Abstract

This article reviews, and provides a context for, the cultural industries research carried out by the authors over the last 20 years. This work focuses on the television and feature film industries and uses a micro-economic analysis approach which recognizes the three unusual economic characteristics of feature films and television programs: they suffer a cultural discount when traded across international borders, they are joint consumption goods, and they may result in external benefits. The work encompasses industry studies of Canadian broadcasting, U.S. domination of international trade in audiovisual products, international co-production, and new media.

Our research since 1980 has focused on economic and business analysis of the television and feature film industries. Some scholars have expressed reservations over the usefulness of economic analysis in the field of communication (Babe, 1995) or become mired in Marxian lacunae; we have tried to demonstrate the power and practical insight generated by an economic/business analytical approach to communication issues. In this paper we review our work. Others who have taken a similar approach include Keith Acheson & Christopher Maule and Anthony Boardman & Aidan Vining. We refer briefly to their work in the conclusion but make no attempt to fully review their valuable contributions.

Microeconomics examines the behaviour of economic units such as the business firm and the consumer, including how these units interact in markets and industries. It reveals how industries and markets operate and evolve, and how they are affected by industry structure (such as the number of competitors), government policies, and global economic conditions.

Microeconomics is relevant to the study of television program and film production, distribution, and consumption because the "products" are primarily made for profit and are bought and sold in markets. Cultural products are the output of "cultural industries." Economic and business research provides an understanding of why firms behave the way they do and predicts how they will behave in the future. Such an understanding is a prerequisite to effective public policy formulation as a policy cannot be effective if firms do not respond in the manner anticipated.

Microeconomics encompasses analysis of both positive and normative questions. Positive theory is concerned with explanation and prediction relating to phenomena that can be observed; normative theory is concerned with "what ought to be." The test of a positive theory is whether the explanations and predictions appear to be consistent with the facts. The distinction between positive theory and normative theory is important because it permits us to distinguish clearly between how the world actually works (positive theory) and how we would like it to work (normative theory). An economist's positive theory is sometimes criticized, erroneously, by non-economists on the grounds they would like the world to work differently.

Positive economic theory is based on the assumption that participants act in their own self-interest. For companies this is usually translated into the assumption that the primary motive is profits. Under very competitive conditions mere survival dictates that choices between alternative courses of action be decided on the basis of which adds most to profits. Shareholders of widely held companies, be they individuals or institutional investors such as pension funds, are primarily interested in the profitability of their investment rather than cultural or other goals. While managers of widely held companies may wish to pursue their own interests at the expense of shareholders, their ability to do so is limited because they risk seeing their companies bought out by others who believe they can obtain a greater return from the assets (see Jensen & Meckling, 1976). More leeway is sometimes possible for a small closely held company such as an owner-manager operation. The owner-manager will wish to maximize his/her utility (satisfaction), but while his/her utility function may well include aesthetic considerations, it will also include ensuring that revenues exceed costs, that is, that there are profits, as even auteurs like to eat. Thus, although the small film producer may choose a project primarily for artistic reasons, choices between shooting locations, for example, are likely to be made on an economic, least-cost basis. Even non-profit organizations such as a public broadcaster will, due to budget limitations, be forced to make many decisions on a cost-benefit basis.

Normative economics considers what "ought to be" and often involves trade-offs requiring a value judgment. The work we have done on public policy for Canada's cultural industries has normative dimensions.

Culture and economics

Sinclair (1992) characterizes the cultural industries as

those which produce goods or services which are . . . somehow expressive of the way of life of a society, such as film or television. . . . They are industries which give form to social life in sound and image, words, and pictures. They offer the terms and symbols with which we think and communicate about patterns of social difference, the aspiration of groups for recognition and identity, the affirmation and challenging of social values and ideals, and the experience of social change. (pp. 3-4)

Few other industries have similar non-economic pretensions. This leads economists to view people as simply consumers, but as Cunningham & Jackal (1996) observe (in the context of Australia), "We are not simply consumers. We are also citizens in a democratic nation-state with needs for reliable information and rights to cultural expression" (p. 68). Economists need to be cognizant of this. McQueen (1983), himself an economist, cautions: "Economists who interest themselves in the economics of culture normally do so out of a prior interest in culture, and merely make themselves ridiculous if they subsequently affect to execute a sort of professional troll's dance on the economist's leg only" (p. 129). In our work we have sought to avoid performing a professional troll's dance. We have recognized that television and film are not simply products like all the others. In fact, television and film share three unusual characteristics: they suffer a cultural discount when traded across international borders, they are joint consumption goods, and they may result in external benefits.

A cultural discount for traded programs or films arises because viewers in importing markets generally find it difficult to identify with the way of life, values, history, institutions, myths, and physical environment depicted. Language differences are also an important reason for a cultural discount as the appeal of viewing is reduced by the need to dub or subtitle and by the difficulty in understanding unfamiliar accents.

Joint consumption, in the context of television programs or films, means that viewing by one person does not use up the product nor does it detract from the viewing experience enjoyed by others. This is one property of a public good, the other property being that it is impossible or too costly to exclude any person from consuming a good that has been produced. Television programming used to exhibit this second property also, and hence was a true public good, but it is now easy to scramble and descramble signals. Due to the joint consumption property, in a given market an additional viewer has no effect on cost, while even the replication of an extra copy of the program to extend reach into another market is a very low cost relative to the original production cost. The same applies to replicating and distributing another copy of a feature film.

Television and film may result in external benefits (or positive externalities), which is economic terminology indicating benefits to people other than the producer or the viewer. In effect, external benefits can be thought of as positive side effects resulting from viewing. For example, current affairs, news, and documentary programs or films may promote a population more informed on national institutions, events, and issues and a home-grown perspective on international affairs.

These three characteristics have important implications. If television programs or films or other cultural goods do provide external benefits, the market will not work efficiently because the producers, distributors, and exhibitors who bring the product to market will not receive compensation for the provision of such benefits. Hence government intervention is justified to the extent that it compensates for this failure.

The tension between the economic and cultural development approaches to examining cultural industries is in part due to misunderstandings; the external benefits concept can be used to reconcile many of the differences. The belief that indigenous programming and film possessing desirable attributes can make viewers better citizens is at the heart of both the economic (external benefits) and "cultural" arguments. This is not widely appreciated and indeed the social importance of television and film in promoting citizenship is often listed as a non-economic justification for government intervention. Many of the cultural industries' trade disputes between Canada and the U.S. are, in effect, although the terminology is never used, disagreements over whether positive externalities result from Canadian production.

Industry studies of Canadian broadcasting

Our first major piece, the book Canadian Broadcasting: Market Structure and Economic Performance (McFadyen, Hoskins, & Gillen, 1980), comprised industry studies of Canadian television, radio, and cable-television. As such it examined the micro-economic environment, regulatory environment, technological environment, and global competitive environment of these industries in order to understand how they function and what factors affect performance. The econometric work on the television industry complemented Robert Babe's excellent industrial organization study of that industry done in the previous year (Babe, 1979).

The same industry study approach was used to compare the market structure and television programming performance of the Canadian and British industries (Hoskins & McFadyen, 1982). This comparison revealed that "in terms of the amount, composition and scheduling of indigenous programming [that] Canadian broadcasters are seriously deficient" (p. 353). To remedy this, the paper argued for the elimination of a regulatory system that mainly served to protect the economic interests of private broadcasters. It also pointed out the potential problems (subsequently experienced in the U.K.) of the competitive licensing proposals advanced by Babe (1979) and Babe & Slayton (1980) and proposed an excess profits tax on private broadcasters. For the public sector a second CBC broadcasting channel using mainly independent productions was proposed with the main channel eliminating advertising and broadcasting 90% Canadian content, including a substantial drama component. The article concluded with an observation that "government investment in the CBC is likely to show a greater return in the quest for Canadian cultural identity than any investment of similar size elsewhere" (p. 357). Such a statement would be much harder to defend today given the proliferation of Canadian specialty channels and the development of an independent production industry fostered by direct investments of public funds.

In a 1984 paper Colin Hoskins looked at the prospect for the U.K. cable-television industry, then in its infancy. Based on Canadian experience, Canada being a pioneer in this industry, he concluded: "basic cable can be [commercially] successful if it primarily acts as a vehicle for bringing in US programming" (p. 187).

One of the papers we prepared for the SSHRC-commissioned "Cultural Development in an Open Economy" project (Hoskins, McFadyen, & Finn, 1994) examined the microeconomic, regulatory, technological, and global competitive environment of the cultural industries, and considered the implications for public policy and for the competitive strategies of firms. The article argues that economic analysis of the environment is essential to an understanding of the workings of the cultural industries. It explains how companies are likely to respond to changes in the external environment, why cultural products are traded extensively, why the U.S. dominates that trade, and why particular business strategies are increasingly important. As well, sound public policy formation must be premised on economic analysis because companies tend to respond to regulations and subsidies according to their own self-interest. An example given is the ploy of making "extravagant promises of performance in order to obtain a new [broadcasting] licence and then not fulfill[ing] these promises" (p. 108).

U.S. domination of international trade in audiovisual products

A survey of the flow of television fiction in North America (Hoskins & McFadyen, 1990), conducted as part of a worldwide UNESCO project, demonstrated the pre-eminence of U.S. fictional programming within North America in 1980 and 1984. The only foreign fiction on the three U.S. commercial networks was the occasional feature film. PBS was the only real national outlet for foreign, mainly British, programming. In Canada, 93% of the fiction shown on CTV in 1984 came from the U.S.; for the CBC English network, the U.S. share was 64%. The paper also looked at the cost disadvantages involved in the production and export of television fiction produced in Canada and explored some strategies for overcoming these disadvantages.

Issues related to the competitive strength of U.S. producers in Canada and other international markets, and the question of how Canadian independent producers could effectively compete in the U.S., third countries, and within Canada itself, came to frame our research agenda for the next decade. First we turned to the question of why the U.S. dominates global television (and film) markets and tried to assess the sustainability of its advantages. Hoskins & Mirus (1988) presented a theoretical analysis of the reasons for U.S. dominance. They concluded:

As a result of the joint consumption property of programming, cost is largely invariant to the number of viewers, and huge economies of scale exist. If the costs of production are the same for all programme producers and the size of cultural discount is equal for all countries, then the cultural discount alone is sufficient to explain why the country with the largest domestic market (in economic terms), the US, dominates international trade. (p. 11)

The paper was particularly influential as it introduced the concept of the "cultural discount" in referring to the diminution in price that occurs as a cultural product, such as a television program, crosses national boundaries.

Another piece of the puzzle concerns the pricing of U.S. programs in export markets. Schiller (1971, 1976) had long alleged that American dumping of programs was undertaken to achieve a goal of media imperialism. In contrast, Hoskins, Mirus, & Rozeboom (1989) showed that the low prices charged for U.S. programs in export markets could be explained by a microeconomic model incorporating the joint consumption characteristic. As the cost of supplying another copy of a program to reach an additional market is minimal, export prices depend primarily on the demand characteristics in the various national markets for the program. Empirical analysis showed that these demand characteristics include the level of per capita GNP, the number of television sets in the country, the number of buyers for programming, and whether or not it is an English-language market. All of these factors were economic in nature except for English language. English language was used as a proxy for cultural difference from the U.S., the exporting country.

Recent unpublished research indicates that cultural differences between the importing countries and exporting countries (usually the U.S.) are much more important in explaining program prices than are economic variables. This recent work uses the cultural characteristics measures developed by Geert Hofstede (1980) and builds on prior studies where they have been used to help explain various elements of success in international business ventures, such as in Barkema & Vermeulen (1997).

Hoskins & McFadyen (1991b) explored a broad range of factors involved in U.S. dominance and assessed the sustainability of the U.S. advantage. Their departure point was that, given the cultural discount, domestic market size provides the U.S. with a crucial competitive advantage. This advantage is accentuated by shooting in English-the English-language market is the largest in terms of purchasing power and English is the world's most important second language. In addition, the competitive U.S. audiovisual industry, concentrated in the Hollywood area and featuring sophisticated and demanding domestic buyers, gives the U.S. the characteristics of a desirable global platform (Porter, 1986). U.S. pre-eminence in film is abetted by the development of a star system and recently by a move to a blanket exhibition strategy supported by large promotional budgets. This makes it more difficult for films from smaller countries, such as Canada, which rely on a gradual roll-out supported by "word-of-mouth" promotion, to compete. U.S. television has benefited from the long-established feature film infrastructure, including the world's major reservoir of agents, deal-makers, entertainment lawyers and financiers, and technicians skilled in all aspects of shooting and processing film.

With respect to the sustainability of the U.S. competitive advantage, in the same paper we considered the most likely scenario to be one where sales of U.S. programming increase in value and volume but nevertheless 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, in feature films the U.S. competitive advantage is not likely to suffer erosion because of the U.S.-dominated distribution apparatus. In light of the vast increase in U.S. "runaway productions," notably to Canada, in the mid and late 1990s, the following prediction was prescient:

An attractive alternative strategy for the US is to increasingly "shoot" US 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 US 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 US. 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. (Hoskins & McFadyen, 1991b, pp. 221-222)

Hoskins, Finn, & McFadyen (1996) brought together and summarized our thoughts on television and film trade issues arising from the FTA, NAFTA, and GATT; reasons for U.S. dominance of this trade; and, the subject of the next section of this paper, Canadian public policy and competitive strategy responses to this dominance. We concluded that new distribution technologies and, in many countries, partial deregulation of broadcasting were having a much greater impact on trade than the negotiated trade agreements.

At the time of this 1996 paper we had not examined in detail the role distribution plays in explaining U.S. dominance of the feature film industry. This role is highly controversial, with Globerman (1991) downplaying its significance and authors such as Pendakur (1990) and Gasher (1992) emphasizing it. Our first examination of distribution issues took a global perspective and led us to conclude:

Independent producers outside the US may feel they are at the mercy of the majors, but there is little reason to see this as a plot against foreign independents by US majors . . . independent producers in the US itself are subject to these very same pressures. In both instances the basic economic driving forces of the industry draw the majors into a pattern of behaviour designed to control risk in an industry characterized by high levels of uncertainty. (Hoskins, McFadyen, & Finn, 1997b, p. 60)

Our research into distribution issues is ongoing. In a conference presentation we examined distribution problems in the marketing of Canadian feature films (Hoskins, McFadyen, & Finn, 1998). We concluded that part of the problem was a lack of balance between creative and business perspectives accentuated by public subsidy schemes that provide perverse incentives by insulating participants from the effects of box-office performance. Another line of enquiry has been to examine the Internet marketing of Canadian distributors and producers and compare their performance in this regard to their American competitors (Finn, Hoskins, McFadyen, & Simpson, 1999). Canadian distributors and producers fare poorly. This is unfortunate as the Internet provides a new low-cost marketing tool that appears particularly well suited for reaching niche audiences.

Dealing with U.S. domination: The domestic market

The central problem facing Canada's cultural industries in the domestic market is ensuring economic viability in the face of competition from low-priced American program and film exports. We have examined the role of both the public sector (the CBC) and the private sector (private broadcasters and independent producers) in this regard. We undertook an early synthesis of the research literature dealing with the economic factors relating to Canadian television broadcasting policy in Hoskins & McFadyen (1986c).

Our first paper devoted specifically to the competitive position of the CBC recommended that "the role of the CBC be changed to complement the private sector by providing more Canadian content and in particular drama" (Hoskins & McFadyen, 1984, p. 357). The paper was written in response to Boardman & Vining's (1984) comment on Hoskins & McFadyen (1982). The debate centred on the effect of the availability of U.S. networks and PBS on viewer choice in Canada and the ramifications for the role of the CBC in the Canadian broadcasting system. Interesting, in light of our current research, was our statement that "the net positive externalities" from CBC programming "cannot be quantified" (Hoskins & McFadyen, 1984, p. 356). We no longer hold that view.

Our current research takes up the implicit challenge: What is the CBC worth to Canadians? How much value do they place on the external benefits of the service? How much of the value is generated by particular types of programming? We are attempting to provide answers to these questions using a cross-Canada survey of Canadians. The questionnaire is an innovative application of the discrete choice analysis approach developed in marketing (Louviere, 1988). We are attempting to ascertain the value Canadians place on the service as a whole, on particular components of the broadcast schedule, and on the externalities, that is, the value Canadians place on having the CBC available independent of their own viewing. Aggregation of these values across the population will permit meaningful comparisons to the current level of subsidization.

Earlier, we set out a detailed proposal for a CBC reorganization designed to recognize financial constraints and to realign operations to focus the corporation on its mandate (Hoskins & McFadyen, 1992, 1996). It was argued that the CBC should focus on the distribution of Canadian content with significant external benefits, especially drama as this is the genre where the private sector is most deficient, and cut back on components of its service readily provided by the private sector, such as sports, as well as foreign, local, and regional programming. We also noted that the large share of the budget devoted to reaching 98% of Canadians via over-the-air broadcasting could likewise be diverted to programming if the CBC were to rely on cable and other technologically advanced distribution methods. This proposal evoked considerable interest. It was presented to the Standing Committee on Canadian Heritage of the Federal House of Commons (November 17, 1994) and was the 1994-95 Fraser Institute Economy in Government Competition winner in the Federal Government Program category (Hoskins & McFadyen, 1995).

The same set of domestic issues arise in the private sector and the case for subsidization of private sector participants through the Canadian Broadcast Program Development Fund was examined in Hoskins & McFadyen (1986b). The paper identified the strong economic incentive private broadcasters have to acquire low-cost U.S. programming rather than to produce Canadian offerings and argued that any subsidy must be of sufficient magnitude to offset this cost differential. We criticized the initial years of the broadcast fund's operation for inadequate funding levels and presented qualitative arguments for differential subsidy levels according to the level of externalities offered by various categories of programming.

A later paper (Finn, Hoskins, & McFadyen, 1996) examined the comparative success of various types of English-language Canadian feature films in an attempt to shed light on the trade-offs involved when Telefilm Canada selects projects to receive public funds. We found no support for the commonly held views that Canadian-oriented films are less commercially successful, that international co-productions are less likely (than purely domestic productions) to have a Canadian orientation or enjoy critical acclaim, or that low-budget and Telefilm-funded films are more likely to be identifiably Canadian and more likely to achieve critical acclaim. The empirical results also supported the Canadian government's policy moves away from tax incentives towards direct investment and the encouragement of international co-productions.

With respect to the private sector, we have made the case for deregulation of the Canadian broadcasting industry on a number of occasions. One of the earlier examples (Hoskins & McFadyen, 1985) was prepared for a symposium featuring the Federal Task Force on Broadcasting. We have consistently argued that regulation has been of limited value in achieving the goals of the Broadcasting Act while at the same time providing comfortable protection from competition, and associated high profits, for regulated broadcasters.

Canadian television program producers have always faced formidable competition from readily available U.S. programming. Hoskins & McFadyen (1989) drew public policy lessons from the Canadian experience for European countries facing, for the first time, in the 1980s, substantial amounts of U.S. programming delivered by new cable and satellite distribution systems. We concluded that the Canadian experience suggests that regulation is ineffective in inducing indigenous programming but that a program production fund, similar to that operated by Telefilm Canada, can be successful.

Dealing with U.S. domination: The international market

Canadian producers are drawn into the international sales market by the joint consumption imperative explained above. In international markets, the problem facing firms in Canada's cultural industries is one of competing against low-priced, attractive U.S. products. Trade in cultural products is a particularly sensitive issue. Are cultural goods merely entertainment goods? Why does the U.S. dominate this trade? How important is control of distribution as an explanation for U.S. dominance of feature films? What role does the low U.S. export price for television programs play? The success of public policy initiatives and firm market strategies depends on the answers to such questions.

Our research has tried to provide an economic examination of important trade issues and their implications for public policy and business strategy. By explaining the economic and cultural characteristics relevant to trade, we have tried to provide the tools necessary to understand the workings of increasingly competitive international markets and to evaluate international communication issues. These efforts culminated in our book, Global Television and Film: An Introduction to the Economics of the Business (Hoskins, McFadyen, & Finn, 1997b).

Hoskins & McFadyen (1991a) used an international business approach to look at the cultural industries as providers of a cultural service operating in international markets. Analysis from this perspective suggested that technological innovations in production and distribution and the associated trend to deregulation had created significant opportunities for non-U.S. producers. It was recommended that producers adopt a market segmentation strategy which identifies cross-national segments where they have a competitive advantage (particularly over U.S. producers) for a standardized product. Or, alternatively, that they turn to a customization strategy in order to provide attributes desired by viewers in major foreign markets. Strong emphasis was laid on the usefulness of an international joint venture approach to production. This paper was an extension of Hoskins & McFadyen (1986a), which had developed a segmentation strategy designed to enhance the competitiveness of the Indian film and television industry in the Canadian market.

Finn, McFadyen, & Hoskins (1994) provided a state-of-the-art review of marketing, management, and competitive strategy research on the cultural industries as part of the Cultural Development in an Open Economy project. The paper argued that as cultural industries face increasing competitive pressure, industry organizations cannot afford to focus exclusively on creative and artistic concerns. Cultural products are really only successful when the audience values the good sufficiently to make it viable (in circumstances where a subsidy compensates for positive externalities). Moreover, as creative and other input resources are always limited, improving the marketing, financial, and operational efficiency of a cultural industry organization is one way of increasing industry output and providing a richer cultural environment for Canadians. The article provides numerous suggestions for future business research on the cultural industries but recommends that priority be given to work on marketing and distribution, new product development, international business strategies, organizational analysis, and finance. A follow-up article (Finn, McFadyen, & Hoskins, 1995) reviewed the new product development research relevant to the cultural industries, and concluded that there was a dearth of research on development of new products specific to the cultural industries. Topics in need of further study in this regard were identified.

International co-productions

Readers of this journal will know that we have conducted several studies of international co-production activity. As previously noted, our early policy research had identified international joint venturing as an appealing strategy permitting cultural industry producers based outside the U.S. to join forces and compete effectively against the powerful U.S. entertainment industry. The thrust of our research effort was to provide an understanding of the benefits and costs of participation in international co-productions so producers would be able to use this competitive strategy more effectively.

Our first survey research was carried out in Canada (Hoskins & McFadyen, 1993). A supplementary paper compared the experience of Canadian producers in international co-productions to their experience in domestic co-productions where all partners were Canadian (Hoskins, McFadyen, & Finn, 1996). Then we looked at the experience of the European partners in co-productions with Canada (Hoskins, McFadyen, Finn, & Jackel, 1995, 1997). Results of our Japanese survey and interview research were reported in Hoskins, McFadyen, & Finn (1997a) and results for Australia appeared in Hoskins, McFadyen, & Finn (1999). Recently, we analyzed the differences in responses received in the various countries and attempted to explain the difference between Japanese responses and the responses in other countries as due to cultural factors (Hoskins, McFadyen, & Finn, 1997a; McFadyen, Hoskins, & Finn, 1998).

International co-productions have become increasingly important over the period we have been working on this question. This is not surprising since international co-production is a strategy that takes advantage of the joint consumption and cultural discount characteristics of television programs and films. It permits partners to pool financing to raise the substantial budget required to produce the "master-copy" which can then be reproduced at minimal cost to supply additional markets. Access to the partner's market, and perhaps a third market, is greatly improved as the partner's market knowledge and creative input are used to eliminate, or at least minimize, the cultural discount. Consistent with this, the survey evidence from the studies cited above suggests that financial pooling is the dominant benefit for producers in Canada, Australia, France, the U.K., and other European countries, while access to the partner's market is also important.

The responses of Japanese producers are quite different. For Japanese producers, the importance of financial pooling is not dominant while learning benefits with respect to program development and marketing, the program production process, and general project management are rated much higher than they are by Western producers. We argue that these differences, and others identified, can be explained in terms of either cultural distance from the partner or Japan's management culture.

Producers may not always eagerly embrace the co-production mode; it adds cost, complexity, and a need to compromise. However, it is often the only strategy which permits producers, aside from the U.S. majors, to accumulate the large budgets necessary to produce films and programs that can compete effectively on the international market. As television audiences, including those in the U.S. itself, continue to fragment, the co-production mode can be expected to become even more important.

In addition to the survey research, two studies examined the specific workings of the Canada/Mexico co-production agreement (McFadyen, Hoskins, & Zolf-MacDonald, 1992, 1995).

New media

Our recent book (Hoskins, McFadyen, & Finn, 1997b) ends with a chapter looking at the implications of the development of new media and new distribution technologies. This chapter is a further development of work done with Paul Taylor (Finn, Hoskins, McFadyen, & Taylor, 1996).

We can expect the elimination of the significance of geographic distance, the continual reduction in the cost of information services over time, the ascent of access and marginalization of monopoly, the ongoing search for the "killer basket of applications," the favouring of both the individual and the global, and the replacement of government diktat by consumer sovereignty. For the traditional cultural industries, the implications include:

• a strengthening of the power of established creativity suppliers (such as stars, independent producers, and agents) relative to traditional studios with fixed production facilities (such as the Hollywood studios, CBC, and NFB),
• a sharp increase in the value of existing stocks of sources of creativity as intellectual property (such as the rights to Star Wars) becomes the real property of the information economy,
• a lowering of barriers to entry,
• an increase in the value of established communication and entertainment brands,
  a move away from centralized production centres, and
• an increased competition in distribution and a reduction in the strength of the traditional hierarchical distribution channel.

As public policy is developed and adapted to the emerging digital environment, the unprecedented malleability (and non-linearity) of digital content is ignored at peril. The process of new media evolution is so fluid and rapid that regulation is not appropriate. It is important to also note that while the forces leading to decentralization of production and distribution are likely to diminish the U.S. advantage somewhat, Hollywood will still be in a strong position as the leading concentration of creative talent.

We have initiated two new media studies. One looks at the Canadian experience with the Internet as a communication tool in management of international co-productions. The second study, already cited, compares the Internet marketing performance of Canadian distributors and producers to the corresponding performance of their American competitors (Finn, Hoskins, McFadyen, & Simpson, 1999).

Summary and conclusion

The approach we have used is to employ economic analysis to examine the television, film, and related communications industries. Our economic analysis has been based on an appreciation of the unusual product characteristics of joint consumption, cultural discount, and external benefits that apply to the products of the cultural industries. This approach is developed most fully in Global Television and Film: An Introduction to the Economics of the Business (Hoskins, McFadyen, & Finn, 1997b). The book uses our research as a basis for a more complete treatment of the content of this paper.

Much of our early work comprised studies of the Canadian broadcasting industry. While recognizing that external benefits provide a rationale for government support, we have suggested that much of the regulation and support has not attained the goals set because of an inadequate understanding of the economic motivations of the participants and the effect on their conduct. The role of the CBC in changing technological, competitive, and fiscal circumstances has continued to attract our attention. We have maintained that there is a role for the CBC to play, and that role is to complement the private sector by providing programs with positive externalities in categories that are underserved by the private sector. However, we no longer argue, as we did in 1982, for an expanded CBC presence and an increased CBC budget. Two developments have led us to change our position. The experience with Telefilm Canada's broadcast fund and its successful fostering of an independent production industry have persuaded us that, for many genres, direct public support for independent productions is more cost effective. Secondly, the increase in the number of television channels, especially the Canadian specialty channels, has resulted in the private sector providing some programming that heretofore would only have been exhibited by the CBC. Boardman & Vining (1984) should be credited with an early appreciation of the likely impact of the expansion in channels available. In recent work, they have argued that the implications for the CBC of the increase in the number of distribution channels is just as, if not more, important than the increase in the number of content services (Boardman & Vining, 1996). We believe our current work on estimating the value of the CBC, including positive externalities, has the potential to indicate whether the CBC is fulfilling a useful role and is providing benefits commensurate to its level of public funding.

Our study of Canadian broadcasting made us very aware that U.S. competition was a key factor. This led to an important strand of our research, determining the reasons for U.S. dominance of international trade in audiovisual products and the implications of this dominance. We introduced the concept of cultural discount and showed that, even in the absence of other competitive advantages, this could explain why the U.S., the country with the largest domestic market, dominates. Pricing of U.S. program exports was explained in terms of a joint consumption model with price discrimination based on the differing demand characteristics of the importing countries. This led to a consideration of how Canadian (and other non-U.S.) producers can compete with U.S. producers in both their own domestic market and the international market. We particularly examined international co-production as a competitive strategy.

Acheson & Maule (e.g., 1996a, 1996b) have complemented our work on U.S. dominance of trade in television and film by concentrating more on trade regimes and copyright issues, and including publishing and sound recordings in their deliberations. In a forthcoming book (Acheson & Maule, 1999) they examine Canada-U.S. cultural trade disputes.

New media will mean important changes for the cultural industries. Profound changes are expected in production, distribution, and consumption. Traditional cultural products will be supplemented by the rapid diffusion of newer forms of cultural products, such as video games and streaming audio and video. Regulation will become increasingly untenable. However, one thing that will not change is the continued usefulness of an economic/business perspective for analyzing and responding to the cultural and competitive problems that arise in these industries (see Shapiro & Varian, 1999).

References

Acheson, K., & Maule, C. (1996a). Canada's cultural exemption: Insulator or lightening rod?" World Competition, 20(1), 67-90.

Acheson, K., & Maule, C. (1996b). Copyright and trade regimes governing print, television and film. In M. Dorland (Ed.), The cultural industries in Canada (pp. 308-327). Toronto: James Lorimer.

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