APPROACHES TO PROMOTING AND PROTECTING CULTURAL INDUSTRIES: Lessons from Canada

INTRODUCTION TO CANADA (1)  Canada: 32 million people, 25 million English-speaking  Pioneers of satellite rain--exposed to American signals since the dawn of broadcasting  Huge country, sparse population, very diverse = big challenges  Foreign content (mostly American):  80%+ of magazines  88% of new record releases  94% of movies in theatres  61% of English-language TV programming  ERGO, Canadians feel strongly about shelf-space for Canada

INTRODUCTION TO CANADA (2)  1930s: “The state, or the United States.”  No longer fashionable, but Canadians still look to their governments for leadership on protecting and promoting culture.  Americans view Canada as “canary in the mine” or “first domino” when it comes to global success of their entertainment and media industries.  Canadian public policy walks a fine line between promotion and protection.  HENCE, leadership role in Global Convention on Cultural Diversity.

CULTURAL ECONOMICS (A REFRESHER)  “Public good” valued for experience it conveys, not physical manifestation.  Original does not deteriorate or get consumed, no matter how many people buy it or experience it.  Extremely high risk because nobody knows what will succeed; each product is unique.  Marketing muscle and ability to take on risk essential to success; gatekeepers can determine demand.  Pricing can be arbitrary once up-front cost is recovered.  ERGO, bigger is better, and it’s different from conventional goods.

CANADIAN BROADCASTING (1)  Canada is unique in receiving film, television, marketing and promotion simultaneously with US market; US film distributors consider Canada part of their domestic market.  1991 Broadcasting Act mandates Canadian ownership and control, sets requirements for certified Canadian content (Cancon):  60% of television schedule  50% of prime time hours  35% of music on radio  Complicated bonus systems can end up reducing this in real time.  CRTC regulates broadcast licences, entry of foreign services.

CANADIAN BROADCASTING (2)  Broadcasters are protected from American competition through  Simultaneous substitution--replaces signal on US stations with Canadian signal when “simulcasting” (creates incentive to simulcast)  Tax measures--e.g. businesses cannot deduct advertising in foreign media as business expense.  Cross-subsidy model: make money on Canadian commercials inside American hits, use profit to fund Canadian programming  Economics are very precarious; Cancon requires public $.

CASE STUDY Degrassi: The next generation  Episode cost is C$600,000, less than one-third US budgets  Cdn broadcaster must amortize over base 10% of US  US licence fees of US$1.3 million/hr cover 86% of cost of production; Cdn broadcaster can have it for US$50,000.  Cdn broadcaster pays C$116,000 an episode, almost three times cost of typical US drama, covering only 17% of production costs; gap is three times greater than for US producer.  Other sources of financing essential, much of it from the public purse.  ERGO Canada has a hybrid public-private system, with private broadcasters relying on public funds to make Cdn programming, and public broadcaster needing advertising to keep going.

THE FUNDING MODEL  Patchwork, so producers spend a lot of time on paperwork.  Funding agencies are either public, or pools of money skimmed in small percentages from private or consumer sources.  Often mandated by regulator or government in exchange for market entry (e.g. 5% of BDU revenues go to CTF).  Problems and issues include bureaucracy, delays, integrity, culture vs. commerce debates, governance.  Small percentages over large body of transactions may be worth examining for CARICOM countries--how could this work?

FOREIGN INVESTMENT IN CANADA  Investment Canada Act provides for review of foreign investments in cultural businesses--can refuse but in practice rarely does; more often sets conditions.  High sensitivities (primarily about US interests) around publishing, broadcasting: newspapers and broadcasting must be under Canadian control by law.  Performing artists welcome, but must obtain permits to work in bars, restaurants, film, television; may not become employees of Canadian companies.

TREATMENT OF FOREIGN BROADCAST SERVICES  Programme supply deals such as HBO-Bravo in Canada  Canadianization through alliance controlled by a Canadian partner (Bravo, Discovery, BBC Canada). Foreign partner may hold up to a total of 49% through holding and operating companies.  Carriage of foreign channel in its entirety on approved Eligible Services List. In this case, the foreign channel is not allowed to sell advertising in Canada, but may recover subscription costs from the BDUs (A&E).  All services carried are subject to tiering and linkage requirements to ensure Canadian services are not marginalized.

TREATMENT OF FOREIGN CONTENT  Canadian content must be certified through one of three processes; requires majority Canadian creative control.  Foreign content can only be aired once Canadianization through alliance controlled by a Canadian partner (Bravo, Discovery, BBC Canada). Foreign partner may hold up to a total of 49% through holding and operating companies.  Carriage of foreign channel in its entirety on approved Eligible Services List. In this case, the foreign channel is not allowed to sell advertising in Canada, but may recover subscription costs from the BDUs (A&E).  All services carried are subject to “tiering and linkage” rules to ensure Canadian services are not marginalized.