This is part three of a five-part series. Part one is here.

The story so far: national independent media releases are economic and cultural goods, however the local advertising-supported media market is not large enough to justify their production. The government should regulate to support creative industries.

The success of the film industry is usually measured by total box office. This is intuitive but ignores the realities of the film business: Most films are not watched in theaters.

In 2003 total Hollywood box office was $7.5 billion. DVD sales totaled $18.9 billion and sales to television markets $14.8 billion. In the UK the average Briton watches 78 films per year: 3 in theater, 18 DVDs, and the rest on pay and free television. (I watch hundreds of movies per year, 99% of them free off the internet.)

DVD is Hollywood’s real format, and in 2008 total sales fell to $12.8 billion. The industry says this is mostly because of online piracy, but ignores that the DVD market might be over-sold. Does every person really need a copy of every movie?

Television is often seen as a film ghetto in North America (my impression is that this is because of broadcast censorship in America), but smaller media markets have been very successful using TV to promote their local film industries.

The largest European media markets, in order, make 80% of European film: Germany, France, the UK, Italy, and Spain. France charges television subscription services a production levy of between 12% and 22% of revenues, which is spent on producing local films. In 2006 the BBC issued a policy memo in support of British film, and the government is looking at a production levy of 5% across all subscription broadcasters including the BBC. Smaller European media markets, particularly Scandinavian ones, have similar rules.

And Eurofilm is going through a renaissance! Adjusted for marketing costs, the average eurofilm has a budget of EUR 5.3 million, with box office covering 24% to 28% of that. The average in Hollywood is USD $70 million, with a box office of USD 35.9 million.

In Canada the average film costs EUR 3.4 million. A box office figure wasn’t given, but it’s clear that the number is low and falling.

Canada should adopt a national feature film policy: To build larger national and international audiences.

The CRTC is controlled under The Broadcast Act, which doesn’t specifically mention film. Section 3-d, however, includes an obligation to “display Canadian talent in entertainment programming”. To do that, here are a couple of…

Regulatory Ideas

• Take language markets into account. French and English Canada are entirely different and so should have different regulations, goals, and strategies (ie, these ideas don’t apply to French Canada).
• Create a feature film policy working group of the CRTC, the CBC, Telefilm, etc. — all government stakeholders — that should seek to develop an overall government strategy for Canadian features.
• Attach scheduling rules to expenditure rules. Video on demand services, for example, should not only be required to fund new Canadian content, they should also be required to display it prominently on their services (ie, “Can Con should be applied to trailers”). Television services that are required to show Canadian content should be required to show newly-produced, high-value Canadian content (not re-runs, not soap operas).
• Make supporting independent feature film a strategic directive of the CBC.
• Increase the use and amount of production levies in Canada (and maybe try this online).
• Require services that show any feature films to show some Canadian films.

The Cold Realities of Film

World-wide, independent film is in trouble. Hollywood is responding to collapsing DVD sales by cutting funding for art and indie films. Canadian film is doubly in troubly — what little money we were getting is now gone.

Indie film is a boom-bust market linked to the availability of capital. This last indie boom (started by Clerks) ended up dominated by hedge funds run out of Lehman Brothers and Merrill Lynch. When those banks collapsed funding for independent film went with them.

In terms of market position Canadian film is similar to Eurofilm and so should probably be regulated similarly. The government should copy the regulatory stance of one of the large European film markets, probably France’s.

But until funding increases there is some degenerate political economy at work. Canadian film is currently very slip-shod, very low-production-value so it doesn’t play well competitively. This argues that the government should fund, perhaps, half the films with twice the budget — double Canada’s average film budget from EUR 3.4 million to something more competitive with Europroductions.

This competes with another drive: The film market is high-risk, and politicians want clear victories (like Harry Potter). This argues the government should fund more films, as government is notoriously bad at creative decisions.

Amelie, for example, is the biggest film in French history. Government creative consultants didn’t like the script and so rejected it for funding. Once it was a success the story surfaced and turned into a great national shame. The bright side is that 11% of annual French ticket sales are distributed to French directors who released a film that year, proportionately to the film’s gross. Amelie so tipped the average that the director received almost all of the distribution.

The government also tends to tie funding to content it considers meritorious. This is why we get a lot of historical drama like Passchedale, documentaries about Tommy Douglas, and why there’s no Canadian science fiction. Regulatory guidelines should be clarified to allow any Canadian citizen funding to express any creative idea on film (ie, we should move from content restraints to citizenship restraints).

Creative clusters produce valuable cultural goods randomly, so continued government support of them is politically difficult (finances ministers in particular are a hard sell on cultural goods). The government is happy to sit back and collect taxes from outsourced US productions, and doesn’t see the need for risky spending on our own.

Assuming the amount of funding dollars stays constant it’s difficult to see which drive will prevail in Canada: More movies or better movies. Ideally we want both, it’s possible we’ll get neither.

Tomorrow around noon, the Economics of New Media.

There were roughly five parts to Peter Grant‘s talk: “Why Local Drama?”, the Economics of TV, the Economics of Film, the Economics of New Media, and Regulatory Suggestions.