creative destruction a - milken institute · 2014. 4. 1. · home market for cinema in dollar terms...

69Third Quarter 2003

AArguably, America has never before been

loved by so many and reviled by so many

others. The paradox applies to America’s

role in culture as well as to its reach in economics and geopolitics: never have so

many denounced the dominance of American music,

books, games and movies, even as they rushed to buy

the objects of their derision. ¶ Hence the relevance of

Tyler Cowen’s book Creative Destruction: How Glo-

balization is Changing the World’s Cultures.* Cowen,

an economist who teaches at George Mason University in Virginia, offers a free-market

perspective on the question of whether American-led global integration is enriching or

impoverishing local cultures. ¶ His conclusions may not shock, in light of his affiliation

with a leading center for conservative thought. But the subtlety and evenhandedness

with which he surveys the role of economic forces in molding culture will surprise those

who don’t know his earlier work. Here, we excerpt the chapter entitled “Why Hollywood

Rules the World, and Whether We Should Care.” — Peter Passell

b y t y l e r c o w e n

CreativeDestruction

*©Princeton University Press 2002. All rights reserved.

b o o k e x c e r p t

70 The Milken Institute Review

But what about film? In no other culturalarea is America’s export prowess so strong.Movies are very expensive to make – there arefar fewer films released than books, CDs orpaintings. These conditions appear to favordominant producers at the expense of nichemarkets. So if cross-cultural exchange willlook bad anywhere, it is in cinema.

Moviemaking is also prone to geographicclustering. Many cultural innovations andbreakthroughs are geographically concentrat-ed. If a good Italian Renaissance painter wasnot born in Florence, Venice or Rome, he typ-ically found it worthwhile to move to one ofthose locales. An analogous claim is true forHollywood, which attracts cinematic talentfrom around the world, strengthening itsmarket position.

The degree of clustering has reached suchan extreme, and Hollywood movies havebecome so publicly visible, as to occasioncharges of American cultural imperialism.European movies, in particular, have failed topenetrate global markets and have also lostground at home. Many individuals claim that,when it comes to cinema global culture is athreat rather than a promise.

To what extent is movie production clus-tered in Hollywood and why has such cluster-ing taken place? Why is European cinema soeconomically moribund? Have other national

Cinema is one of the hard casesfor globalization.When we look at world music,

the visual arts or literature, it is readily apparent how trade has brought a

more diverse menu of choice and helped many regions develop cultural

identities. In each of these cultural sectors, the market has room for many

producers, in large part because the costs of production are relatively low.

cinemas fared badly as well? Is cinematic clus-tering inimical to diversity? Most generally,has cross-cultural exchange damaged diversi-ty in cinema?

why clustering in hollywood?The current malaise in European cinema iscaused by a concatenation of unfavorableforces involving television, excessive subsi-dies, demographics, language, market sizeand Hollywood’s more entrepreneurial envi-

ronment. While some charges can be pinnedon globalization, cross-cultural exchange isnot the primary culprit.

The United States has at least one naturaladvantage in moviemaking: the largest singlehome market for cinema in dollar terms(although total attendance is higher in India).The countries that specialize in moviemakingtend to be those in which movies are mostpopular – America and India. Home audi-ences often prefer native products, if only for


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reasons of language and cultural context, andthis encourages production to shift to thatmarket.

Market size is nonetheless just one factorin determining who becomes a market leader.The United States, for example, has been alarge country for a long time, but only recent-ly have European movies held such a lowshare of their home markets. In the mid-1960s, American films accounted for 35 per-cent of box office revenues in continentalEurope; today the figure ranges between 80and 90 percent.

The greater population of the UnitedStates, and the greater American interest inmoviegoing, do not in themselves account forthese changes. Furthermore, only certainkinds of cinema cluster in Hollywood. In atypical year, Western Europe makes moremovies than America. In numeric terms, mostof the world’s movies come from Asia, notfrom the U.S. It is not unusual for India torelease 900 commercial films a year, com-pared to about 250 from the United States.

The Hollywood advantage is concentratedin one very particular kind of moviemaking:films that are entertaining, highly visible andappeal to a broad global audience. The typicalEuropean film has about 1 percent of theaudience of the typical Hollywood film, andthis difference has been growing. Americanmovies have become increasingly popular inglobal markets, while European movies havebecome less so.

Not surprisingly, the Europeans invest lessin each film than do Hollywood producers.One estimate from the early 1990s placed theaverage European film budget at $3 millionand the average American film budget at $11million. The average film budget for a majorHollywood studio (as opposed to an indepen-dent) is about $34 million. Moreover, thesenumbers omit marketing and audience re-

search budgets, the area in which Americanmoviemakers outspend their European coun-terparts most. For an average Hollywoodmovie, the marketing budget runs at least $30million. European estimates are hard to find,in part because the numbers are so small.

The question is not why Hollywood makesmore movies than Europe, because it doesnot. The question is why Hollywood movieshave more success as exports, while Europeanmovies are aimed at small local audiences. Asrecently as 1985, French movies outgrossedthe Hollywood product in their home mar-ket. Hollywood’s success in capturing up to 80percent of the French market has come large-ly because French revenues have declined, notbecause Hollywood revenues have risen.

The turning point was in the 1970s.Thereafter, European moviemakers have seentheir export markets collapse. In essence,Hollywood is now competing with the nativeEuropean producers in each country, ratherthan with cross-European exports.

The popularization of television, and thetiming of this popularization, damagedEuropean cinema. As television became wide-spread throughout Europe, movie audiencesdwindled. Germans bought 800 millionmovie tickets in 1956, but only 180 million in1962. Meanwhile, the number of televisionsets rose from 700,000 to 7.2 million.

In the United Kingdom, cinema audiencesfell from 292 million in 1967 to 73 million in1986. In France, attendance dropped from450 million in 1956 to 122 million in 1988. InJapan, sales of movie tickets in 1985 were justa sixth of sales 25 years earlier.

This demand shock forced Europeanmoviemaking to contract. Hollywood step-ped into the void, just as it did during andafter World War I – an earlier period of crisisin European cinema. Hollywood becamestrong when European competitors were

most vulnerable.American moviemakers had suffered a

similar audience collapse – but much earlier,due to the more rapid spread of television inthe United States. The U.S. film audiencedeclined by 50 percent, but this happenedover the 1946-1956 period rather than later,as in Europe. By 1955, two-thirds of Ameri-can households already had television sets.

Starting as early as the 1950s, Americanmoviemakers responded to television bymaking high-stakes, risky investments inmarketing, glamour and special effects. In the1960s American directors found greater lati-tude to experiment with sex and violence; thistrend was formalized with the abandonmentof the Hays Code in 1966. By the 1970s, Hol-lywood movies had become significantlymore exciting to mass audiences than theyhad been a decade before. Jaws and Star Warswere emblematic of this new era.

Demographics have worsened the prob-lems of European moviemakers, since movie-going is so much the province of the young.Most European countries suffer twice overhere. First, they have older populations thanthe United States. Second, the traditional “arthouse” style of European film is especiallyhard to export, because it is better suited toolder audiences than to younger ones. Theadvent of the multiplex, which tends to at-tract the young more than the old, has addedto the problem.

A self-reinforcing dynamic has since ex-panded Hollywood’s export advantage.American success led to easier finance andgreater marketing expenditures, which inturn led to greater export potential. Holly-wood films have become increasingly global,while Europeans target small but guaranteedrevenue sources such as state subsidies andtelevision rights sold to government-regulat-

ed stations. A vicious cycle has thus been cre-ated: the more European producers fail inglobal markets, the more they rely on domes-tic television revenue and subsidies. The morethey rely on television and subsidies, the morethey fail in global markets.

Television has cut into the American andEuropean film markets in a different fashion.Video rentals are a more important incomesource in the American market, whereas thesale of television rights plays a bigger role inWestern Europe. U.S. figures (circa 1993)place pay and free television at 19 percent offilm revenues, movie theaters at 27 percentand home video at 49 percent. In contrast,television accounts for more than half of filmrevenue in the French market. Not every Eur-opean country exhibits the same dependenceon television, but France is by far the biggestmovie producer in Europe and accounts forroughly half of all Western European movieoutput by dollar value. The problems ofEuropean cinema are, in large part, the prob-lems of French cinema.


The Hollywood advantage is concentrated in one

very particular kind of moviemaking: films that

are entertaining, highly visible and appeal to

a broad global audience.


Reliance on broadcast television makesEuropean movies less suited for the exportmarket. Many TV viewers turn on the set andwatch whatever is on. This does little to en-force high standards of quality.

Production for the television market thustends towards the mundane and the formula-ic. Glitzy special effects are rare. The sameholds true in made-for-TV films in the Unit-ed States. A few are excellent (such as StevenSpielberg’s early Duel), but most are undistin-guished. Most of all, made-for-TV movies arenot well suited for export to large audiences.Europe simply produces more low-end, des-tined-for-TV movies than the United States,regardless of the claimed pretense of theatri-cal release.

The home video market, more prominentin the United States, is more competitive anddemanding than television, and imposesgreater discipline on the moviemaker. Custo-mers must be induced to go out and rent amovie in the first place. Then they can choosefrom among thousands of competing titles.

The U.S. also has a more competitive tele-vision market due to the larger number ofcable channels, which require higher stan-dards. In the United States, the television andvideo markets serve as handmaidens for thetheatrical market, augmenting its influenceover the quality of the product. While somemovies succeed on video alone, video successtypically depends on the publicity generatedat the box office. The same can be said for thesale of U.S. television rights.

Theatrical revenue thus drives both videorevenue and television revenue in theAmerican market. In Europe, by contrast,television revenue is more likely to be a sub-stitute for theatrical revenue. European films,which experience major successes at the boxoffice far less frequently, are more likely to beplaced on television as filler.

The roles of television and subsidies areclosely linked. Most Western European na-tions have television networks that areowned, controlled or strictly regulated bytheir governments, which use them to pro-mote a national cultural agenda. Typically thenetworks face domestic-content restrictionsand must spend a minimum percentage ofrevenue on domestic films.

The result is overpayment for broadcastrights – the most important subsidy thatmany European moviemakers receive. Audi-ences are typically no more than one or twomillion at the television level even in the larg-er countries such as France – too small to jus-tify the sums paid for rights.

European films receive many other formsof subsidy. In France, for instance, direct sub-sidies are available from the national govern-ment, regional governments, European sub-sidy bodies (such as Eurimages) and co-pro-duction subsidies through other nationalgovernments.

French producers also receive “Sofica” taxshelters (with an estimated value of morethan 5 percent of total budgets), automaticbox office aid from the government (estimat-ed at 7.7 percent of total budget), a discre-tionary subsidy called avance sur recettes,which takes the form of an interest-free loan(estimated at over 5 percent of total budget)and subsidies for the promotion of Frenchfilms abroad. A 1970 study estimated that 60percent of the avance subsidy was, in fact,never recovered. The bottom line: Frenchproducers often need put up only 15 percentof the budget of their films.

Money is also advanced for the develop-ment of new film ideas and for script rewrit-ing, if the proposed film is rejected when theproducer applies for subsidies on the first go-round. There is a special subsidy fund for projects co-produced with Eastern European

filmmakers. The French government alsosubsidizes the upkeep and construction oftheaters – an indirect subsidy to moviemakers– and encourages French banks to lend formovie projects. A number of other Frenchinstitutions are not formally state-controlledbut act in conjunction with the state system,subsidizing scriptwriters, directors and pro-duction companies.

Martin Dale, a cinema industry analyst,has estimated that, taking all subsidies intoaccount, the state provides at least 70 percentof the funding for the average Continentalfilm. This estimate is speculative because thewide variety of subsidy schemes, and theircomplex nature, makes their final impact dif-ficult to trace. Nonetheless, subsidy-grantingbodies provide more than supplemental assis-tance – they have become the industry’s pri-mary customer.

This leads producers to serve domesticdemand and the wishes of politicians andbureaucrats, rather than to make moviesgeared toward international audiences. Manyfilms will be made, even when they have littlechance of turning a profit in stand-aloneterms. Moreover, the market structure under-mines incentives to develop specialized tal-ents in marketing, as Hollywood has done.

The training of cinematic talent in theUnited States and Europe reflects these differ-ences. American film schools are like businessschools in many regards. European filmschools have become more like humanitiesprograms, emphasizing semiotics, criticaltheory and contemporary left-wing philoso-phies. The European directors that survivetend to be established and to have longstand-ing political connections; one 1995 study esti-mated that 85 percent of the film directors inFrance were over 50 years of age. Younger tal-ents set their sights on Hollywood from thebeginning, rather than staying at home to

develop a domestic cinema.The two non-Hollywood film industries

that have enjoyed the most export success –India and Hong Kong – are run on an explic-itly commercial basis. Some segments of theIndian film industry receive government sub-sidies, but the overwhelming majority of newreleases are not assisted. They are commercialproductions made for profit and frequentlyexported, usually to other underdevelopednations but often to the United Kingdom aswell. By numerous measures, such as atten-dance or number of films released, the Indianmovie industry is the largest and the mostsuccessful in the world. Indian movies are fre-quently criticized for their generic nature andsappy plots, but in terms of music, cine-matography and use of color, they are oftenquite beautiful – even pathbreaking.

The Hong Kong film industry has been asuccessful exporter, mostly to Southeast Asia,since the 1970s. At its peak it released morefilms per year than any Western country, andwas second only to the United States inexports. Furthermore, Hong Kong cinemaarose in a market that was dominated byHollywood through the late 1960s. In the1970s and 1980s, however, Hollywood some-times failed to capture even 30 percent of thedomestic Hong Kong market. Only since1997, when Hong Kong was returned toChina, did Hollywood movies capture morethan half the local box office.

At first, Hong Kong movies focused on themartial arts, but subsequently branched outto include police movies, romance, comedy,horror and ghost stories, among other genres.The best, such as John Woo’s The Killer andHard Boiled, are acclaimed as high art andhave had considerable influence on directorsaround the world. In recent times, however,the industry has been damaged by fears ofcensorship.



Many of the complaints about Americancultural imperialism have a Eurocentric slant.Today’s mainstream European cinema doesappear less vital than its 1950-70 counterpart.But by most common critical standards, cine-matic creativity has risen in Taiwan, China,Iran, South Korea, the Philippines, LatinAmerica and many parts of Africa, amongother locales. Even within Europe, the creativedecline is restricted to a few of the largernations, such as France and Italy.

Danish cinema is more influential andmore successful today than in times past, andarguably the same is true for Spanish cinemaas well. Mexican and Argentinean filmmakersare enjoying a resurgence. While these pro-ducers all struggle against Hollywood compe-tition, world filmmaking is not on a down-ward trajectory.

the english language, and themove from silents to talkiesCinematic clustering, and the current crisis ofEuropean cinema, is in part rooted in thetransition from silent film to talkies. Coun-terintuitively, the onset of the sound era in-creased Hollywood’s share of world cinemat-ic revenue. Equipping theaters for sound wascostly. To recoup these costs, theater ownerssought out high-quality productions for largeaudiences. The cheap, quick film became lessprofitable, given the higher fixed costs of pro-duction and presentation.

This shift favored Hollywood moviemak-ers over their foreign competitors. More gen-erally, the higher the fixed costs of produc-tion, the greater the importance of marketingskills. Today, costly special effects and expen-sive celebrity stars drive the push for block-busters and favor Hollywood production, aswell.

By introducing issues of translation,talkies boosted English as the dominant

world language and thus benefited Holly-wood. Given the growing importance ofEnglish as an international language and thefocal importance of the United States, Euro-pean countries would sooner import filmsfrom Hollywood than from one another. Amultiplicity of languages often favors thedominant one, which becomes the commonstandard of communication.

Hollywood executives properly regardedthe transition to talkies as an opportunity toexpand abroad, rather than as a cause fortrepidation. At the time of the transition,some movie executives speculated that talkingpictures would make English the language ofthe entire world, which has turned out to beonly a modest exaggeration. Once America,and the English language, became establishedas a world standard, the process proved self-reinforcing. American audiences, the world’slargest at the time, became accustomed toseeing films in their native language. Dubbedor subtitled movies have a difficult time in theUnited States to this day, whereas most otheraudiences accept them with little complaint.

This difference in linguistic expectationsmeans that European moviemakers have amuch harder time penetrating the Americanmarket than vice versa. The American exportadvantage is thus based on a combination ofoutward-looking producers and inward-looking consumers.

The rise of English as an export standardprovided a strong boost to movies from GreatBritain. While the U.K. has never seriouslyrivaled Hollywood as a moviemaking power,many U.K. releases have succeeded on a glob-al scale by mimicking the Hollywood style.The James Bond movies and David Lean’sLawrence of Arabia or The Bridge on the RiverKwai fit the category.

Today, the United Kingdom is the leadingEuropean exporter of movies to other Euro-

pean nations. In 1991, the U.K. put out 36movies, 56 percent of which were exported toFrance. In the same year, France put out 140movies, only 14 percent of which wereexported to Britain. Italy, Spain and Germanyhave export performances that are far worsethan the French record.

Not surprisingly, U.K. moviemakers spendmore per film than anywhere else in Europeand rely less on subsidies than their Conti-nental counterparts. U.K. producers have alsobeen geared to export for a long time. Givenhow much of their home market is capturedby Hollywood, U.K. features must reap exportrevenue to turn a profit.

We see tendencies toward a common lin-guistic standard in other cinematic markets aswell. Numerous dialects are spoken in Arabcountries. This has helped Cairo, through theuse of Egyptian Arabic, to attain a position asthe dominant movie exporter to other Arab

nations. Egyptian Arabic is now widely un-derstood around the Arabic world, in largepart because non-Egyptians receive so manymovies and television programs in the lan-guage. This audience is now more likely topatronize the Egyptian product, which makesit harder for other Arab nations to compete.

India has 15 languages and 2,000 dialects,but the Hindi cinema of Bombay dominatescross-regional markets within India. Whilemore films are made in Madras and otherlocales, Bombay films command most of theinvestment, attract the biggest stars, have thegreatest national following and the greatestsuccess abroad. The Philippines has manylanguages as well, but Tagalog has priority incinema.

The move to talkies provides a naturalexperiment in isolating the importance of



language. In the silent era, of course, languagesimply was not an issue. In essence, talkiesmade it easier for non-Hollywood producersto capture part of their home markets, butmade it harder for them to export. Europeanmovies commanded a greater share of theirhome markets in the 1930s, compared to thesilent era. The domestic markets offered a cer-

tain percentage of “captive” viewers who pre-ferred their native language. So, given thegreater ease of pleasing the home market andthe greater difficulty of exporting, Europeanmoviemakers turned inward.

French film production doubled between1928 and 1938, and French movies command-ed over half of the domestic market through-out the 1930s. In 1936, the six most popularfilms in France were all French. Of the 75most popular films, 56 were French, com-pared to 15 from America. In 1935, 70 percentof all film receipts in France went to French-produced movies. By comparison, at theheight of the silent era (1925), Americanexports accounted for 70 percent of theFrench market.

The sound era offered the greatest relativebenefits to the national cinemas that were notexporting much in the first place. Cinemablossomed in Hungary, the Netherlands,Norway, Mexico and Czechoslovakia, amongother places. The Hong Kong cinema startedin the 1930s, and used the Cantonese dialectas its primary selling point in southern China.In contrast, Sweden and Denmark, whichwere significant movie exporters in the silentera, did not fare nearly as well with talkies.

Sound also transformed movies through

the introduction of recorded music. Indeed,film music was a greater lure for Indian audi-ences than dialogue, and arguably remains soto this day. Hollywood has no comparativeadvantage at producing high-quality Indianpopular music. Indian producers marketedtheir films domestically on the basis of Indianmusic, and quickly developed new centers of

cinematic production in Bombay, Calcuttaand Madras.

Music provided a similarly protective rolein Argentina, where hundreds of musicalcomedies were made in the early years ofsound film. The Argentinean Carlos Gardel,more tango singer than actor, became thehottest Latin cinematic star of his era.

Hollywood has never had a strong com-parative advantage in producing musicals forforeign audiences, and its international influ-ence has been limited accordingly. The gener-al decline of the musical, however, has weak-ened an area in which national cinemas tradi-tionally held their own against Hollywoodexports.

the drive toward clusteringIn part, movie production clusters becausethere is no reason not to cluster. When thecost of shipping is low, clustering makes eco-nomic sense. Consider a more general eco-nomic analogy. There is more trade andmobility across the U.S. than across the dis-parate countries of Western Europe. Thistrade causes the economic profiles of theAmerican states to diverge. In economicterms, the countries of Western Europe aremore likely to resemble each other than are

The move to talkies provides a natural experiment

in isolating the importance of language.

the American states.Most of the American states have no steel

industry, no automobile industry and nowheat industry; instead they buy these prod-ucts from other states or countries. But typi-cally, a nation in Western Europe has its ownsteel, automobile and agriculture sectors,largely because of subsidies and protection-ism. Free trade within the U.S. allows statesand regions to specialize and causes their eco-nomic profiles to diverge. In a freer economicenvironment the economies of Western Eur-ope would take the same path.

Trade and specialization thus bring geo-graphic clustering when the product ismobile. Most American peanuts are grown inGeorgia and Virginia and then shipped to therest of the country. In contrast, each region ofthe United States manufactures cement, asdoes each European country. The costs oftrading and transporting cement are too highfor clustered production to be feasible. Actionmovies, however, resemble peanuts morethan cement, especially if the film appeals tomany cultural groups.

Some of Hollywood’s cinematic clusteringis driven by the short-run, dynamic nature offilm projects. Studios may dally over projectsfor years, but once the go-ahead decision hasbeen made, the moviemakers move as quick-ly as possible to minimize costs and to meet aperceived market demand. They need toassemble large numbers of skilled employeeson very short notice, and therefore they will“fish” for talent in a common pool.

In similar fashion, the computer industrychanges rapidly, many projects are shortterm, and once a go-ahead decision has beenmade, large numbers of talented employeesmust be assembled rapidly. Common forcestherefore shape the clusters of Silicon Valleyand Hollywood.

It is not always the case that movies can be

filmed more cheaply in Hollywood than else-where. In fact, Hollywood craft workers areworried about their jobs being outsourced toCanada, Australia and other non-U.S. localeswhere production costs are lower.

Rather, clustering reduces the cost of find-ing, assembling and evaluating a movie’s crit-ical assets, such as stars, directors and screen-plays. These tasks are still done in Los Angelesrather than in Vancouver or Sydney, regard-less of where the movie is filmed. The Holly-wood cluster has a superior ability to evaluatecinematic projects and, in particular, todesign and market the product for maximumprofits. Hollywood is the geographic centerfor these talents.

Ironically, it is easier to get a film made inEurope than America. Hollywood studiosscrutinize projects intensely and refuse to fi-nance projects that do not have a good chanceof commercial success. But most Europeanmoviemakers do not apply similar filters.

Hollywood is a cluster, in part, for thesame reasons that New York and London areclustered banking centers. In both cases, tal-ents for large-scale project evaluation gravi-tate toward a single geographic area.

Moviemaking has become more expensiveover the past 30 years, due largely to specialeffects, rising celebrity salaries and marketingexpenditures. All of these changes have in-creased the relative value of skills in demandforecasting and project evaluation. They haveincreased the natural advantage of Holly-wood.

New clusters often generate snowball ef-fects, attracting yet more talent to the com-mercial center. When European directorswant to make popular movies they now go toHollywood, as we have seen with Ridley Scott,Paul Verhoeven, Bernardo Bertolucci andJean-Jacques Annaud, among many others.Initial differences thus become self-sustaining



rather than self-limiting. For this reason, one“turnaround” event can shift a cluster fromone locale to another.

The French lost their dominant marketposition in cinema only with World War I,which led the major combatants to virtuallycease film production for four years. Holly-wood filled the vacuum, first penetratingworld markets on a large scale in the 1920s.The snowball effect shifted the direction ofthe industry’s momentum, and the UnitedStates rapidly surpassed France as the world’slargest movie exporter in only a few year’stime.

clustering mythsIt is widely believed that America dominatesworld cinematic markets because it has mon-opoly power in film distribution. Yet all theprimary distributors in Europe are owned byEuropean media groups and regulated byEuropean governments. When the CineplexOdeon theater chain in the United States wasCanadian owned, and for a while jointly Can-adian and British owned, it made little differ-ence on the screen.

A second myth is that Hollywood domi-nates because it can sell its movies so cheaplyabroad, having recovered costs in the homemarket. In other words, a movie can bedumped abroad since “it has already beenpaid for.” This argument does not explainAmerica’s market share. At most, it explainswhy Hollywood films are booked by theaters– not why they are so popular with audiences.

When European consumers choose be-tween an American and an indigenous pro-duction, the ticket prices are typically thesame. American dominance arises becauseEuropean consumers prefer American mov-ies. If the critics were correct that Holly-wood’s fundamental advantage is on the costside for film rentals, we should observe rela-

tively empty theaters for American films inEurope. The cheapness of Hollywood filmswould cause so many films to be importedthat the marginal Hollywood film woulddraw a small audience. Those films would bevalued mostly for low rental fees, not for theirpopularity.

But we do not observe this outcome. In-deed, when American movies are shown inEurope, the critics complain that the theatersare full. If Hollywood dominated the marketon cost grounds, rather than on popularitygrounds, Europeans would not fear culturalimperialism – as they plainly do.

why hollywood rules the worldThe argument that Hollywood movies have“already been paid for” has another logicalflaw. Movies from all countries have alreadybeen paid for, once they are made. The funda-mental issue is what gets made in the firstplace, and what then gets shown abroad – andthat depends on consumer demand. So manyHollywood movies are made, and with suchhigh levels of funding and marketing, becausethey can draw large audiences. Similar argu-ments apply to other media industries – forexample, Canada claims that American televi-sion shows and magazines can be dumped atvery low cost because the producers arealready making a profit in the U.S. market.

But again, we typically do not observeAmerican products preferred for their cheap-ness; they are preferred for their superior en-tertainment value. A more persuasive versionof the argument follows from the fact thatsuppliers with a large home or captive marketoften can afford to make better products.They can invest more money in quality, andearn the investment back on ticket sales moreeasily. Films from Burkina Faso do not haveexpensive special effects. This argument,however, leads us back to the conclusion that


more expensive movies are better movies, atleast in the eyes of the audience.

In the case of television, the dumpingargument is ironic. To the extent that Holly-wood TV programs and movie rights havebeen sold cheaply in Europe, it is becauseEuropean TV stations have held a strong bar-gaining position (a “monopsony” in econom-ic language). Until the recent partial deregula-tion of European television, the number of

program buyers in a single country has some-times been as small as one or two govern-ment-owned or controlled channels. Throughbargaining, the single buyer could limit theprice paid for Hollywood content.

Ironically, the sale of Hollywood movies totelevision at bargain prices has, in the past,subsidized the state-controlled, non-com-mercial products of European television. ifEuropean buyers lacked monopsony power,the price of movie rights would be bid up toreflect the potential popularity of the movie.

Note that America has had much less suc-cess in exporting television programs thanmovies, even though it has the largest domes-tic television market in the world. The popu-larity of domestic television programs isrobust; even the African nations command areasonable share of their domestic televisionmarkets. While some American shows havebeen exported successfully, they are rarely hitsin every country; Dallas was a failure in Braziland Japan.

American television programs show nosign of taking over the world, and in manycountries are losing market share. In 1998, forexample, American television programs were

unable to crack the top 10 in any of the majorWestern European markets. In part, this is be-cause TV faces a more passive audience andneed not meet the exacting technical stan-dards of the cinematic medium. Hollywoodhas never had a strong comparative advantageat producing relatively low-cost drama. Insome genres, such as the soap opera, Braziland Mexico have proven more effective ex-porters than the United States – again show-

ing the special and limited nature of the Hol-lywood advantage in international markets.

America cannot even dominate the marketfor Spanish-language television, even thoughthe 30 million or so Latinos in the UnitedStates are the single largest Spanish-languageaudience in terms of purchasing power. TheMiami-based stations, Telemundo and Uni-vision, import most of their dramatic pro-grams from Mexico and South America,rather than making them in the United States.As a result, some U.S. Latinos have com-plained of “cultural imperialism,” wishinginstead for a homegrown Miami product.

american cultural imperialism?When Hollywood penetrates global markets,to what extent is American culture being ex-ported? Or is a new global culture being cre-ated, above and beyond its specifically Amer-ican origins?

There is no simple answer. Critics of cul-tural imperialism make two separate and par-tially contradictory charges. Some are unhap-py with the global spread of the Americanethos of commercialism and individualism.Others focus on the strong global market

More expensive movies are better movies, at

least in the eyes of the audience.

position of a relatively universal culturalproduct, rather than local products based onnational or particularist inspirations. There issome truth to each complaint, although theypoint in opposite directions.

If we look at the national identities of themajor players, Hollywood is highly cosmo-politan. Many of the leading Hollywooddirectors are foreigners by birth, includingRidley Scott (British) and James Cameron(Canadian), who were among the hottestHollywood directors circa 2001. ArnoldSchwarzenegger, Charlie Chaplin and JimCarrey have been among the leading non-American U.S. stars.

Most of the major studios are now foreign-owned. A typical production will have Sony, aJapanese company, hire a European directorto shoot a picture in Canada and then sell theproduct for global export. Of the world’s ma-jor entertainment corporations, only AOLTime Warner is predominantly American inownership.

For better or worse, Hollywood strives topresent the universal. As Hollywood marketsits films to more non-English speakers, thosefilms become more general. Action films arefavored over movies with subtle dialogue.Comedy revolves around slapstick rather thanverbal puns. The larger the audience, ofcourse, the more universal the product or thestar must be. There is relatively little that theworld as a whole, or even a select group of 50million global consumers, can agree on.

Greater universality means that movies arerelevant to general features of the humancondition, but it also can bring blandness andformulaic treatment. Critics allege thatAmerican culture is driving the world. But inreality the two are determined simultaneous-ly, and by the same set of forces.

When they pursue foreign markets, non-American movies must strive for universality

as well. Jackie Chan’s Hong Kong movieRumble in the Bronx was successfully market-ed in the United States. The producers, how-ever, cut parts of the movie to appeal toAmerican audiences. All of the action se-quences were kept, but the relationship ofChan with the co-star was diminished, in partbecause the woman (Anita Mui) was a star inAsia but not in the United States, and in partbecause the relationship was based on the“Chinese” values of obligation and loyalty,rather than on a Western sense of erotic ro-mance.

The most successful Canadian culturalexport is the Harlequin romance novel. In1990, Harlequin sold more than 200 millionbooks, accounting for 40 percent(!) of allmass-market paperback sales in the UnitedStates. This fact is rarely cited by Canadiancritics of American cultural imperialism,largely because Harlequin’s export successdoes not “count” for them. The romancenovel does not reflect a specifically Canadianperspective, whatever that designation mightmean, but rather targets a broad circle offemale readers.

Despite these powerful universal forces,the American and national component toHollywood moviemaking cannot be ignored.Hollywood has always drawn on the nationalethos of the United States for cinematic inspi-ration. The American values of heroism, indi-vidualism and romantic fulfillment are wellsuited to the large screen and to global audi-ences.

It is true that Hollywood will make what-ever will sell abroad. Nonetheless, how wellHollywood can make movies in various styleswill depend on native sources of inspiration.Hollywood has an intrinsic cost advantage inmaking movies based upon American values,broadly construed, and thus has an intrinsicadvantage in exporting such movies. The



clustering of filmmaking in Hollywood can-not help but be based in part on an Americanethos. For this reason, dominant culturessuch as the United States have an advantage inexporting their values and shaping the prefer-ences of others.

Consider the market for prepared food.Many third-world citizens like to eat at Mc-Donald’s, not just because the food tastesgood, but because McDonald’s is a visiblesymbol of the West and the United States.When they walk through the doors of a Mc-Donald’s, they enter a different world. Know-ing this, the McDonald’s Corporation designsits interiors to reflect the glamour of Westerncommerce, much as a shopping mall would.McDonald’s shapes its product to meet glob-al demands, but builds on the American rootsof the core concept. The McDonald’s imageand product lines have been refined in theAmerican domestic market and draw heavilyon American notions of the relation betweenfood and social life.

The promulgated American ethos will, ofcourse, meld national and cosmopolitaninfluences, and will not be purely American.American cinema, like American cuisine, hasbeen a synthetic, polyglot product from thebeginning. Hollywood was developed largelyby foreigners – Jewish immigrants fromEastern Europe – and was geared towardentertaining American urban audiences,which were drawn from around the world.

Furthermore, Hollywood’s universalityhas, in part, become a central part of Ameri-can culture. Commercial forces have ledAmerica to adopt “that which can be globallysold” as part of its national culture. Ameri-cans have chosen to emphasize their interna-tional triumphs and their ethnic diversity aspart of their national self-image. In doing so,Americans have, to some extent, traded awayparticularist strands of their culture for suc-

cess in global markets.In this regard, Hollywood’s global-market

position is a Faustian bargain. Achievingglobal dominance requires a sacrifice of a cul-ture’s local perspective to the demands ofworld consumers. American culture is beingexported, but for the most part it is not Amishquilts and Herman Melville. Jurassic Park, amovie about dinosaurs, was a huge hitabroad. But Forrest Gump, which makes con-stant reference to American history and cul-ture, made most of its money at home.

the virtues of living at the marginsHollywood’s export success shapes the cine-matic market. First and most prominently, itfinances spectacular, blockbuster produc-tions. While many of these productions areaesthetically mediocre, others are excellent –though few critics agree on which are which.To the extent that we use audience preferencesas the relevant standard of value, Hollywoodclearly succeeds.

In addition to blockbusters, the financialsuccess of the industry supports diversity; notall Hollywood products fit the least-common-denominator-model. Hollywood puts out awide range of independent releases, creativecomedies and other films that do not fit easi-ly identifiable categories. The late 1990s, inparticular, were renowned for the wide vari-ety of high quality, non-mainstream farecoming out of Hollywood.

“Microbudget” films are far more com-mon in the United States than in Europe. Amicrobudget film is one made by a previous-ly amateur director on a minuscule budget –typically less than $100,000. Among the bestknown are Spike Lee’s She’s Gotta Have It, TheBlair Witch Project, and the Coen brothers’Blood Simple. All of these innovative projectshave been made under director control and


liberated from the constraints of studio pro-duction.

It is no accident that Hollywood has boththe largest studio apparatus and produces the greatest number of microbudget films.Building a film industry of any kind requiresa regular supply of popular product. Ahealthy commercial base is needed to support

an infrastructure of theaters, productioncompanies, film schools and marketing insti-tutions. Independent or innovative filmmak-ers benefit from this infrastructure, just as themajor studios do.

The major studios typically seek to buy outand thereby “corrupt” the independent film-makers, and in this sense the two cinematicworlds are always at war. But in a larger sensethey are complements. The mainstreamdesire to commercialize the independentshelps finance their existence. Directors investin microbudget films in part because theyhave a chance of subsequently getting con-tracts from major studios. Such contractsbring both personal wealth and the resourcesto film their larger visions.

In addition to the Coen brothers and SpikeLee, Francis Ford Coppola, Peter Bogdano-vich, Martin Scorsese, Jonathan Demme,David Lynch, Sam Raimi, John Sayles and JimJarmusch all first made their names withmicrobudget films. The directors of The BlairWitch Project were courted for a Hollywoodsequel, which earned them millions despite its

low quality. Hollywood studios, whatevertheir conservatism and flaws, are always look-ing for the “next hot thing.” If they can find amicrobudget production that is marketable,they will seek to co-opt it. But in the mean-time, they are providing the “prizes” thatdrive the independent market.

European studios, by contrast, never ex-

pect high returns from projects, and thusrarely take big chances in reaching for glory.Notable European directors such as Godard,Bertolucci, Truffaut, Besson and Pasolinimade their starts with microbudget films, butthe overall commercial weakness of Europeancinema is making those kinds of opportuni-ties harder to find and exploit.

It is not altogether bad that European cin-ema lacks the export promise of Hollywood.While commercial improvement would un-doubtedly benefit European cinema, diversitywould not be served by a level playing field inthe industry. The dirty little secret of today’scinematic world is as follows: the very fea-tures of the film industry that drive Americanexport dominance have also supported diver-sity of style around the globe.

The global prowess of Hollywood allowsEuropean moviemakers to pursue differentmarkets and produce different kinds of cre-ativity. Many of the interesting qualities ofEuropean movies come precisely from theirinability to reach world markets on a largescale.

The dirty little secret of today’s cinematic world

is as follows: the very features of the film industry

behind American export dominance have also

supported diversity of style around the globe.

Shut out of world markets, Europeanmovies have been able to focus on nuances oflanguage and culture. They typically do nothave happy but superficial endings, optinginstead for something more interesting. Thenon-Hollywood productions that have suc-cess abroad, such as Four Weddings and aFuneral or Like Water for Chocolate, often havemany of the flaws that plague mainstreamHollywood releases: saccharine, clichéd char-acters or unrealistically happy endings.

European pictures from the silent era,which had a greater chance of export success,were more like the American movies of theirtime than are current European productions,or European films of the 1950s or 1960s. Be-cause they were aimed at different audiencesegments, European talkies did not follow thesame artistic path as Hollywood. WhileHollywood’s asymmetric economic strengthexposes it to heavy criticism, it actually sup-ports aesthetic diversity.

Similarly, the creativity of Hong Kongmoviemaking in the 1980s would not havebeen possible had those pictures been gearedfor export to America and Europe, ratherthan for the smaller, more specialized South-east Asian market. The Hong Kong movie Dr.Lamb was a success in the Hong Kong marketof the 1990s. The movie was explicitly pat-terned after Silence of the Lambs, a U.S. andglobal hit in 1992, but the two movies couldnot be more different in tone.

Silence of the Lambs plays up its two stars,Jodie Foster and Anthony Hopkins, givingthem a strong, caricatured presence in themovie. They engage in witty repartee and aremade into glamorous figures. The last seg-ment of the movie plays the viewer formechanical suspense, as Jodie Foster chasesdown another serial killer.

Dr. Lamb is far scarier. It never plays theviewer for suspense but instead reveals its

denouement at the beginning. The killer is asullen and nasty figure, rather than the charis-matic and articulate Anthony Hopkins play-ing Hannibal Lecter. We see the killer dis-membering his victims, indulging his per-verse fetishes and having brutal argumentswith his family. No feeling of resolution isoffered at the end; rather, the viewer is leftfeeling uneasy. Not surprisingly, Dr. Lamb hasnever been released in the U.S. market.

the future of global cinemaIt remains an open question whetherHollywood will gain or lose relative marketposition over the next few years. Europeancinema does show some encouraging signs. Inthe year 2000, for example, French films cap-tured 60 percent of their domestic market –the most in 20 years – largely because a fewcomedies were big hits. More generally, mostof the major Western European countries arerelying less on subsidies to support their cul-ture. None have cut their movie industriesloose, but the long-run trend appears to lie inthis direction.

European governments are understand-ably reluctant to remove film subsidies. Oncethe dynamic of Hollywood export superiorityis in place, most European productions, as weknow them, could not survive without gov-ernment assistance. Thus in the short run,laissez-faire would likely lead to a greaterHollywood presence in Europe. But in thelong run, European moviemakers would beinduced to make a more commerciallyappealing product, and not necessarily at theexpense of artistic quality. The naturalEuropean advantage is in making niche-mar-ket art-house films, not blockbusters or spe-cial-effects spectaculars.

Hollywood’s market position is vulnera-ble, given how much it spends on celebritysalaries and marketing. While these expenses



offer Hollywood movies a huge global boost,they also mean that American moviemakershave lost their ability to control costs – oftenan early warning of commercial weakness.Witness the decline of the once-dominantAmerican auto industry. Note, too, that digi-tal technology promises to open moviemak-ing to outsiders by lowering the costs of pro-duction.

The history of cinema shows many timesover that a truly great movie can be made forvery little money. Films of this kind may notoutdraw Titanic at the box office, but theycould resuscitate cinema in the countrieswhere it is currently floundering.

Of course it remains an open questionwhether European moviemakers will fill thismarket niche, or whether Asia is already beat-ing them to it.

Nonetheless it is possible for Europeans toreverse unfavorable trends, as they have in thepast. Hollywood had dominated the Italianmarket after World War II. But Italianmoviemakers fought back, in part using thetechniques learned from studying Hollywoodreleases.

European governments would like toreturn to something like the 1930–1970 years,which show that the strong presence ofHollywood in world markets does not meanan end to European moviemaking. AfterWorld War II, European movies were typical-ly subsidized, but at a much smaller magni-tude than today.

Martin Dale estimates that in 1960, subsi-dies accounted for only 20 percent of rev-enues of the average European film, com-pared to his current estimate of 70 percent.The notable movies of Truffaut, Fellini, Vis-conti, Bergman and others were fundamen-tally money-making endeavors, aimed at thecompetitive marketplace, despite the involve-ment of government at various levels.

Going back earlier, the 1930s in particularwas a “golden age” for French cinema: thebest-known French films of this era includeL’Atalante (Jean Vigo), Le Jour se lève (MarcelCarné), La Chienne, The Grand Illusion andThe Rules of the Game (all by Jean Renoir).Over 1,300 French feature films were released,covering a wide range of genres. Yet duringthis period, French cinema received no gov-ernment subsidies. The legal restrictions onAmerican films were insignificant and did not keep Hollywood productions out of theFrench market.

In the early silent era, France dominatedworld cinema markets. Before World War I,French movies accounted for up to 70 percentof the American market and even more of theLatin American market. In a reversal of con-temporary trends, American filmmakerscharged the French with cultural imperialismand asked Washington for trade protection. Itwas commonly argued that European moviesencouraged lax morals and corruptedAmerican culture.

The French responded by noting the open-ness of their cinematic markets and askingAmerica to compete on equal terms. LikeHollywood today, French market dominancewas then achieved without significant govern-ment subsidies.

Global cinema is, in any case, flourishingtoday – most of all in Asia. As for Europeancinema, its best hope is to rediscover an eco-nomic and cultural dynamic that combinesboth commercialism and creativity. Such adynamic will require reliance on internation-al markets and global capital, and is unlikelyto flourish in a narrowly protectionist setting.The marketplace never guarantees a favorableresult. But excessive insulation from compet-itive pressures can virtually guarantee anunfavorable result, both in economic and aes-thetic terms. M

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