The markets for cultural products – like books, magazines, sound recordings, films and particularly radio and TV shows – do not behave like those for ordinary commodities. The marketplace for popular culture does not automatically provide what people want to see or hear, in fact, it is a distorted or failed market.

Now this seems hard to believe. After all, there is a marketplace for films and TV shows and of course some are more popular than others. So why not let the market decide?

How the culture marketplace works

The market is different for popular culture. The differences include the unpredictability of demand, the fact that all the cost is upfront before the demand is known, the low marginal cost of additional copies or viewers, the presence of rampant price discrimination by time and place, and the presence of “gatekeepers” affecting demand. What goes on the shelf or on the screen is determined not by consumers but by the decisions of broadcasters, distributors, exhibitors, bookstores, and other intermediaries.

So cultural products are quite different. In fact, economists characterise cultural products as being what they call “public goods”. At a technical level, a “public good” is a product whose cost does not vary with consumption.

What does that mean in practice?

First, these products operate in a market that has very high risk. Most titles fail. At the same time, the few titles that do succeed produce a very high reward, much higher than for other products. Why? Because the marginal costs of additional units is very low so any revenue from additional sales drops to the bottom line once you have covered the initial cost.

This is a market that rewards size. Only if you have size can you sustain the inevitable losses before the unpredictable hit comes along. And only if you have size can you control the means of distribution to maximise revenue from all the windows. And once you have size, you also have a desire to avoid risk. How? Well, first, you have to be big enough to survive failure. And then it helps if you own or control the distribution, as well as controlling gatekeepers and tastemakers.

Of course the problem with this is that it increases concentration and reduces choice. The concentration of media is growing around the world. It is increasingly harder for “independent” producers to survive, whether in the United States or in any country where concentration is increasing. It means also that the market for popular cultural products tends to focus on formulaic blockbusters and bestsellers, distributed by the largest and most vertically integrated companies.

You end up with clones and sequels and a mindless reliance on the promotable “A-list” stars. You are left with a product that is designed to appeal first and foremost to American consumers, because the producers want to amortise their costs against the largest market for popular culture – the US itself.

So, left unchecked, the market would tend to reduce diversity. It would tend to ignore the new, the experimental, the alternative, the exotic, the local, or the niche cultural products – the works that explore new ways forward for humanity, that reflect cultural diversity in a wider sense, the “R & D of the soul.” That market will be particularly deficient in smaller countries where the dominance of the foreign blockbuster will tend to exclude local entertainment content.

The WTO agenda and the problem of free trade

These issues, and many more, are at the core of an international debate on the extent to which cultural policy measures should be affected by bilateral or regional trade agreements or by the multilateral trade regime of the WTO.

In regard to cultural goods – books, newspapers, magazines, and sound recordings – they are largely bound by the terms of the General Agreement on Trade and Tariffs (Gatt), an agreement dating back to 1947 but which was given enforcement teeth only in 1995. Cultural goods are not permitted to be subject to discriminatory trade barriers, except for film, where screen quotas are specifically allowed. But Gatt does not apply to services, like broadcasting or audiovisual production.

In 1995, a General Agreement on Trade in Services (Gats) was entered into, and the US – on behalf of the Hollywood studios – tried desperately to include broadcasting and audiovisual services within its ambit, so as to outlaw discriminatory quotas and subsidies in this area. But in a famous confrontation with Europe, it failed to achieve this objective.

Cultural services are only covered by Gats if a country elects to do so. And only New Zealand – to its later regret – so elected. But further trade liberalisation in services is still on the WTO agenda, and the US is pressing hard to make it happen.

In the absence of forward movement at the WTO, the US has sought to achieve the same objective by including broadcasting and audiovisual commitments in bilateral trade agreements. Recent examples of such agreements involve Chile, Australia, Morocco and Central America.

In these so-called free trade agreements, the US has sought to have countries give undertakings not to discriminate in favour of local cultural products. Given their leverage in bilateral negotiations, they have often been successful, although some countries have managed to grandfather their existing measures.

So what is the problem with trade liberalisation in regard to cultural products?

Simply this: free trade treats cultural products the same as ordinary commodities and stops countries from discriminating in favour of local cultural products. Free trade would stop the tool kit of cultural measures that are needed to make the market more diverse and to provide more choice.

A so-called “free market” would simply institutionalise the stark imbalances that characterise the world of popular culture. It would support the blockbuster effect and the exclusion of small independent titles; it would imperil cultural diversity.

The problem with leaving these matters to the WTO is obvious: the WTO is insensitive to culture. It is driven by flawed economics, and disputes are decided by trade academics who cannot recognise cultural distinctions.

So, where do we go from here?

Protecting independent film: a “cultural toolkit”

Clearly we don’t want to infringe freedom of expression and to prohibit the importation of foreign cultural products. Local cultural expression can be impoverished if it is not open to foreign ideas, but it can equally be impoverished if it is dominated by the voices of another country.

In the end, it is possible to put together a “cultural toolkit” of measures that governments can take to sustain or develop a broader range of popular cultural products, without undermining freedom of expression. What do these measures include? Here are six examples of how cultural policy can support independent film:

• Most common around the world, the institution of public broadcasting. This is a key support measure for cultural diversity, because you can give public broadcasters a mandate to support independent local film.


• The imposition of reasonable scheduling requirements on private broadcasters and other cultural gatekeepers. Scheduling that requires the broadcast of program genres that would otherwise be under-represented, like independent film. Again, this is a common strategy used in many countries.


• The imposition of expenditure requirements on cultural gatekeepers to support the programming that is hardest to finance. For example, the pay television services in France, Canada and Australia all have to devote a proportion of their gross revenue to investment or licensing of local films.


• The application of foreign ownership rules in certain sectors. This hopefully adds local “green lights” for the benefit of indigenous producers, so they have more doors to go to besides Hollywood.


• The use of competition policy measures, to support independent production and to lessen the dominance of gatekeepers. An example is the rule in Canada requiring broadcasters to acquire at least 75% of their drama and comedy from independent producers.


• The support of the creation or distribution of independent film through subsidies or tax incentives. A recent innovative example is the UK Film Council “digital screen network” initiative.

Most of these measures have weaknesses as well as strengths, and they need to be carefully drafted and implemented in order to be fair and effective. In addition, the cultural policy appropriate for one society may be quite different than that for another, just as every cultural product is unique. A number of structural measures, when properly applied, can be quite effective in maintaining a level of pluralism in cultural expression. This has proven to be true not only in countries around the world but even in the US where conventional wisdom disdains any regulatory involvement in programming.

The Unesco convention: can it make a difference?

This takes us to the Unesco convention. On 20 October 2005, Unesco members voted overwhelmingly – 148 to 2 – to adopt a new international convention on cultural diversity which recognises the unique nature of cultural products and seeks to permit government to take reasonable measures to support and enhance diversity of cultural expression without fear of trade retaliation.

As I have noted, there is a compelling economic case for keeping cultural products out of trade agreements that otherwise might preclude countries from maintaining space and choice for local and diverse cultural expression. However, the US tried to stop, dilute or defer the Unesco exercise, fearing (quite rightly) that it will prejudice its efforts to stop countries from having measures that support cultural diversity.

Even if the agreement goes forward, and it will if at least 30 countries ratify it, the US will never sign it or be bound by it. What then, is the point of the convention?

Well, first, let’s understand what the convention will not do. It doesn’t affect past WTO commitments by countries. What’s done is done. It doesn’t empower countries to stop or prohibit foreign content, and it doesn’t stop the US from continuing to press for trade liberalisation in cultural products.

So what does the convention do? I see it as achieving five objectives:

1. the convention blesses the toolkit of government measures to support cultural diversity


2. the convention educates the world that cultural products are different from ordinary commodities


3. for the benefit of developing countries, it creates a fund to help them in producing local distinctive cultural product


4. the convention supports freedom of expression


5. most significant, the convention dissuades countries from further trade liberalisation in the cultural sector, and strengthens their hand in resisting pressure to do so

The debate at Unesco has seemed to pit many countries against positions taken by the US government and its entertainment industry. But this is not an anti-American dialogue. In fact, the same factors that create imbalances in the flow of popular culture around the world also impoverish diverse creative expression in the US. The economics of the blockbuster and the prevalence of gatekeepers is just as problematic for pluralistic expression within the US as it is outside it.

The cultural diversity convention was originally a Canadian idea, first suggested six years ago by a trade advisory group of which I was a member. But I can tell you that none of us thought it would come so far so fast. The convention has led to a fascinating cultural awakening around the world.

People now are beginning to realise that cultural diversity is more important than ever before. Technology, when properly harnessed and guided, can benefit diversity but it needs that cultural toolkit in place.

The Unesco Convention is an important step. Cultural groups from around the world have recognised the problems identified by the convention and have made it their own. And that is the most significant achievement of all.