Introduction

Colin Hoskins (University of Alberta)

Stuart McFadyen (University of Alberta)

This issue of the journal features communications research from an economics/business perspective. As economists doing communications research in a business school we think of both business and communications as inter-disciplinary fields (while recognizing not everyone will agree--see Salter, 1987). We have always found it surprising that there are so few economists in Schools of Communications, Robert Babe being an exception that comes to mind. This has limited the attention given economic/business aspects of communications issues in the research coming from these schools. There are, however, economists based in both Departments of Economics and Faculties of Business working on communications topics. Unfortunately, much of this research is published in journals not readily accessible to communication scholars. Possibly economists feel discouraged from submitting to the CJC because of the likelihood of being reviewed by people from other disciplines. With Gertrude Robinson's encouragement we have been able to use this special issue to bring some of this work to the attention of CJC readers.

Economics permits an understanding of markets for media products, an explanation of the conduct and performance of private sector participants in such markets, and predictions with respect to how such participants will react to changes in the regulatory environment. Our first venture into the broadcasting field was a study for the DOC (this became the basis of McFadyen, Hoskins and Gillen, 1980). An internal DOC reviewer concluded that a statement we made that "the motive of private broadcasters is profit maximization" was "so cynical as to undermine the credibility of the report." Unfortunately lack of understanding of such economic motivation has led to regulatory policies that have predictably failed to achieve stated objectives. Public policy analyses must consider the business perspective.

The international market for television programs and feature films is one sector where the U.S. has not lost its way. It is dominated by American producers. The U.S. entertainment industry is second only to aerospace in terms of its trade surplus ($5.5 billion in 1988). While others are better equipped to examine the cultural implications of this trade, economists and business scholars have the tools drawn from industrial organization, competitive strategy, and marketing to examine the reasons for such dominance and evaluate public policies responding to the U.S. competitive advantage.

Television programs and feature films are widely traded because, although the original "production cost" is high (the $1 million or so we hear quoted for an hour television drama episode), additional copies can be replicated at minimal incremental cost. This makes sales to additional markets, foreign as well as domestic, very attractive. As long as the program or film can cover the incremental cost of distribution and promotion, the sale is worthwhile and helps recoup the original production cost. The same feature explains also why multiple windows are often exploited for the same basic product. For example, "Bethune" has the feature film treatment for cinema release, miniseries for television, a video version, and there is even a documentary dealing with the production of the film.

Another characteristic of the product, its cultural component, acts as a hindrance to trade. The term "cultural discount" has been coined to capture the notion that a particular program (or feature film) rooted in one culture, and thus attractive in that environment, will have diminished appeal elsewhere as viewers find it difficult to identify with the styles, values, beliefs, institutions and behaviour patterns being portrayed. As a consequence, we find that in most countries, Canada being an exception, domestic programs lead the ratings. In addition, the notion explains why it is fictional drama, which minimizes the cultural discount, that is widely traded while there is little trade in informational programming. It also provides a reason for U.S. dominance as it makes possession of much the largest domestic market a crucial advantage (this argument is developed in Hoskins and Mirus, 1989).

The broadcasting environment has been transformed within the last decade by de-regulation of broadcasting, notably in Europe, and new distribution and production technologies. As a consequence, in the words of Patrick Whitten, "it is programming, not channel capacity, which is the new scarce resource" (Wasco, 1985). This has led to an increase in demand and higher prices for imported programming. Although the rewards for an internationally successful program are thus getting greater, audience fragmentation is making it harder to finance production budgets domestically. This may explain the increasing number of international co-productions and co-ventures, a mode that permits the production budget to be shared. There is the additional advantage that minimizing the cultural discount (in the market of the partner) is facilitated. An alternative to selling a program to different national markets, is to sell it to a broadcaster that aims at a transnational market. In Europe, satellite channels are attempting this although their commercial success has not yet been established.

The rise of media conglomerates is another facet of the internationalization of the entertainment industry. One motivation involved appears to be the desire by Japanese manufacturers to stimulate hardware sales through software tie-ins, e.g., Matsushita may be able to use the MCA/Universal library to stimulate laser disc demand.

The papers by Globerman, Acheson and Maule, Hoskins and McFadyen, and Collins were commissioned specifically for this special issue.

Steven Globerman, of the Faculty of Business Administration at Simon Fraser University, uses the industrial organization approach to challenge, on both theoretical and empirical grounds, the assumption that the U.S. majors' dominance of Canada's film distribution sector discourages production of commercial Canadian films. He thus rejects the direct intervention in the distribution process advocated by the federal legislation proposed in 1988 but suggests alternative policies that might stimulate Canadian film production.

Keith Acheson and Christopher Maule, economists at Carleton University, examine two methods of aiding financing of Canadian films, the special capital cost allowance tax incentive and direct investment by a government agency, Telefilm Canada. Alternatives are examined in terms of likely impact on the types of films produced and their international marketability.

In our own contribution, we employ Porter's competitive advantage framework to examine whether the advantages that have enabled U.S. television program producers to dominate world trade are sustainable in the new broadcasting environment. We conclude that the most likely scenario is one where sales of U.S. programming will increase in value and volume but nevertheless will constitute a smaller share of an expanding market.

Richard Collins, currently at the Royal Melbourne Institute of Technology, has written extensively on the Canadian scene (for example, see Collins, 1990). Collins argues that there is no necessary congruence between the frontiers of states and those of cultural communities. He thus rejects the CBC's contention that "there can be no political sovereignty without cultural sovereignty" and criticizes attempts to promote a transnational "European Culture." He makes the interesting observation that cultural discounts occur within countries as well as between states. We suggest this is certainly the case with Canada where even within English-Canada significant differences in taste are found; how else does one explain why Bye, Bye, Blues did better at the box office in Edmonton than in the whole of Ontario?

References

Collins, Richard. (1990). Culture, communication and national identity: The case of Canadian television. Toronto: University of Toronto Press.

Hoskins, Colin, & Mirus Rolf. (1988). Reasons for the U.S. dominance of the international trade in television programmes. Media, Culture and Society, 10, 499-515.

McFadyen, Stuart, Hoskins, Colin, & Gillen, David. (1980). Canadian broadcasting: market structure and economic performance. Montreal: Institute for Research on Public Policy.

Salter, Liora. (1987, December). Taking stock: Communications studies in 1987. Canadian Journal of Communication, 23-45.

Wasco, J. (1985). Hollywood, new technologies and international banking: A formula for financial success. In B. Austin (Ed.), Current Research in Film: Audiences, economics and law (Vol. 1, pp. 101-110). Norwood, New Jersey: Ablex Publishing Corporation.



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