. series has been very popular, this success has not always been fully exploited. For example only twelve episodes, of BBC's Fawlty Towers were ever produced (contrast this with over 300 episodes of MASH).

Thus the U.S. has enjoyed a comparative advantage in terms of an operating and demand environment that made it a desirable global platform and cultural barriers to program imports that provided U.S. producers with unique access to the world's largest domestic market.
Is the advantage sustainable? The move to deregulation and commercialization elsewhere will likely result in the conditions necessary for other countries to establish global platforms. In addition, an increasingly popular global strategy, the international coalition, may be the vehicle that provides significant foreign access to the U.S. market.

New distribution technologies accompanied by de-regulation are resulting in a trend to commercialization of television broadcasting and program production outside the U.S., most notably in Western Europe (Wildman & Siwek, 1987). The industry is becoming more competitive and the buyers more sophisticated (in terms of selecting programming that viewers want to watch). Some countries are actively promoting competitive production industries independent of the broadcasters. For example, the UK Government is calling for BBC and ITV to open up 25% of their schedules to independent producers by 1990. Similarly the Canadian Government has been promoting the independent production industry through Telefilm Canada. Thus the industry structure in a number of countries is becoming more competitive and market oriented like that of the U.S., and thus more in-line with Porter's description of a desirable global platform.

Market growth and increasingly sophisticated production industries have also resulted in the establishment of what might be called regional platforms. Porter (1986, p. 35) has noted that there are often sub-systems with significant advantages of concentration and co-ordination of activities due to factors such as geographic proximity, language, and stage of economic development. In the case at hand this phenomenon can be best described in terms of a lower cultural barrier between nations within the subsystem, defined mainly in terms of geographic proximity or language.

Although U.S. programs have been successful in most markets, new regional markets have sprung up or show signs of doing so. In regional markets the most popular programs are domestic and regional with the traditional outside suppliers, such as the U.S., becoming less important. There is a clearly defined Latin American market where nations import primarily from other Latin American nations, notably Brazil and Mexico, while "imported U.S. series have become `filler' for the less profitable morning, early afternoon, and very late evening time slots" (Rogers & Antola, 1985, p. 28). There is an Arab market dominated by Egypt which exported in 1984-85 an estimated $10 million of programming to other Arab countries (Berwanger, 1987, p. 70). Regional markets are also emerging in the "various countries of Asia that lie within India's or China's sphere of influence" while "the none-too-distant future could well see the emergence of a further market for production from Indonesia and Malaysia in the Malaysian/Pacific area" (Berwanger, 1987, pp. 56, 70). Japanese television drama series have long eclipsed American series in the Japanese domestic market; now a Japanese drama series Oshin is winning over S.E. Asian viewers, the first non-animated Japanese program to have such success.

However, the increased commercialization of broadcasting outside the U.S. provides U.S. producers with an opportunity as well as a threat. Cvar (1986, pp. 507-508) has observed that a world-wide trend towards commercialization in an industry often causes one product attribute to assume prime importance. In television the spread of commercialism, and the associated objective of audience maximization, is leading to an increased demand for the entertainment attribute provided by the escapist fiction series, "fast food entertainment," that U.S. producers specialize in producing and in which they already have a well-established brand name.

Access by foreign programming to mainstream U.S. broadcasting has been very limited. Much of the foreign programming has been on PBS, mainly British, and the Spanish-language S.I.N. network, mainly from Mexico's Televisa. Recently cable channels, such as the Disney Channel, H.B.O., and Arts and Entertainment which has had an arrangement with BBC, have become increasingly important. The U.S. cable channels do not enjoy audiences large enough to permit them to spend $1 million or more per series episode to compete directly with the U.S. commercial networks. A strategy they have increasingly adopted is that of the international joint venture. Even the commercial networks have sometimes adopted this strategy for the very expensive mini-series genre.

International joint ventures offer not only a spreading of costs and risks but also expanded access to foreign markets. Many countries have quota restrictions for program imports but, although regulations differ from country to country, a co-venture can usually be structured so the product qualifies as domestic for quota purposes. In addition, the co-venture may qualify for government support such as that provided by the Broadcast Fund of Telefilm Canada.

From the viewpoint of the non-U.S. partner the major benefit is access to the all important U.S. market. The presence of the American partner ensures the program is customized for U.S. viewers. The BBC is the leader in international co-ventures with, 1985-86, over 100 projects, about half of which involved U.S. partners.

For a global leader, an international coalition strategy has the drawback that it risks creating a new competitor or enhancing the competitiveness of an existing one. An example of a transfer of expertise, which helped negate U.S. first-mover advantages, occurred as a result of the 1962-69 coalition between Time-Life Incorporated and TV Globo of Brazil. This enabled TV Globo to absorb "a know-how in television production and operation which, until that time, had been unknown to the national market" (Marques de Melo, 1988, p. 2). Whether a result of the coalition or not, the TV Globo case also demonstrates that a competitor can learn the marketing approach. Marques de Melo (1988, p. 13) reports that TV Globo "has set up a well-structured department for market research and analysis ... to be an intermediary in the creation-consumption process." This department is concerned with the wishes of foreign as well as domestic viewers. In fact "light" telenovelas were created with some of the more puritanical export markets in mind (Marques de Melo, 1988, p. 11).

Foreign access to the U.S. market would increase if international joint ventures become increasingly the norm. Renaud and Litman (1985) suggested this would be the case as they foresaw situation comedies suffering diminishing audiences and increasingly being replaced by the much more expensive (and often co-produced) mini-series. Even a year later, however, with The Cosby Show and Family Ties leading the ratings and the very expensive miniseries Amerika being a relative ratings failure, their prediction seemed inaccurate. So far series have been made under international co-venture arrangements for U.S. cable channels, an example is the Canadian Broadcasting Corporation/Disney Channel co-venture Danger Bay, rather than U.S. commercial networks. However, an exception is provided by the co-financing by CBS of the Canadian police drama Night Heat, which first broke into the late-night schedule of CBS, a time slot where advertising revenues are insufficient to support higher costing first-run U.S. action series. It was successful enough that it was later moved into the prime-time schedule. Weinthal, the Vice-President of the Canadian network (CTV) exhibiting the series, is quoted as saying "Shot in Toronto, the show makes an effort to look merely unidentifiably urban, and some of the distinctions between U.S. and Canadian law are blurred over in an attempt at uniformity." With no obviously foreign accent, few American viewers would realize that Night Heat is not a U.S. production. It is reported that U.S. broadcasting industry executives predict that "even regular series will soon be made in Europe by partnerships of U.S. studios and European broadcasters."

Another way in which international coalitions might result in increasing foreign access to the U.S. market would be if the experience gained, particularly with respect to customizing programs to make them acceptable to U.S. viewers, enabled foreign producers (without an American partner) to sell to U.S. networks. This process would be abetted if increasing exposure to joint venture programming also helped to break down the American viewers' resistance to foreign content.10 If previous experience is any guide, however, a North American-English soundtrack would be necessary to make a foreign series acceptable.11 With respect to this we note France has used an international co-production treaty with Canada to make suitably accented English-language programs with the U.S. market in mind.

Conclusion

Predicting the future is notoriously difficult, particularly in an industry as volatile as television broadcasting. Who, prior to its first foreign sale in 1975, would have forecast that by 1988 TV Globo would be exporting to 128 countries? In this paper we have identified some sources of U.S. competitive advantage that do not appear sustainable, others that do. On balance, what appears the most likely scenario?

Factors tending to lessen U.S. dominance are the convergence of market sizes and the audience fragmentation of the U.S. market that will lessen the U.S. economies of scale advantage, new production technology which is negating U.S. learning curve advantages in film production and even resulting in first-mover disadvantages due to working practices tied to obsolete technology, changes in demand and operating characteristics in a number of rival markets that are making them better global platforms than previously, the trend to international coalitions, and the trend toward regional markets where producers in a country within the region dominate trade.

Factors tending to maintain U.S. dominance are the multiplication of channels outside the U.S. which is greatly increasing the demand for programming, first-mover advantages in program development and marketing abetted by the polyglot U.S. audience which requires common-denominator programming readily acceptable in most foreign markets, and the world-wide trend toward an increased demand for the escapist fiction of the type long associated with the U.S.

We consider the most likely scenario is one where sales of U.S. programming (produced by the U.S. industry although, with the rise of media conglomerates, a significant portion may be foreign owned) will increase in value and volume but nevertheless will constitute a smaller share of an expanding market. The loss of market share will occur primarily because of the continued emergence of regional markets and competition from countries whose size as television markets will begin to reflect their population base. However, we consider that Western Europe will not become one of these regional markets with producers domiciled in one European country dominating trade. We envisage most European nations continuing to prefer U.S. programming to programming from another European country. Another way of looking at this is to say there will continue to be a North American/West European/Australasian market with the U.S. dominating. Dominance of this market, much the wealthiest of the world's "regions," will continue to be a major source of U.S. strength.

The scenario above is predicated on foreign access to the U.S. network market for regular series and serials remaining very restricted.12 As we expect a North American-English soundtrack will continue to be a prerequisite for access to this market there are two developments that could upset this presumption. One is the emergence of more "American clone" programming such as Night Heat, the other is the possibility that international co-ventures (albeit including a U.S. partner) become the norm for network series. The latter would seriously endanger the U.S. competitive position if the foreign partner were significantly involved in the program development phase. This would allow the foreign partner to gain experience in customizing a series for the American market and, through exposure to partially foreign programs, might even reduce American viewers' resistance to foreign content. Both of these developments are possible because of increased U.S. production costs, mainly tied to restrictive practices and high wages, and to the falling market shares for U.S. networks. As a consequence U.S. series are vulnerable to lower cost competition while, to keep the price to the network down, the U.S. studios have had to accept increasing deficits after a first-run network sale. It is these deficits that make an international co-venture tempting. However, we would anticipate that the Hollywood studios would be sufficiently farsighted to perceive dangers from this type of international co-venture and hence steer clear of such arrangements, particularly as alternative strategies are available.

An attractive alternative strategy for the U.S. is to increasingly "shoot" U.S. series abroad. The Porter framework emphasizes that competitive advantage exists at the activity level rather than the industry level. Consistent with our analysis of those advantages that are sustainable and those that are not, we believe the U.S. will have continuing product differentiation advantages associated with assessing program concepts, script-writing and other aspects of program development associated with the marketing approach. Hence these should continue to be concentrated in the U.S. It no longer has a competitive advantage in the actual "shooting" of the production, hence this activity should increasingly go to where factor prices are lower and labour practices more flexible. Such a policy might on occasion be facilitated by international coalitions but here the U.S. would be the dominant partner and the production would remain essentially a U.S. series "shot" abroad. An alternative is to confront the Hollywood unions in an attempt to eliminate restrictive practices and/or switch to non-union production. There is some evidence that both of these approaches are being adopted.

The challengers that are successful in denting U.S. hegemony will be those that take a long-term perspective. Short-term profit maximization will often still favour U.S. imports and hinder development of a competitive program supply industry.

Notes

*
An earlier version of this paper was presented to the International Television Studies Conference, London, July 20-22, 1988.
1
Sources are Television/Radio Age (May 1984), p. 12; "World sales of U.S. TV programs soar," Video Age (April 1984), p. 32; and The Economist, December 23, 1989, p. 4.
2
For example, Lieberman (1984) found that for many chemical products, average costs decreased 70-80% as cumulative output doubled.
3
For a more detailed explanation of the reasons (current and past) for U.S. dominance, although not in terms of Porter's framework, see Hoskins and Mirus (1988).
4
See P. Berman and S. Flack, "Will the networks take it out of Hollywood's hide?," Forbes, August 25, 1986, p. 95. The reference to Fleet Street in this regard is already out of date. Such restrictive practices are also found in television production in the UK, another early mover, and the BBC and ITV companies have recently been battling the unions in an attempt to rectify the situation.
5
Colin Davis, President of International Television Operations at MCA Inc. goes as far as to say "We do not want to do a show unless the licence fee from the network and the international revenue cover the cost of production." Davis is quoted by R. Stevenson, "Hollywood puts gold in Europe's TV market," Globe and Mail, January 7, 1988, pp. B1, B5.
6
These figures are from The Economist, December 20, 1986, and Schlesinger (1986, p. 128). For an interesting account of special audience testing of pilots see Gitlin (1983).
7
This description is that of Aaron Spelling, the U.S. producer, as quoted by Gitlin (1983, p. 137).
8
Variety, October 29, 1986, pp. 87-88.
9
See Stevenson, "Hollywood puts gold in Europe's TV market, pp. B1, B5.
10
However, we note that years of British programming on PBS have not resulted in British series gaining acceptance on the commercial networks. This may be explained though by the fact that the typical "heavy" viewer in the U.S. scarcely watches PBS and hence has not in fact been exposed to Mystery or Masterpiece Theatre.
11
The success of the Canadian miniseries, Love and Hate, the second episode of which received the top audience rating when shown on NBC in July 1990, again suggests that a North American-English soundtrack is a key to U.S. audience acceptance.
12
Regular series and serials, rather than mini-series or made-for-TV film, are isolated because we expect these will continue to be the bread-and-butter of television around the globe.

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