The Culture Thief

This article by Simona Fuma Shapiro was originally published in our Fall 2000 issue of the New Rules Journal.

Cultural protection laws allow many countries to encourage local creations -such as films – that might otherwise disappear in the face of Hollywood’s hunger for global markets. Even with the laws, most countries’ own films only account for a small percentage of the entertainment dollar. Still, the U.S. distributors call the laws a barrier to trade.

By Simona Fuma Shapiro

Thetop three movies for the week of August 3, 2000 were Mission: Impossible 2, Gladiator and The Patriot. Not in Ohio or Indiana, but in France. For the week of October 1, The Cell, Coyote Ugly and Hollow Man were the most popular movies – in Spain. That same week, Hong Kong film viewers flocked most often to Healing Nights, Chicken Run and Autumn in New York.

At a recent film festival, the award-winning Brazilian director Carlos Diegues (Bye Bye Brazil) expressed the chagrin of filmmakers in his country where native films account for only 5 percent of the box office. "I love American films, but it’s not good for mankind to see only them." He compared Hollywood to the conquistadors who destroyed the Inca and Aztec civilizations when they came to the New World in the sixteenth century.

Diegues’remarks are not hyperbole. Hollywood films do indeed dominate the world. After aircraft production, the entertainment industry is America’s largest source of trade surplus. In 1997, 88 of the top 100 films distributed globally were American-made, and seven of the remaining films were coproductions with American producers. In Europe, Hollywood films account for 70 to 95 percent of the box office. In Canada, the situation is most pitiable: native English-language features account for seven-tenths of one percent of the Canadian box office.

In the face of an onslaught of U.S.-produced films and television shows, many countries are struggling to retain even a portion of their local cultural identity.

Culturalprotection laws are one way to keep national creations from disappearing. Thus many U.S. trading partners with open borders for everything from shoes to computers maintain strict quotas and tariffs on foreign audiovisual content. All European Union countries require at least 50 percent of television programming to be of European origin. Similar laws exist in Malaysia, Hungary and Poland. In Israel, Canada, France, Malaysia and elsewhere a certain percentage of radio content must be of local origin or in the national language. And countless countries impose quotas or levies on foreign films, including China, Korea, Venezuela, France, Italy, Spain, Brazil, Indonesia, India, Egypt and Taiwan.

The GATT debate over film

Inrecent decades, as global trade agreements (GATT and the WTO) continue to widen their scope and authority, such cultural protection measures have been targeted by the U.S. Not coincidentally, the U.S. entertainment industry that stands to incur the greatest benefit if they are lifted. Since the inception of GATT (General Agreement on Tariffs and Trade) negotiations in 1947, the status of film has been a major point of contention. The U.S. wanted films to be covered by the treaty so they could be traded freely like any other manufactured goods. European countries insisted that films be excluded from the treaty, since without their systems of tariffs and quotas their film industries would collapse. A compromise reached at the time created provisions allowing individual countries to retain quotas.

Duringthe Uruguay Round of GATT negotiations in 1993, the Americans once again argued that films and television programs should be included in GATT. The European countries, led by France, argued for a "cultural exception" to the GATT agreement that would apply to films and television programs. The impasse was so serious that it threatened to derail the talks.

At the eleventh hour U.S. President Clinton relented and the parties agreed to disagree – leaving film and television out of the agreement. No "cultural exception" was added to the GATT, nor were foreign countries required to dismantle their quotas. The audiovisual industry remains subject to Article XIX of the agreement, which notes that "Members shall enter into successive rounds of negotiations [within five years of the Agreement] with a view to achieving a progressively higher level of liberalization."

Different conceptions of culture

Tothe Europeans, the conflict over the status of film and television within GATT was about more than economics. In Europe and elsewhere, film is often viewed as a national asset. During the 1993 impasse, former French President Francois Mitterand argued, "Creations of the spirit are not just commodities; the elements of culture are not pure business. What is at stake is the cultural identity of all our nationsit is the freedom to create and choose our own images. A society which abandons the means of depicting itself would soon be an enslaved society."

American trade officials, on the other hand, view cinema largely as a business. "When we’re talking about cinema, I think it’s largely a commercial issue and not a cultural issue," says Peter Morici, director of the U.S. International Trade Commission from 1988 to 1993. "Globally there is a preference for what Hollywood puts out. We have a very competitive industry, and that is certainly evidenced by the amount of film we sell worldwide."

Why Hollywood dominates

Manyobservers would attribute Hollywood’s dominance to simple market forces: moviegoers of the world are asserting a clear preference for Hollywood fare. While there is some truth to this claim it is also true that numerous economic forces tilt the playing field in Hollywood’s favor.

It is important to note that Hollywood’s preeminence goes back to the 1920s. In every major European country as well as in Australia, Canada, New Zealand and South Africa, American films accounted for 85-95 percent of the national box office during the 1920s and early 1930s. The reasons behind this dominance remain largely the same today: The U.S. is a populous country with a large home market, and a larger per-capita movie-going population than in Europe. Meanwhile, European markets are smaller, and its industries fragmented across a number of countries. From the beginning, U.S. movie studios had more to spend on big, elaborate sets, special effects and advertising, giving them an advantage over their European competitors.

Inaddition, the U.S. movie industry was extremely concentrated and vertically integrated during its first 40 years, a situation that is recurring today. While the European industries suffered fatal disruptions during World War I and World War II, a system was created in the U.S. where 80 percent of the "first-run" cinemas – the city-center movie palaces – were owned by or affiliated with the five largest studios. On top of this, the studios produced 70 percent of all feature films, and their distribution arms accounted for 95 percent of total film rentals. This vertical integration effectively kept foreign films out of the U.S. market through the 1950s, and its impact has endured.

Today, despite a 1948 antitrust decree that required the top five studios to divest their cinema chains, studio ownership of movie theaters is on the rise, due to horizontal mergers of large media conglomerates. Meanwhile, the vertical integration of production and distribution remains intact. The top ten film studios in the U.S. (Disney, Paramount, Warner Bros., Sony, Fox, New Line, Dreamworks, Miramax, Universal, MGM/UA) are also the top ten distributors.

American studios increasingly own theaters and distributors in foreign countries. They are the top distributors throughout Europe and in countries like Japan, Singapore and Australia. In Britain, U.S. studios control 83 percent of market share in distribution.

When they do not own foreign theaters, American distributors often employ a tactic that is illegal in the U.S. "Blockbooking" involves requiring foreign exhibitors to buy packages of lesser-quality American films in order to obtain a coveted hit film. Through this practice, U.S. studios are able to flood the European market and reap substantial marginal revenues from movies that might not otherwise find a theater abroad.

Meanwhile,foreign films, whose home markets are relatively small, fare poorly in the U.S. Back in the 1960s, non-English-language films hit a peak of 5.5 percent of annual U.S. box office revenues. In recent years that figure has tumbled to about 0.5 percent.

Subtitled films have acquired the status of a highly specialized taste. There are many reasons for this.

First,distributors of foreign films lack the financial wherewithal to get behind a movie the way a major Hollywood studio can. Consequently, there is less of a national "buzz," and less media coverage, for these films.

Second, many distributors and theater owners refuse to handle subtitled films, believing that Americans have an aversion to them. This belief becomes a self-fulfilling prophecy as Americans lose their taste for foreign films they never hear about in the media and that never make it to theaters.

Third,play dates have become shorter as market conditions in this country have grown harsher. Ten percent of the films generate 50 percent of a studio’s annual box-office revenue and the other 90 percent perform poorly or flop completely. Theater chain operators vie to book the most salable films, often in more than one viewing room. Five or six "big" Hollywood films can dominate 50 percent to 75 percent of first-run U.S. exhibition. A film needs to do well in one or two weeks or else give way. This makes it very difficult for a film to build an audience by word of mouth.

Fourth, when European films only cost$2 million to $3 million to make, they were able to make their money back in their own countries through regular theatrical release. The box office that came from the United States and the rest of the world was icing on the cake. But as European films have been forced to compete with American films, the production costs alone have soared to where films like Germinal and The Horsemen on the Roof cost $40 million to$50 million or more. And the producer of a French film knows that the most he or she is going to recoup in France is $7 million to $8 million.

Hollywoodfilms have also benefited from the shrewder business sense of their producers over the years. The major studios had always regarded film as a business, and felt they could maximize its impact by marketing it aggressively. With no pretensions to creating "art," the studios would rewrite scripts or reshoot scenes if audience previews showed an unfavorable response. European governments, on the other hand, took the industry under their wing and imposed subsidies and quotas from the beginning. While this may have produced movies of quality, it blunted the commercial sense of the European producers.

Characteristics of foreign vs. American film

Someclaim the worldwide demand for Hollywood films is due to the fact that such films are simply better. Others argue that while they may not be better, they offer more action, more sex and more excitement: more of what large numbers of people are willing to pay for when they go to the movies. Even boosters of the European film industry concede that Hollywood films have more popular appeal.

In an article entitled "The Cultural Exception: Why?" Czech journalist and film critic Anthony J. Liehm argues that European films, which are culture-specific, will never attract as large an audience as Hollywood films, with their universal appeal. This universality derives from the fact that "since their origins" Hollywood films were "aimed at a popular audience, composed of immigrants from all parts of the world." Just as these films were created for diverse groups of immigrants, so they were able to appeal to the "non-American masses throughout the world."

European culture, on the other hand, since the beginning of its history, has been aimed at an elite and been generated from this elite. It was transmitted to larger audiences only gradually, and maintained a local, particularistic character. Despite its elitist origins, this heritage nevertheless constitutes the backbone of European tradition, and has been influential beyond the small size of its audience. However, this heritage has always been subsidized, whether by the rulers, the cities, the church or, eventually, the nation states, and must continue to be protected in order to survive.

Liehmalso contrasts American history, which he calls "basically a success story" with European history, which is a "succession of tragedies." These three elements – the particularism, the elite origin and the tragic history – give European films some of their distinguishing characteristics.

Other critics concur. They describe European cinema as based on doubt and questions, while American cinema is based on affirmation. In the Columbia Journal of World Business(December 22, 1995), Reed Martin identifies six characteristics typical of successful American films: "brisk pacing (or at least quick cutting), sexual tension, graphic violence, intrigue, a novel approach to a timeworn fable and, whenever possible, a happy ending or ‘wow finish.’"

While some non-American films employ these characteristics, American films do so most consistently. These features make American films easier to sell. "The easiest films to sell are action, adventure or physical comedy – things that don’t require a lot of language translation," says Teri Ritzer, vice president of international publicity at Buena Vista International, Disney’s overseas distribution arm. Among the hardest things to sell are films laden with conversation, or culture-specific references, more likely to characterize European films.

Are Hollywood films "what customers want"?

Whenforeign filmmakers and culture ministers accuse Hollywood of cultural imperialism, Hollywood replies that it is giving customers what they want. "Making movies is a market-driven product. We don’t see it as cultural imperialism," Mike Marando, spokesman for the California Trade and Commerce Agency told Agence France Presse. "We see it as a marketplace issue."

But polls repeatedly suggest that while Europeans as individuals or consumers may desire American cultural products, they also seek to preserve a corner for their national cultures to flourish.

Ana Adams, a Spanish instructor at the University of Minnesota, explains that as a teenager in Seville she and her friends flocked to Hollywood movies. "American movies are fun, and as a teenager I wanted entertainment." But when asked whether Spain should do away with its film quotas, she emphatically rejected the idea. "I love Spanish movies but I did not appreciate them until I was older," she said.

Whenproducers speak of giving the audience what it wants, they often fail to mention the ability of advertising to create desire for a product.

EmanuelLevy, a film critic for Daily Variety and professor of film at the Arizona State University West, argues that good films are being made but foreign companies are not marketing them well abroad. "Shrewd marketing. It’s all about marketing," he says. He cites Miramax’s success with the films Like Water For Chocolate (Mexico), Shall We Dance? (Japan) and The Postman (Italy) as an example of what can be achieved when foreign films are marketed agressively.

Butfew foreign films can rely on the monetary flood that pushes large audiences to view mainstream American films. The average marketing budget of a Hollywood film is $25 million, far exceeding even the production costs of most foreign films.

Why protect culture?

"When we have 10 percent of the U.S. market, we will suppress our taxes and levies," Daniel Toscan de Plantier, president of Unifrance, the association that promotes French films, told the New York Times. Indeed, many foreign regimes are not using their quotas and tariffs to do cultural battle against the U.S., or even to censor foreign ideas, but simply to maintain a small market share for their native cultural expression.

Culture cannot be treated as just another commodity. According to Chi Carmody in a recent article on cultural protection laws (Law and Policy in International Business, January 1999) cultural products do not fit well within a scheme of comparative advantage, upon which trade is based. First, price is not always the determinative factor in their purchase, and second, inefficient producers are still motivated to produce despite economic loss. For these reasons, culture sometimes needs special protections.

Theidea that culture should be protected is even written into international documents such as the Universal Declaration of Human Rights of 1948, which recognizes "cultural rights" and the right of people "freely to participate in the cultural life of the community."

Chi Carmody offers two additional reasons why cultural protection should be an accepted doctrine of international law:

"One . . . is that there is a need for cultural diversity; in a world increasingly committed to democracy, cultural pluralism . . . may be productive of a marketplace in ideas. Intellectual variety is vital if global democracy is to flourish. Another argument is that, in an era of increasing homogeneity and growing convergence, we need to protect the natural occurrence of culture in the same way that environmentalism has come to emphasize biodiversity."

In a world of commodities, cheaper goods, produced on a large scale, tend to beat out the work of smaller producers. One can dispute whether or not this is a good thing for shoes or toothpicks, but where culture is concerned the implications are more serious. The U.S. may not intend to wipe out smaller cultures, but the logic of the WTO, which treats culture as a commodity, may lead to just that. The U.S. views cultural protections as trade barriers and wants to let the market determine which films get made. But because individual consumers may not foresee the collective outcome of their behaviors, it is up to governments to enact the cultural protection laws their constituents have chosen in the role of citizens. Although it would be good if foreign film industries, through marketing and other tools, could sustain themselves on the world market, this is not a viable solution for any but the largest of these industries. For others, preserving a market niche within their own countries is the best solution.

SIDEBAR: The following is a list of cultural protection laws deemed trade barriers by the U.S. government.

European Union
The 1989 Broadcast Directive requires that a majority of entertainment broadcast transmission time be reserved for European origin programs "where practicable" and "by appropriate means." By the end of 1993, all E.U. Member States had enacted legislation implementing the Broadcast Directive. (However, the directive also required E.U. countries to accept each other’s broadcasts, with the result that in smaller countries like Belgium, Holland and Portugal, richer foreign broadcasters from larger countries are taking the market.)

France
France has interpreted the Broadcast Directive most strictly, requiring 60 percent European content on television, 40 percent of which must be French. France also requires that 40 percent of songs on almost all public and private radio stations be in the French language. In addition, France levies an 11 percent foreign film tax per ticket sold at the box-office, which is used to subsidize French film production.

Italy
In 1998 the Italian government issued a regulation requiring all multiplex movie theaters of more than 1300 seats to reserve 15-20 percent of their seats, distributed over no fewer than three screens, to showing E.U. films on a "stable" basis.

Spain
Spanish movie theaters must show at a minimum one day of European films for every three days of films from third countries [meaning any non-European country]. In January 1998, the regional government of Cataluna adopted a Law on Linguistic Policy, which calls for both dubbing and screen quotas in order to increase the number of films being shown in the Catalan language. The law will be implemented in July 2000.

Canada
The Canadian Radio, Television and Telecommunications Commission requires that 35 percent of musical selections broadcast on radio should qualify as "Canadian" under a Canadian government-determined point system. Canadian policies prohibit foreign acquisition of Canadian-owned film distribution firms.

Brazil
In 1999, Brazil required that theaters show local films 49 days per calendar year. On March 17, 1999, a bill was introduced that proposes a five percent tax on the box office admissions of foreign films, the proceeds of which would be used to finance the Brazilian film industry.

Indonesia
Indonesia prohibits foreign film and videotape distributors from establishing branches or subsidiaries. Importation and in-country distribution of foreign films must be handled through a single organization, the European and American Film Importers’ Association. Duties, taxes and licensing fees are also imposed on foreign films.

Malaysia
Eighty percent of television programming is required to originate from local production companies owned by ethnic Malays. However, in practice, local stations have been granted substantial latitude in programming due to a lack of local programming. Sixty percent of radio programming must be of local origin. As a condition for obtaining a license to operate, video rental establishments are required to have 30 percent local content in their inventories.

Hungary
Public television is required to fill 70 percent of its airtime with European production, of which at least 51 percent must be Hungarian, excluding advertising, news, sports, game and quiz shows. Private broadcasters must show at least 15 percent Hungarian programs, in addition to Hungarian films.

Republic of Korea
Korea requires that domestic films be shown in each cinema 146 days per year (with reductions to 106 days possible if certain criteria are met). In January 1999, the National Assembly passed a resolution that a relaxation of the screen quota would only be considered if and when Korean films achieve a 40 percent market share.

Venezuela
The government has a "one-for-one" policy that requires foreign musical performers giving concerts in Venezuela to share stage time with national entertainers. There is also an annual quota regarding the distribution and exhibition of Venezuelan films; a requirement that at least half the television programming must be dedicated to national programs; and a requirement that at least half the FM radio broadcasting from 7 a.m. to 10 p.m. be dedicated to Venezuelan music.

Source: The 2000 National Trade Estimate Report on Foreign Trade Barriers (NTE) prepared by the Office of the U.S. Trade Representative.