The Competitive Balance of the Italian and American Film Industries

David Waterman, Indiana University
Krishna P. Jayakar, Pennsylvania State University

Abstract
2000 TPRC
March 23, 2000

At their peak in the early 1970s, Italian movies consistently earned a majority of box-office receipts in Italy, while American movies accounted for less than a third of receipts. Today, this balance has more than reversed; American films typically earn about two-thirds of the Italian box-office, while domestic Italian productions account for only about one-quarter. Italian films have also lost a once significant market share to American films in the United States.
This trend toward Hollywood dominance and the shrinking of indigenous entertainment production is paralleled throughout Europe and in many other countries worldwide. The policy response in Europe and elsewhere has been renewed attempts to impose quotas and other trade restrictions, as well as heavier subsidization of domestic production industries.
In this paper, we use an economic model of international trade in media products to explain the changing balance of film trade between the United States and Italy, one of its principal trading partners. To test the model, we assembled an historical database that includes box-office market shares, consumer and advertiser spending on various media that exhibit theatrical feature films (primarily theaters, pay television, broadcast television, and video) in the United States and in Italy from 1950 to 1998.
Statistical results show that long term trends in the ratio of consumer spending on movie exhibition media in Italy to that of the United States are closely correlated to trends in box-office market shares. To at least some extent, the declining consumer spending in Italy could also reflect the decline in availability of high production value, domestic Italian films to see. Our results, however, are consistent with our hypothesis that a principal reason for the better performance of the U.S. film industry is that the U.S. has been relatively more successful in growing its commercially supported domestic media for exhibiting films, especially the video media of pay television and videocassettes, than has Italy. This faster domestic media development has apparently provided American producers with the economic support base for greater increases in commercial film production investment levels than Italian producers could sustain, leading in turn to relatively more plentiful and more appealing American film products.
A variety of sociological, cultural, and political factors have undoubtedly contributed to the increasing imbalance in American and Italian film trade. Our analysis supports the significance, however, of economic factors. Certainly, quotas, subsidies or other government policies intended to preserve the cultural integrity of movies or other media distributed in any country may be justifiable. However, we find no evidence that these subsidies or other policies have significantly stemmed the tides of American movie dominance in Italy.
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