Foreign Ownership of Feature Film Distribution and the Canadian Film Industry

Steven Globerman (Faculty of Business Administration, Simon Fraser University)

Abstract: Policy-makers in Canada have concluded that foreign ownership of film distribution is adversely affecting the development of an indigenous film industry. This paper refutes this contention by arguing that film distributors act in an efficient and competitive fashion with no bias against distributing commercially promising Canadian films.

Résumé: Les responsables des politiques canadiennes en la matière ont souvent soutenu que la propriété étrangère des réseaux de distribution de films avait un effet négatif sur le développement d'une industrie cinématographique chez nous. Cet article réfute cette affirmation en soutenant que les distributeurs de films se comportent de manière efficace et compétitive, sans préjugé à l'endroit des films canadiens qui présentent un potentiel au plan commercial.

Over the past ten years, Canadian government policy makers have emphasized the production of Canadian feature films as a priority issue in Canada's overall cultural policies. The emphasis is manifested by, among other things, substantial increases in both direct and indirect subsidies to the feature film industry. Financial subsidies have primarily taken the form of funding for Telecom Canada and the Broadcast Production Fund. Indirect subsidies include Canadian-content requirements for domestic broadcasters, as well as requirements for broadcasters to spend an increasing share of revenues on indigenous production of drama and related made-for-television films.

Government policy makers have also expressed concern about structural impediments to the growth of a domestic feature film industry that may require more direct forms of intervention. In particular, policy makers have been increasingly preoccupied with the high level of foreign ownership in the film distribution sector. A preoccupation with foreign ownership is indicated by the comments made by Communications Minister Marcel Masse at the Festival of Festivals trade forum: "We must face the fact that, in comparison with foreign productions, our distribution mechanisms do not give Canadian cultural products sufficient access to our own audience. Like any product cut off from its markets, Canadian creation consequently risks suffocation" (Milner, 1989, p. B28).

In 1988, federal legislation was proposed which would require international film producers to give Canadian distributors the right to bid for separate Canadian distribution rights for movies not being distributed by their original producer or a company with world rights (Gherson, 1988, p. 4). The proposals aroused the ire of the U.S. film industry and, in the context of negotiations leading up to the Canada-U.S. Free Trade Agreement, no specific bill dealing with film distribution was, in fact, introduced in Parliament; however, Minister Masse in the aforementioned speech assured his audience that new distribution legislation is on the way.

The purpose of this paper is to identify the potential linkages between the foreign ownership of Canada's feature film distribution sector and the performance of the Canadian feature film industry. The practical relevance of these linkages in light of both economic theory and empirical evidence is then assessed. In light of this analysis, policy implications are discussed. It should be emphasized that the focus of the study is the distribution sector. While arguments for government intervention in the production stage have also been raised, they are not of particular concern here.

Concerns about Foreign Ownership

While significant concerns have been expressed about the high levels of foreign ownership in the Canadian film distribution sector, these concerns have not been very clearly articulated by proponents of government intervention. Most condemnations take the peremptory tone of the following assessment:

While there were some attempts to produce feature films in Canada in the first three decades of this century ... during the 1930s, film distribution fell into the hands of the American-controlled Famous Players company, and indigenous Canadian fiction feature production was systematically discouraged." (Harcourt, 1989)

Nevertheless, by making some inferences and restructuring the rhetoric, one can identify several economic arguments for government intervention in the film distribution sector tied to the dominance of foreign-owned firms in the sector. One argument is that U.S.-owned feature film distributors enjoy substantial market power which is exercised, among other ways, by limiting the production and distribution of feature films (Audley, 1983). In this context, there is an alleged "market failure" problem associated with the market power enjoyed by major U.S.-owned film distributors (henceforth "majors"). Presumably this power could be exercised to restrict the expansion of all actual or potential rivals, not just Canadian rivals. Indeed, concerns about the activities of the majors have been raised in other countries, including the U.S. (Guback, 1979).

Market Power

The market power rationale for government intervention into film distribution faces both theoretical and empirical challenges. At a theoretical level, it must explain why distributors who largely contract for the production of films rather than produce the films "in-house" would find it profitable to discourage the growth of the production sector in Canada or elsewhere. In fact, a retailer or distributor has an interest in ensuring that output from the production sector is priced competitively, since such output constitutes an input cost. If the distributor acts in a way to limit entry into production, it must be because it anticipates that its market power in the distribution sector will be significantly enhanced as a result.

In principle, restrictions on entry into production may necessitate would-be entrants into the distribution stage to enter both stages which is obviously more expensive than entering only one or the other. To elaborate, a would-be entrant into distribution needs films to distribute. If the production of films was characterized as being perfectly competitive, would-be distributors could obtain films at a competitive price on an arms-length basis. On the other hand, if the production of films was constrained by the effective exercise of market power on the part of incumbent distributors, obtaining films at a competitive price might require would-be distributors either to vertically integrate into production or arrange alliances with would-be entrants into the production stage. The latter alternatives are clearly more costly and risky than being able to contract with competitive and independent suppliers for films.

The presumed incentive of major distributors to restrict the growth of the production sector therefore derives from the expectation that restricting entry into production will enhance their market power in the distribution stage; however, this is a dubious expectation. The production stage of the feature film industry is populated by a relatively large number of firms, and even significant reductions in the number of producing firms would not alter a conclusion that the production sector is workably competitive. By way of illustration, there were approximately 560 firms in Canada engaged in film, video and audio-visual production in 1985-86 (Statistics Canada, 1989). This compares to approximately 430 producers in 1983 (Globerman & Vining, 1987). Most of these producers are quite small which, combined with evidence of rapid growth of the production sector, suggests that there are minimal barriers to entry at this level. In this context, it is difficult to believe that distributors would find it profitable to incur higher costs themselves (e.g., by producing more films in-house) in order to increase entry costs for an already highly competitive sector. Rather, it would make more economic sense for incumbent distributors to focus their anti-competitive behaviour directly at would-be distributors while continuing to encourage the perpetuation of a competitive production sector.

Even if the majors do not directly exercise their market power to restrict entry into Canada's feature film production sector, to the extent that they enjoy significant market power, there is the potential for inefficiencies that adversely affect the Canadian production sector. One possibility is that the majors, although interested in a vital and competitive production sector, systematically underrate the commercial potential of Canadian-produced films, either because of a "Hollywood" purchasing bias or because of a lack of adequate knowledge about the commercial talents and skills of Canadian film-makers. Another is that the majors impose "unfair" terms on Canadian producers that discourage domestic production. Such terms may be related to what the majors see as necessary attributes to ensure a film's popularity in the U.S. domestic market.

There are two empirical issues that condition the relevance of these latter possible manifestations of market power. The most important is whether the distribution sector is indeed so uncompetitive as to allow individual majors to indulge uneconomic "Hollywood" purchasing biases and still remain in business. A second is whether an entire group of distributors, competing against each other, have systematically underestimated the commercial potential of Canadian feature films. Evidence on these issues is considered in a later section.

Cross-Subsidy

Another broad argument for government intervention into film distribution maintains that even if the majors are acting in a rational (i.e., profit-maximizing) manner by favouring the distribution of American feature films, Canadians are deprived of the opportunity to see Canadian films. The (usually implicit) presumption is that Canadian distributors would be more inclined than the majors to distribute Canadian produced films, although the reason for this presumption is not clear. One possibility is that Canadian distributors can earn greater profits on Canadian produced films than can American distributors. Tadros (1983) alludes to this possibility in arguing that films distributed by the majors in Canada are on the "tag-end" of American launches, and little special attention is given to the launching of Canadian films in Canada. In fact, domestically owned distributors were responsible for the distribution of virtually all Canadian produced films in 1985-86. Specifically, of 83 Canadian-made film and video productions, only two were distributed by a foreign-owned distributor, one of which was a made-for-television production and the other a non-theatrical production (Statistics Canada, 1989, p. 38). These data are consistent with an hypothesis that Canadian distributors have a competitive advantage in distributing Canadian produced films.

Another possibility is that Canadian distributors will accept lower rates-of-return than major U.S. distributors and will therefore be more willing to distribute less profitable Canadian-produced films. The data reported in Table 1 support this hypothesis. Specifically, they show that in 1985-86 profit margins for Canadian distributors were lower than those for foreign-controlled distributors. It might be noted that this was also true for 1982, although margins for 1983 were not significantly different (Globerman & Vining, 1987, p. 61). Another relevant observation is that the absolute number of Canadian distributors grew over the period 1982 to 1985-86 from 95 to 136 which suggests that the relatively low profit margins earned from the distribution of Canadian product are not driving the Canadian distribution sector to contract, at least not yet. globert1

An extrapolation of this line of argument is that if some of the profits earned by American distributors could be redistributed to Canadian distributors, there is a greater likelihood of Canadian produced films being distributed, since there should be a resulting increase in the number of Canadian distributors. Of course, this extrapolation is not necessarily valid. For example, imagine that the Canadian government introduced legislation which enabled Canadian distributors to obtain distribution rights in Canada to American-produced films at lower costs than they would otherwise incur. The return to Canadian distributors associated with distributing American produced films would increase, on the margin, while the return to distributing Canadian-produced films presumably would remain constant. One would therefore expect Canadian distributors, on the margin, to shift away from distributing Canadian product to distributing American product. While the overall number of domestically owned distributors might increase, the number of Canadian produced films that they distribute might actually decrease.

In short, even if Canadian distributors are more willing, on average, to distribute Canadian produced films, this does not necessarily mean that they will distribute more Canadian films, on the margin, if the ability of the majors to operate in the Canadian environment is somehow constrained by public policy. To be sure, public policy might make the increased distribution of Canadian films a quid pro quo for greater access to the distribution of more profitable foreign films. In this context, public policy would basically effect an indirect transfer of income to the Canadian film production sector. Specifically, Canadian producers would presumably enjoy greater access to distribution outlets which, on the margin, should encourage increased production. The empirical issue is whether the resulting supply response is likely to be significant. We defer consideration of this issue to a later section.

Cultural Imperialism

Canadian producers of feature film presumably respond to profit opportunities as do private sector producers elsewhere. An increase in the demand for their films on the part of Canadian distributors will, on the margin, increase the profitability of producing Canadian films, since expected production revenues net of costs should increase; however, it is unlikely that any plausible increase in demand for Canadian films on the part of Canadian distributors would significantly increase the profitability of the Canadian production sector, unless Canadian distributors were successful in distributing Canadian productions in foreign markets, and especially in the United States.

The arithmetic underlying this assertion proceeds as follows. Assuming that an average Canadian feature film costs around $3.5 million (in 1984 dollars), it is estimated that the film must generate a box office of approximately $16 million (film rental of approximately $5.6 million) in order to recover its negative costs plus the costs of printing and advertising. At an acceptable film rental (for Canada) of around $800,000, it is obvious that the Canadian market is not sufficiently large for a film producer to recoup such costs (The Canadian Motion Picture Distributors Association, 1986). Nor is this conclusion nullified by access to related domestic markets. For example, combined film rentals from television and pay-television averaged $500,000 for films released in Canada by members of the Canadian Motion Picture Distributors' Association. For those same films, net revenue from the home video cassette market averaged $300,000.

While the foregoing numbers are slightly out-of-date, it is unlikely that more recent numbers would alter the conclusion that Canadian producers of theatrical feature films and/or television drama cannot expect to make acceptable risk-adjusted returns, on average, without being successful in the U.S. market. In this regard, it cannot be concluded that Canadian distributors will be more successful in the U.S. market than U.S.-based distributors. Indeed, there are strong grounds for arguing that Canadian producers of "mass-appeal" films would prefer North American distribution to be handled by the majors rather than by Canadian distributors.

The dominant influence that American society has on the profitability of foreign producers of popular culture has been likened to imperialism, whereby the metropolitan power imposes conditions of economic subservience on the "peripheral" regions. In this case, the perception of many foreign producers is that they must produce films that will appeal to American audiences or they cannot produce at all, except by the financial graces of their home government funding agencies. While this is obviously overstating the importance of the domestic American market, it is true that American producers (including large independent producers) enjoy a competitive advantage in the international market based not only on the size of their domestic market but also a long standing experience in providing programmes for commercial sale. This experience has sharpened the ability of American producers to discern mass-appeal material. As well, it has arguably cultivated a taste for U.S. products that gets reinforced by new exposure (Hoskins & Mirus, 1988).

While some Canadian producers may resent having to make concessions to "Hollywood" tastes in order to gain widespread access to international film distribution channels, the likely financial success of a Canadian feature film in U.S. markets will have a significant influence on the likelihood of the Canadian producer accessing private funding. The major commercial success of the Canadian film Meatballs and the Australian film Crocodile Dundee suggests that "Hollywood-type" films can be made outside Hollywood, although the regional comparative advantage undoubtedly still resides in Los Angeles. The issue of whether popular tastes could be weaned away from the Hollywood model if only the major distributors handled greater numbers of non-Hollywood type films is essentially a moot point. The major distributors are for-profit organizations whose competitive advantage resides in the international distribution of mass appeal feature films.

Against this economic background of feature film production, the relevant policy concern is whether the majors' dominance of Canada's film distribution sector discourages the production of Hollywood-type films in Canada. Several hypotheses might be considered in this regard including the notion raised earlier that the majors enjoy market power:

  1. 1 The market power of the majors enables them to indulge a preference for American-produced feature films that cannot be justified on the basis of profit-maximization;
  2. 2 Even if the distribution sector is relatively competitive, foreign owned distributors are not knowledgeable about the talents and capabilities of local producers and therefore systematically ignore potentially profitable domestically produced films which, in turn, discourages domestic production;
  3. 3 American distributors extract monopoly profits in Canada which are reinvested in American productions. If these profits were captured instead by Canadian distributors, Canadian producers would have access to lower cost funding which, in turn, would stimulate increased production.

We turn now to consider the empirical relevance of these arguments.

Evidence on Market Power

While industrial organization economists have dedicated decades of research effort to identifying and measuring market power, there is no adequate single summary measure. Rather, a set of procedures and measures are usually invoked to draw a composite profile of the competitive conditions surrounding an industry.

The first step in the relevant analysis is to define the "principal" (or relevant) market. Table 2 reports the major markets in which films are distributed as measured by distributors' sales. The point underscored by Table 2 is that there are a number of markets in which films are distributed. Moreover, theatrical distribution revenues directly accounted for only around 33% of all distribution revenues in 1985-86. This compares to 70% in 1972 and 45% as recently as 1983. Clearly, the theatrical market is becoming an increasingly less important source of revenues for distributors. Particularly noteworthy is the dramatic growth of distribution revenues associated with home videos. To the extent that these various markets are relatively independent, a high degree of concentrated ownership in any one market would not necessarily suggest that the overall market for feature films is uncompetitive.

Table 2 Importance of Markets for Film and Videotapes in Terms of Distributor Revenue, 1983 and 1985-86
Distributor sales
and rental revenues
($ millions)
Market 1983 1985-86
Theatrical 135.0 129.4
Free television 98.6 141.2
Pay/Cable television 20.1 26.3
Home video 31.3 73.8
Non-theatrical 16.3 23.8
Source:
Statistics Canada (1983, 1989).

It might be noted that theatrical feature films as a share of all feature films is only around .10, well below its share of rental revenues. Clearly theatrical feature films earn more for distributors, on average, than do home videos and non-theatrical films, for which the shares of physical units produced substantially exceed shares of distribution revenues. In the case of free television and pay/cable television, the shares of distribution revenues exceed the shares of physical units produced. The risk/reward structure for theatrical and television films would therefore seem to differ substantially from the structure presented by other market outlets.

The data in Table 3 show that the distribution revenues in the theatrical sector are largely concentrated among a few foreign-owned firms. In other sectors, distribution revenues earned by Canadian-owned firms are more commensurate with their relative numbers. It would therefore seem relevant to ask whether the concentrated market shares in the theatrical sector are indicative of monopoly power and, if so, what the relevance would be for other segments of the industry.

In fact, concentration of sales revenues (or assets) among a few firms is only suggestive evidence of a market power problem. It may also be indicative of economies of scale in distributing theatrical properties. This latter possibility appears to be relevant for at least two reasons: (1) relatively large indivisible amounts must ordinarily be spent on marketing "mass appeal" films; and (2) most mass-appeal films lose money. Hence, distributors of theatrical properties will want to maintain a diversified portfolio of films given the difficulty in identifying "winners" and "losers" ex ante.

The existence of economies of scale suggests that concentrated ownership of the theatrical distribution sector can promote efficiencies. So can North-American wide distribution of mass appeal films. The basic argument here is that there are probably economies of scope (e.g., cost complementarities) in designing promotional campaigns for the United States and Canada, as well as opportunities to spread overhead costs over a larger market.

Notwithstanding the presence of scale and scope economies, a lack of vigorous competition among the relatively few firms who account for most of theatrical feature film distribution revenues could permit the perpetuation of what economists call "x-inefficiency"; that is, a failure to operate as efficiently as possible given available resources and existing technology. Manifestations of x-inefficiency could include the indulgence of preferences and biases that are not completely consistent with the imperatives of the marketplace. In an earlier section, we raised this possibility in the context of American distributors systematically underestimating the commercial appeal of Canadian feature films.

In fact, it is arguable that there is fairly aggressive rivalry among the majors, as evidenced by, among other things, the substantial year-to-year variation in market shares enjoyed by individual firms as portrayed in Table 4 (Globerman & Vining, 1987). Additional evidence is provided by the fact that the profit margins for large distributors (revenues of $1 million or more) were only slightly larger than those for smaller distributors ($250,000 to $1 million in revenue) in 1985-86 and earlier years.

Table 4 North American Film Rental Market Shares Ranking, 1977-87
Company 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987
Columbia 4 5 5 4 4 5 3 3 4 4 8
Fox 1 3 6 2 4 2 1 4 3 6 5
MGM/UA 2 5 2 6 6 4 6 6 7 9 8
Paramount 6 1 2 2 2 2 3 1 4 1 1
Universal 4 2 2 1 3 1 5 5 2 4 6
Warner Bros 3 3 1 4 1 5 2 2 1 2 3
Disney 7 7 8 7 7 7 8 9 9 3 2
Orion 8 8 7 8 8 8 7 7 8 7 4
Tri-Star -- -- -- -- -- -- -- 7 4 7 7
Source:
Variety, January 16, 1989.

More directly, the majors have distributed some Canadian films, and most that they have not chosen to distribute have failed to return a profit in the United States (Globerman & Vining, 1987). This is not to suggest that the commercial judgement exhibited by the various major distributors has been infallible. Tadros (1983) suggests that the majors became interested in Australian films only after the commercial success of such films as Mad Max. However, rather than suggesting a market failure, the aggressive bidding on the part of the majors for sequels such as Mad Max II underscores their interest in commercial properties.

Competition for commercial production properties is also becoming more intense with the growth of pay-TV, the movement towards television broadcasters contracting for original made-for-TV movies and the growing potential for films to be made directly for video release. The majors do not dominate these other segments of the industry, and theatrical exhibitors can be expected to exert continuous pressure on the majors to deliver commercially successful product in the face of increasing competition from other performance sectors.

In sum, it is inappropriate to link any dissatisfaction that policy makers might have with the commercial performance of Canada's feature film industry to the concentrated presence of distribution majors in the theatrical sector of the industry. Nevertheless, another argument that should be addressed is that enhanced efforts to develop the Canadian production sector might be extracted from the majors through "appropriate" public policies. In particular, it is frequently argued that the majors should be made to invest more in Canadian productions.

Evidence on Reinvestment

A variation of the market-power argument is that while the majors may be willing to distribute commercially promising Canadian films, they do not invest a "fair" share of the profits they earn in Canada on Canadian productions (Pendaker, 1985). The argument is typically buttressed by statistics showing that foreign controlled distributors invest less than 1% of their gross film rentals in Canadian productions (Audley, 1983, p. 246).10

Criticisms of this sort ignore several important considerations. One is that expenditures made by foreign companies filming in Canadian locations are an important source of cash flow (and worker training) for the Canadian industry. So-called "location shooting" can be associated with expenditures of hundreds of millions of dollars a year on local production and post-production activities. Policies which impart a risk of American trade retaliation, including possible restrictions on location shooting in Canada, therefore threaten a major source of employment for the Canadian film industry.

A second consideration is that distribution agreements made with the majors indirectly assist Canadian producers to obtain financing from outside sources. It is unlikely that the same agreements concluded with independent Canadian distributors would afford the same benefits in the form of enhanced access to capital.

Yet another point is that the profits earned in Canada by the majors are relatively small, as suggested by the data in Table 1. Total reported profits by foreign distributors in 1985-86 amounted to slightly more than $30 million. This presumably includes a "normal" return to capital investments made in Canada by foreign-owned distributors. Unless the majors are paying unfairly high royalties and rentals to foreign producers, it would not seem that even the total reinvestment of their profits would have a substantial impact on the volume of feature film production in Canada.11

More to the point, there is a large international capital market for feature films. Even the majors are looking increasingly to international sources of capital, including the Japanese, for funding (Rowan, 1990). An increasing number of Canadian companies are signing packaging and development deals with major European partners which enable the former to access foreign financing (Godfrey, 1990).

In short, it is simply not credible to argue that a reluctance on the part of the majors to invest in Canadian productions is a significant determinant of the international competitiveness of Canada's feature film industry, when one is considering commercial feature films. To be sure, the production of non-commercial feature films will, by definition, be excluded from commercial capital markets. If it is a public policy imperative to produce such films in Canada, government financial support of production and distribution will presumably be required. In this case, as well, foreign ownership of distribution assets should not discourage Canadian production. Subsidies would be required regardless of who owns the distribution facilities.

International Competitiveness and Canadian Content

The argument by some that the majors have manifestly failed to act efficiently rests upon an alleged excess demand for Canadian films. Proponents of the excess demand argument point to public opinion polls as evidence of latent and unsatisfied demand for "Canadian content." As an example, an opinion poll taken in 1980 reported that 59.1% of respondents believed that there were not enough Canadian films at the cinema. The remainder felt that there were enough or too many. The poll also reported that around 72% of respondents were favourable to a recommendation that movie theatres should be required to show Canadian films at least 10% of the time; and around 77% were favourable to a recommendation that Canadian TV stations be required to show Canadian films at least 10% of the time (Globerman & Vining, 1987, p. 93).

On the surface, this type of survey result would appear to offer some empirical evidence of dissatisfaction on the part of Canadians with the nature of the films that the existing market structure is providing. A more specific interpretation of such survey results is that Canadians want to see a greater number of entertaining Canadian films, and that their demands have not been met, to date. But if Canadians have found locally produced films largely unentertaining, the blame can hardly be laid at the feet of the major distributors, since the latter have had little to do with the content of most Canadian-produced films. A relatively recent quote from Robert Fulford, hardly an apologist for American media companies, makes the same point:

Are there good Canadian movies on the shelves, callously ignored by U.S. distributors? Every year I attend the Genie Award screenings and see most of the Canadian features, and every year I come away convinced that, with rare exceptions, the films that are not distributed do not deserve distribution. The problem is with the producers who make so many bad films, rather than with the distributors; when good Canadian movies are made they usually get into theatres and find appropriate audiences. (Fulford, 1986, p. 8).

The vast majority of Canadian films that are distributed gross relatively small revenues both inside and outside Canada which attests to the limited appeal of most Canadian feature films. It might be noted that this is also true of Australian films, notwithstanding that the Australian industry is sometimes held up as a model for Canada to emulate. It might also be stressed that most Australian films that do obtain distribution attract relatively small audiences even among Australian cinema goers (Jones, 1990, pp. 2-3).

Conclusions

The implication of the foregoing analysis is that the commercial feature film business is highly competitive in the English-speaking world. U.S. producers have a long-standing competitive advantage in the industry that is not likely to be eroded by marginal changes in the structure of Canada's domestic industry. Improving the competitiveness of Canada's feature film industry quite simply requires making more films that a greater number of people want to see. Commercially promising Canadian films will be distributed by the majors, since it is in the majors' self-interest to do so. Commercially unpromising Canadian films will require government subsidy regardless of who owns the distribution sector. In short, simply reducing foreign ownership in Canada's distribution sector will not promote the production of more Canadian films.

While it is impossible to suggest a simple policy formula for promoting increased production and distribution of Canadian-made films, several points seem fairly obvious. One is that public subsidies generally make producers less responsive to market demands. Another is that protectionist measures generate above-average payments for factors of production that enjoy market power. These may be factors of production that are peripheral to the film production effort, e.g., accountants and lawyers. A third is that the film industry is rapidly becoming "globalized," in the specific sense that co-productions involving different countries are increasingly the norm. In this environment, protectionist measures built around narrowly defined definitions of "Canadian-content" are unlikely to stimulate a durable competitive advantage for Canadian film producers.

Some constructive steps that public policy makers might take include:

  1. 1 negotiating market access to foreign countries whose restrictive content regulations are preventing sales of Canadian films and
  2. 2 promoting the adoption of new technologies (e.g., Direct Broadcast Satellite, Pay-Per-View TV) that will expand the demand for entertainment products of all sorts, including Canadian films. Ultimately, the proliferation of distribution outlets will enhance the opportunities for specialized cultural products, or at least for products that are not necessarily of the "mass appeal" variety. This development can only help the competitiveness of small country producers who are more likely to find success by specializing in niches of the broad entertainment market.

Notes

1
It is reported that federal and provincial government subsidies to the Canadian film industry increased by as much as 865% over the period 1982-83 to 1986-87. See Durand (1989). The federal government also directly spends on film through its operation of the National Film Board.
2
There is no unambiguous definition of what constitutes a feature film. Statistics Canada identifies films by whether or not they are theatrical films. Theatrical features are defined as being 75 minutes or longer in running time. Non-theatrical productions of 75 minutes or longer, e.g., made-for-TV films can also be considered features by this definition.
3
These arguments are developed in more detail in Globerman & Vining (1987).
4
For example, they may require the actors to talk in "American" accents using American idioms.
5
Who would actually bear the cost of this subsidy is an open question. It is possible that film goers in Canada would bear some or all of the cost in the form of reduced access to foreign films and/or higher theatrical ticket prices, higher rental rates on videos and so forth. This would be true to the extent that film distribution in Canada is characterized as being workably competitive.
6
These grounds are discussed extensively in Globerman & Vining (1987).
7
Evidence supporting this assertion is the fact that most successful Canadian and Australian producers and directors eventually move to Los Angeles.
8
Some critics of the Hollywood system rail against its commercialism and its cultural emptiness (Harcourt, 1989). This essentially amounts to a plea for a meritocracy, presumably with these same critics deciding what film-goers should see.
9
A full discussion of this competitive analysis is found in Globerman & Vining (1987).
10
It might be emphasized that while the criticism is that profits fail to be reinvested, the empirical frame of reference is often the total revenues earned by the majors.
11
Using an estimated production cost of $3.5 million in 1984 dollars, it could support an additional 7 or 8 features per year; however, the costs of making "blockbuster" movies has escalated dramatically over the past few years (Rowan, 1990). Moreover, it does not seem likely that the majors are hiding profits in the form of royalties paid to their American parents given Revenue Canada's auditing of transfer prices. Furthermore, per dollar of revenues, their royalty and rental expenditures are comparable to those of domestically owned firms (Table 2).

References

Audley, Paul. (1983). Canada's cultural industries: Broadcasting, publishing, recording and films. Toronto: James Lorimer.

Canadian Motion Picture Distributors Association. (1982, July). A report on the distribution of feature film in Canada. Mimeo.

Durand, Michel G. (1989). Film industry: Winners and losers in the marketplace. In Harry Hillman Chartrand, William S. Hendon, & Claire McCaughey (Eds.) Cultural economics 88: A Canadian perspective (pp. 69-78). Akron: University of Akron.

Fulford, Robert. (1986, March). Blaming the Yanks. Saturday Night, pp. 7-9.

Globerman, Steven, & Vining, Aidan. (1987). Foreign ownership, and Canada's feature film distribution sector: An economic analysis. Vancouver: The Fraser Institute.

Godfrey, Stephen. (1990, April 18). Astral plunges into booming European television market. The Globe and Mail, p. A12.

Guback, Thomas H. (1979). The international film industry. Bloomington: Indiana University Press.

Harcourt, Peter. (1989). Canadian film policy: A short analysis. In Harry Hillman Chartrand, William S. Hendon, & Clair McCoughey (Eds.) Cultural economics 88: A Canadian perspective (pp. 79-86). Akron: University of Akron.

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.

Jones, Ross. (Forthcoming). Film and television industry regulation in Australia. Sydney: The Centre for Independent Studies.

Milner, Brian. (1989, September 12). Masse promises changes in film, but industry people expected more. The Globe and Mail, p. B.28.

Pendakur, Maryurath. (1985, Spring). Economic relations between selected Canadian film producers and American major distributors: Implications for Canada's film policy. Canadian Journal of Communications, 11(2), 149-179.

Rowan, Geoffrey. (1990, April 17). Cash-hungry film business looking to Japan. The Globe and Mail, p. B.14.

Statistics Canada. (1989, February). Cultural statistics: Film industry, Preliminary Statistics, 1985-86.

Tadros, Connie. (1983, March). A report on components of the Canadian and Australian film industries. Prepared for the Department of Communications, Arts and Culture Branch.



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