Eli Noam: The next culture wars

By Eli Noam
Published: October 2 2003 15:58 | Last Updated: October 6 2003 17:38

Richard Epstein - US expertise can be borrowed

As broadband internet spreads around the world, television distribution over the new medium moves from experimentation to commercial possibility. The question then arises of whether this medium will be dominated by US content, as film and television have been. Will TV over the internet be American?

For several centuries, cultural exports flowed largely in one direction: out of Europe to the colonies and the rest of the world. Then, after World War I, the young medium of film reversed the flow. Audiences around the world flocked to Hollywood movies and European cultural elites, shocked at their loss of control, advocated protection. But despite seven decades of effort, this challenge remains: in 2002, of the 50 highest grossing films worldwide, all were American.

The arrival of broadcast television helped for a while to maintain national cultural policies, because this medium, in contrast to film, could be controlled through monopoly public institutions. But the system broke down in the 1980s, and the newly private airwaves and cableways soon filled with even more Hollywood content. Of course, there was also more domestic production of TV programmes in each country, and some programme ideas travelled in the opposite direction. But on the whole, commercial TV has been much more American-style in content than public TV.

Now television over the internet is knocking. But what will enter when the door is opened?

Knee-jerk responses to this question have been characterised by defensiveness and denial. The internet community, staunchly internationalist and multicultural by outlook and background, does not want to face the possibility that it might contribute to the further ascendancy of American mass culture.

For electronic media, transmission technology is destiny: it defines cost, content and business models. The costs of TV distribution over the internet are more than 40 times greater than the distribution cost of a cable TV channel. This is because the individualisation of the internet requires significantly larger transmission resources than simultaneous broadcast-style transmission. Hence internet TV can function economically only as a premium medium.

Given these economies, several types of application seem therefore most likely:

1. Video on demand (VOD) delivery of films, at the very top of the distribution chain, right after movie theatre distribution and maybe even ahead.

2.Thin and specialised audiences that would not be served by synchronous TV

3.Office viewing

4. Interactive and multimedia applications that use the medium in ways that cannot be done over regular, one-way TV.

From the numbers it is quite clear that one would not want to use internet TV for regular video content distribution. For that purpose, cable TV and its digital fibre variants will be much cheaper. Internet TV's market is for applications that go beyond regular TV: interactivity, asynchronicity, linkages, multimedia.

The interactivity and multimedia aspect of the medium require additional features beyond straight video. It might be a bit like the video game Super Mario Brothers combined with the sitcom Friends and the reality show Survivor.

To produce such content is expensive. It will also require creativity, lots of programmers, significant performance testing, and continuously updated versions. Such content exhibits strong economies of scale. They favour providers that can come up with big budgets, diversify risk, distribute over other platforms, create tie-ins and establish user communities.

This creates advantages for US companies. The US has a large internet community with entrepreneurial energy; big content producing companies with worldwide distribution and experience in reaching popular audiences; creative and technological talent from around the world; efficient production clusters; and strong computer and software industries. It also benefits from the advantages of the English language, the cultural prowess of being the world's superpower, pro-competition policies, and a financial system that provides risk capital. Some of these factors are also available elsewhere, but nowhere in such combination.

Furthermore, the emerging distance-insensitivity of transmission cost means that such content can be distributed worldwide; distance ceases to be a protection. And therefore, Internet TV will be strongly American. Participants from other countries will also be players, but most likely either domestically, without much reach, or as global players that will offer American-style content to the world.

There will be cultural losers. These losers will not sit still but invoke various public policy concerns, and this will inevitably lead to protectionist regulation. We should therefore be ready for cultural and trade wars over the TV of the future.

The writer is professor ofeconomics and finance atColumbia University and director of its Columbia Institute for Tele-Information

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Eli Noam predicts that the rise of internet TV will increase the dominance of American content worldwide. He cites as the chief reason for this conclusion the comparative advantage that US firms have in working in high-cost sophisticated markets in which companies of other nations have less experience and less technical support. As a consequence of this, he predicts cultural wars as those nations that wish to preserve national content laws seek to tame the new technology -  which will be hard to do, to say the least.

I have no sympathy whatsoever for the implicit form of local imperialism that lies behind such laws. If local culture is important to local citizens, then let them choose to watch domestic content, even if it comes through at a higher price. But that said, I do not think that the future dominance of American content is assured for this new information and entertainment niche at the high end of the market.

The ultimate use of the technology depends on the set of alliances and contracts that are used to bring it to market. The implicit subtext of the Noam model is that the vertically integrated American companies will be the first movers in this new market. Yet we must remember that the use of internet technology also reduces the costs of various forms of global co-operation.  The best path for content-savvy foreign producers is to enter into deals whereby they combine their content with the technical expertise that is more cheaply available from the high-tech American platforms. The distribution channels cannot tell American from Hungarian electrons, and if content from other nations has sufficient appeal, then no evident cost disadvantage should keep it from reaching the marketplace, so long as technical services can be freely bought and sold. 

To be sure, English may turn out to be the language of choice even for these non-American producers because it is the second language of millions, if not billions, of people throughout the world. If films in English by American producers do well worldwide, then films in English by Hungarians will also do well. The usual consequence of new technology is to offer new business opportunities and combinations that shake up established economic orders. It may well that internet television will solidify the advantage of American content, but if so, it will because Hollywood has its pulse on the sentiments of the world. It will not be because of the American technical edge, which is available to any content provider who keeps an eye out for the winning joint venture.

The writer is the James Parker Hall Distinguished Service professor of law at the University of Chicago and Peter and Kirsten Bedford Senior Fellow at the Hoover Institution

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