NTIA Special Publication SP-93-290 Globalization of the Mass Media
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• • • .. T OF COMME~CE U S DEPARTMEN I ommunicat1ons • • National Te .ec Administration and Info rmat1on NTIA Special Publication 93-290 GLOBALIZATION OF THE MASS MEDIA U.S. DEPARTMENT OF COMMERCE Barbara Hackman Franklin, Secretary Gregory F. Chapados, Assistant Secretary for Communications and Information, and Administrator, National Telecommunications and Information Administration JANUARY 1993 ~puty Assistant Secretary, ~puty Administrator Thomas J. Sugrue OFFICE OF POLICY ANALYSIS AND DEVELOPMENT Associate Administrator William F. Maher PROJECT TEAM Mark Bykowsky Cheryl Glickfield Lisa I. Leidig Carol E. Mattey Cynthia Nila PROJECT CONTRIBUTORS Office of Chuf Courzsel Office of International Affairs Alden Abbott Jean M. Prewitt Cheryl Kinsey Sharon Bywater Ann Moebes David A. Macuk Jana Gagner Diane E. V. Steinour Janet Hernandez Cover Design Tamera Finn Acknowledgements We would like to thank Janice Obuchowski, former Assistant Secretary for 'Communications and Infonoation and Administrator, who initiated this report, for her vision and guidance. We acknowledge Julian Shepard and Lisa Suits for co-authoring the Notice to this report, and Lisa Suits for her work on early drafts of this report. We thank Michael K. Kirk, Michael S . Keplinger, and Susan 0. Mann of the U.S. Patent and Trademark Office for their advice on and contributions to the discussion of international copyright issues. We also thank Art Altenburg, Joe Gattuso, Jim Mcconnaughey, Charla Rath, Mary Stewart, and Prof. Samuel Holvey's Graphic Arts class at the Corcoran School of Art, and all others who provided suggestions, input, and assistance. EXECUTIVE SUMMARY The products of the U.S. electronic mass media industry -- films, video and radio programming, and recorded music -- are vehicles through which ideas, images, and information are dispersed across the United States and throughout the world. As such, these mass media can be a powerful agent for political and social change. The electronic mass media industry is also a major sector of the U .S. economy. Like other domestic industries, it has been profoundly affected by the internationalization of its marketplace. In 1991, for example, foreign sales accounted for about thirty-nine percent of U.S. film and television industry revenues. Moreover, mass media firms are investing across national borders. As a result, mass media firms that have traditionally been thought of as "U.S.-based., face competition from, and partner with, a variety of international firms. This report reassesses U.S. communications and mass media policies in light of the increasingly global nature of the electronic mass media. A basic theme of this report is that the United States cannot afford to be complacent about the success of U.S. media firms in international markets. Recent regulatory and technological changes require U .S. policy makers to continue to adapt in order to promote the development of international mass media markets that are open and competitive -- the type of markets in which U.S. firms historically prosper. The first part of this report discusses why and how globalization of the mass media is occurring. It describes globalization trends by analyzing U.S. exports of and foreign direct investment in mass media products, and discusses the strategies that firms employ to enter foreign markets. The report then examines possible changes in U.S. communications policies that could enable U.S.-based mass media firms to compete more efficiently and effectively in international and domestic markets. It recommends changes to the U.S. restrictions on foreign ownership of broadcasting stations in order to permit greater participation by U.S. firms in foreign broadcasting markets, as well as potentially increasing sources of investment in U.S. broadcasters. It discusses the importance of effective international copyright protection for U.S. mass media firms. The report emphasizes the competitive effects of domestic U.S. mass media regulations, particularly those affecting radio and television broadcasters. as well as the video programming and sound recording industries1 and recommends a variety of modifications to existing U .S. rules regarding crossownership restrictions on several types of communications and mass media firms, and the multiple ownership restrictions on U.S. broadcasters. It discusses the effects of the Federal Communications Commission's financial interest and syndication rules, adopted in 1991 1 on the global competitiveness of the U.S. programming industry. It also investigates the effects of the FCC's localism policies in an era of increasing international dissemination of jnformation. Table of Contents SUMMARY of FINDINGS and RECOMMENDATIONS vii PART I Chapter 1: GLOBALIZATION OF THE MASS :MEDIA . 1 I. Introduction . • . 1 JI. Definitional Framework . 4 III. Description of the Report . 6 Chapter 2: GLOBALIZATION TRENDS . 9 I. Introduction . 9 TI. Trends in Foreign Direct Investment . 9 A. FDI Involving U.S. Mass Media Firms . 10 B. FDI Data ......................................... 11 C. Economic Consequences of FDI . 15 III. Trends in Mass Media Exports .............................. 16 A. U.S. Exports ...................................... 17 1. U.S. Trade in Motion Picture and Television Programming . 18 2. U.S. Trade in Recorded Music ........................ 20 B. Non-U.S. Exports ................................... 21 Chapter 3: WORLDWIDE CHANGES AFFECTING GLOBALIZATION . 29 I. Introduction .......................................... 29 II. The Role of Technology and Standards . 29 A. Distribution Systems .................................. 29 B. Consumer Electronics ................................. 36 C. Standards ......................................... 37 III. The Role of Government and Regulatory Change ................... 42 A. Opening Markets .................................... 42 B. Barriers to Entry .................................... 47 IV. Other Factors Affecting the Demand and Supply of Mass Media Products . 48 A. Linguistic Differences ................................. 49 B. Leisure Time ...................................... 50 i C. Pop Culture and World Youth Populations .............. ..... 51 Chapter 4: FIRM BEHAVIOR AND GWBALIZATION ................. 53 I. Introduction . ......... 53 II. Modes of Globalization . 53 A. Complementary Expansion .............................. 53 B. Globalization Via Horizontal Expansion . 56 1. Foreign Direct Investment . 56 2. Export Theory . 60 C. Globalization Via Vertical Expansion ........................ 63 1. Vertical FDI .................................... 63 2. Long-Term Contracts . 66 III. Policy and Economic Effects of Globalization . 68 PART II Chapter 5: THE ROLE OF COMMUNICATIONS POLICIES IN A GLOBAL MARKETPLACE ................................... 69 I. Introduction .......................................... 69 Chapter 6: THE FOREIGN OWNERSHIP RULES . 73 I. Introduction .......................................... 73 II. The Foreign Ownership Limitations of Section 310(b) ................ 75 ID. Legislative History of Section 310(b) .......................... 78 IV. Other Countries: Foreign Ownership Restrictions . 82 V. Liberalization of the Foreign Ownership Rules . 85 A. Need for the Rules: National Security Issues .................. 85 B. Potential Benefits of Liberalizing the Foreign Ownership Rules . 88 C. NTIA's Proposal .................................... 90 Chapter 7: INTERNATIONAL COPYRIGHT ISSUES ................... 93 I. Introduction .......................................... 93 II. Summary of Comments . ......................... 95 III. Losses From Copyright Violations . 97 A. Videocassettes ......................... ............ 98 11 B. Satellite Signals . 99 IV. Improvements in U.S. Copyright Law ......................... 101 A. Berne Adherence ................................... 101 B. Further Improvements to U.S. Copyright Law . 102 V. Intellectual Property Issues Under Berne . • 103 A. Overview of Berne: Exclusive Rights . 103 1. The Reproduction Right . 104 2. The Adaptation Right . 104 3. The Distribution Right . 104 4. The Public Perfonnance Right . 105 5. The Broadcasting Right . 105 B. Specific Issues Under Berne . 106 1. Adequacy of Copyright Laws . 106 a. Sound Recordings . 107 b. Public Performance Right . 108 c. Satellite Transmission Right . 109 d. Cable Compulsory Licensing Schemes . 111 e. Other Concerns with Beme Standards . 114 2. Adequacy of Enforcement Mechanisms Under Berne . 115 VI. Other International Initiatives for Intellectual Property Protection . 117 A. Multilateral Treaties: GA TT and WIPO . 117 1. GA IT: TRIPS Negotiations . 117 2. WIPO ....................................... 119 B. Bilateral Approaches and Trade Laws . 119 1. Bilateral Approaches . 119 2. Improving Intellectual Property Rights Protection Through Trade Laws . 120 Chapter 8: THE CROSSOWNERSHIP RULES . 123 I. Introduction . 123 II. Summary of Comments . 125 III. Impact of the Crossownership Prohibitions on Globalization . 126 A. The Network-Cable Crossownership Rule . 126 1. History of the Rule . 126 2. Effect of the Network-Cable Crossownership Rule on the Domestic Marketplace . 131 iii 3. Effect of Lifting the Network-Cable Crossownership Prohibition on Globalization . 139 B. The Cable-Telco Crossownership Prohibition . 141 1. History of the Prohibition . 141 2. Effect of Lifting the Cable-Telco Crossownership Restriction on Globalization . 144 C. The Broadcast-Cable Crossownership Prohibition . 153 1. History of the