ECONOMIC PROTECTIONISM IN THE MOVIE INDUSTRY

With all the rhetoric from the candidates to the US Presidency, one could ask: Is the USA, land of the free trade going back to the Monroe doctrine with “localization” the new politically correct way of saying protectionism?

Many countries around the World have practiced it for years starting with Japan, which has the most restrictive markets in the world and has been playing that game for years while exploiting open foreign markets. Is the Japanese economy stronger? In the USA we do have protests when we witness closing domestic auto plants? Chrysler, GM, Ford spring plant, van plant, brake plant and foundry moving abroad and jobs vanishing triggers a desire to close the Borders.

In the movie industry the game is more delicate and subtle as it extends beyond numbers and the game is played as being a “protection of local culture”.

What aspects of culture do Hollywood films promote around the world? In what ways do Hollywood movies affect the cultural values of people outside the USA?
Hollywood movies are very popular in world markets, but foreign films are little viewed in the United States.
In fact, the movie industry is a mirror of society.
Hollywood just promote what sell in the USA, the Chinese movie industry sells for the local Chinese market and French movie for French audience.

Hollywood filmmakers are making an entertaining film with the right US ingredients. European tend to produced thought-provoking movie, etc.

So China is not the new “enemy” with its movie protectionism!

There is nothing really new. In Europe, the EU Broadcast Directive was passed in October 1989 in an effort to protect and promote the European cultural identity. The directive required that EU member-states reserve a majority (51 percent) of entertainment broadcast transmission time for programs of European origin. France lobbied hardest to pass the EU directive and has since implemented the most stringent quotas within its national system. Since1989, the fundamental nature of the media broadcast industry has undergone significant changes, requiring various updates in the legislation. The most recent amendment to the Directive is the Audiovisual Media Services Directive, which became effective on December 19, 2007. Interesting enough although the EU expanded the borders to integrate all new European nations it kept in place the protection against foreign countries, i.e. the USA.

So for China: it has a burgeoning but fast-growing movie industry and opened to the world only in the past 30 years thus China central government remains very sensitive to foreign influence and the State Censorship is very active: violence, explicit sexual situation and political issues are especially scrutinized.

China is introducing another layer of protectionism to give its domestically produced movies an edge over Hollywood imports. Last week, State regulators announced that Chinese theater chains that generate at least two-thirds of their box office receipts from local Chinese films will be able to keep half of a five percent tax they usually pay on ticket sales. The China Film Bureau normally collects a five percent tax on all box-office revenue. Under the new rules, to qualify for the rebate Chinese theater groups must ensure that imported movies take no more than one-third of the box office for the full year.

China employs various measures to protect its fast-growing domestic film industry. The country's notorious quota system restricts foreign film imports to just 34 titles per year on revenue-sharing terms. The quota was raised from 20 films to 34 in 2012, in a deal to resolve a dispute that had led the United States to file an official complaint with the World Trade Organization alleging that China was unfairly restricting access to its market.

As reported by the Hollywood Reporter, in addition to the quota, Chinese regulators have employed subtler protectionist tactics, such as blackout periods on foreign film releases during popular summertime and holiday movie going periods, as well as strategic scheduling of release dates, whereby top local titles are given the best weekend opening windows*.

The Chinese markets remain a very large and growing market. In 2015, Chinese films claimed $6.78 billion box office and predictions are that by the end of 2016 it could double and become the world largest box office. One can understand why Hollywood wants to participate into the game, but China will continue to support its own film industry via protectionism to defend its Chinese filmmakers. Subsidies and quotas are the easiest way to protect its cultural industry, but as usual there are pro and cons.

Are there better ways to maintain and enhance home-grown film industries?

Free-market - competitive advantage is internally derived with high quality film rather than externally-subsidized. These are questions that time will solve especially when big Chinese production will hit the US domestic market.

“The Great Wall” directed by Zhang Yimou a $135 Million production scheduled to be released in late 2016 early 2017, could give us the first hint on the direction the overall Chinese movie industry will take and could it be the beginning of the end for movie protectionism in China.

Time will tell....

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www.libra6management.com
Libra6 Management develops and invests in Cleantech, Media, Healthcare and Real Estate. Libra6 is present in Shanghai: www.libra6management.cn.com

Libra6 operates several subsidiaries or affiliates in the media industry.

http://www.libra6management.com/target-industries/media-entertainment-0

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* see http://www.libra6management.com/china-box-office-movie-industry-2015

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