1. At the request of the Council for Trade in Services, the Secretariat has prepared this Note on audiovisual services as part of the information exchange programme. It is intended to serve as a background to more extensive discussions by Council Members. It is expected that further information will become available and may serve as the basis for an addendum to this paper, which currently reflects the disproportionate availability of information on the policies of the European Union and other developed countries.
2. Audiovisual services typically reflect the social and cultural characteristics of nations and their peoples, and are consequently regarded as being of great social and political importance. For these reasons, government regulations and public support programmes play a major role. The regulations on audiovisual services concern not only social and cultural issues, but also the promotion of domestic industry and foreign content restrictions. To accommodate rapid technological change and the new multimedia services, governments will, according to the OECD, need to modify their regulatory structures. The social and economic issues at stake, however, are both important and complex1, and they were reflected in the discussions on this sector during the Uruguay Round. A Working Group on Audiovisual Services held a number of meetings during the Round, and at its request the Secretariat produced a note on "Matters Relating to Trade in Audiovisual Services" which examined the drafting history of GATT Article IV, the applicability to this sector of concept and principles such as market access and national treatment and the content of relevant international agreements. This paper was circulated on 4 October 1990 as MTN.GNS/AUD/W/1.
II. Description of the Sector
3. As defined in the Services Sectoral Classification List (MTN.GNS/W/120), Audiovisual services are sub-sector "D." of "2. Communication Services". The six sub-categories listed, and their associated listing under the United Nations "Provisional Central Product Classification" (CPC) are as follows; a. Motion picture and video tape production and distribution services (CPC 9611); b. Motion picture projection service (CPC 9612); c. Radio and television services (CPC 9613); d. Radio and television transmission services (CPC 7524); e. Sound recording (CPC n.a.); and f. Other (No CPC categories specified, but could cover, for example, the contents of multimedia products).
4. Under the Provisional Central Product Classification, CPC 9611 is further divided into: Promotion or advertising services (CPC 96111); Motion picture or video tape production services (CPC 96112); Motion picture or video tape distribution services (CPC 96113); and Other services in connection with motion picture and video tape production and distribution (CPC 96114). CPC 9612 is subdivided into: Motion picture projection services (CPC 96121); and Video tape projection services (CPC 96122). CPC 9613 is subdivided into: Radio services (CPC 96131); Television services (CPC 96132); and Combined programme making and broadcasting services (CPC 96133). CPC 7524 is divided into: Television broadcast transmission services (CPC 75241); and Radio broadcast transmission services (CPC 75242).
5. Especially for the sub-category of Radio and television transmission services (CPC 7524), it sometimes becomes difficult to determine exactly the boundary between services classified under telecommunications and those classified under audiovisual services. As a general rule of thumb, however, it has become accepted that commitments involving programming content are classified under audiovisual services, while those purely involving the transmission of information are classified under telecommunications.
6. At the national level, definitions of statistical categories, as well as the availability of information, vary widely in regard to audiovisual services. As noted in an earlier Secretariat document, A Review of Statistics on Trade Flows in Services (S/C/W/27, p.5), "the framework of negotiated commitments does not match the existing structure of trade statistics". Consequently, care should be used in evaluating the statistical information presented within this Note.2
III. Economic Importance of the Sector and its Main Economic Features
7. Little information about the audiovisual sector is available on a national accounts basis, even from OECD countries.3 According to the European Commission, the audiovisual industry in the EU employs an estimated 1.8 million people, and may reach 4 million by 2005, an indicator of the high growth potential resulting from rapid technological change. Total employment in the U.S. motion picture and videotape industries for 1995 was listed at about 590,000. In Japan, broadcasting, motion picture and video production as of 1994 were listed as employing about 111,000 persons, with annual sales of nearly ¥4 trillion.4
8. More information is available concerning the output of audiovisual products, at least in regard to selected countries and markets, as well as in regard to related infrastructure such as the number of movie screens. Information from the United Nations indicates that China has by far the greatest number of cinemas, at nearly 140,000, followed by the United States (nearly 25,000) and India (about 13,500). Annual cinema attendance per capita is listed as highest in Lebanon, at slightly over 35 times, followed by China (12.3 times) and Hong Kong (10.3 times). (Current film industry statistics for selected markets are presented in Table 1). In regard to the diffusion of televisions and radio receivers, the United States has by far the greatest number, at 210 million and 547 million, respectively. Following in regard to televisions are Japan at 77 million and the Russian Federation at 55 million; for radio receivers, second is China at nearly 220 million and Japan at 113 million.5
9. According to India's National Film Development Corporation, India has the world's largest film industry, producing an average of seven hundred feature films and nine hundred short films annually.6 The United States is the second largest producer, and there are important film production industries in many other countries, including for example Australia, Egypt, Brazil, Russia, France, Germany, Italy, Spain and the UK. Hong Kong is regarded as the second largest film exporter, and the third largest producer after India and the United States.7 Unfortunately, little detailed information on the audiovisual industries of developing countries is easily available, so most statistics concern the OECD countries.8 Table 2, for example, shows that the investment level in feature films is highest in the United States, despite that fact other major markets, including the EU, produce a greater number of long-length feature films. Table 2 also contains statistics for the same group of countries on the number of films released annually for public display, showing that among these countries Japan releases the largest number. It is likely however that the number of releases in India is larger still.
10. It should be noted that in the film industry, and undoubtedly in other audiovisual sectors as well, it becomes difficult in practice to actually determine the nationality, or even the overall number, of productions, due to numerous co-production arrangements, definitional differences, and other related factors. To define the origin of audio‑visual products can be extremely difficult: is the defining characteristic of a film the nationality or residence of the producer, the production location, the origin of the financing, the nationality of the actors or the director? There is no generally accepted rule in these matters, and in fact it is increasingly common for film production to be an international enterprise.9
11. In regard to recorded music, the largest market is found in the United States, followed by Japan, Germany, the U.K., France, Canada and Brazil (Table 3). There is a distinct linkage between national growth rates (and economic conditions as a whole) and growth rates for music spending; the sector is also closely linked to the cycle of new hardware technologies. The arrival of CD technology, for example, served to rejuvenate the entire market, offsetting the decline of LP records. The major companies are also making efforts to diversify their operations into related markets, including film production, book publishing, broadcasting and retailing operations.
12. Market shares for audiovisual products as a whole, as defined by official statistics, vary widely between sub‑sectors: the United States is the largest market for audiovisual products as a whole, and is the largest overall producer. Market shares for U.S. films in both the EU and Japanese markets are quite high (Tables 4 and 5). The EU, however, is dominant in world-wide music recordings, with three European groups controlling over 40 per cent of the world market.10 In television programming the United States is extremely strong, but producers in Japan and elsewhere are also playing an increasingly important role.11
13. Trade figures for audiovisual services must also be interpreted with caution. Definitions vary widely, even at the OECD level. In the "films and television" category of the OECD publication, Services Statistics on International Transactions 1970-1994, for example, data for Japan are defined as "films rentals", for Germany as "films and television", for France as "audiovisual programmes", for Canada as "films and broadcasting" and for Austria as "culture and entertainment". In addition, cross-border trade figures alone may be deceptive as affiliates trade (for which data are extremely limited) is often very substantial. In the case of the United States, cross-border exports in 1994 were about US$3.5 billion, while imports were only about US$ 136 million; the figures for affiliate trade, however, were very different, with U.S.-owned overseas affiliates reporting US$4.2 billion in sales and foreign-owned affiliates in the United States reporting US$8.1 billion in sales to US distributors. This latter figure is due to the fact that foreign-owned affiliates together accounted for about 25 per cent of U.S. box offices sales in 1994, a figure which has subsequently declined.12
14. Intra-EU trade in regard to films remains rather limited, with France and Italy the most significant exceptions, importing between 30 and 40 per cent of films released in their respective markets from other EU Members. In the United States, nearly 90 per cent of film distribution is handled by only 8 companies; in Europe, distribution is much more fragmented. Only one EU-based company is said to have its own marketing and theatrical distribution network in the United States. In video, the five largest EU distributors are said to be controlled by major US producers. Nonetheless, EU-based companies are also very active as distributors. For music, the largest companies have recording and production facilities located in all major markets.
15. According to the OECD, "The changing nature of content production has eroded the traditionally distinct definitions of many textual, audio, and visual services, expanded the possibilities for market development, and broadened the range of economic interests concerned".13 Traditional audiovisual and music content has been distributed through such physical media as video tapes and CD-ROMs, via the cinema, satellites, cable TV or radio networks, and is characterised by passive consumption. The new multimedia products combine digitalized text, data, audio, and still and moving images, and are often characterised by interactivity with the consumer. Distribution can be through physical media such as CD-ROMs, as well as through the Internet or the other new networks. The rise of Internet-based services also offers major possibilities for alternative product development processes.
16. With the digitalization of audiovisual production, content creation is now often outsourced to small specialized firms. The high cost of special effects, however is rapidly raising average film production costs. Faced with declining market share, producers in the EU are consolidating into larger groups controlling distribution and/or production facilities. The growing interest of industrial, financial and other companies (notably communications firms) in film investments has also resulted in the creation of large new film production groups. Increased concentration has been accompanied by greater vertical integration.14
IV. Regulatory Structure, Relevant Trade Restrictions and Industry Support Programmes
17. In most countries, audiovisual media are regulated far more heavily than text media, reflecting their great potential for social, economic and cultural influence. As the OECD notes, "Most countries promote domestic audiovisual content production through a variety of policy measures and institutions. But the most comprehensive policy frameworks are usually contained in legislation concerning broadcasting markets, content ownership and programming".15 The "Television without Frontiers" Directive of the EC, for example, adopted in 1989 and amended in 1997, establishes basic rules for advertising, protection of minors, broadcasting of major sporting and other events, protecting the right of reply and the promotion of European works. Cultural obligations are set out more or less explicitly by European laws and regulations, especially those applicable to public service bodies. In India the cinema industry benefits from the freedom of expression provisions of the Indian Constitution. This right, however, is subject to "reasonable restrictions" imposed (under Article 19(2) of the Constitution) in the interest of sovereignty and integrity of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence.16 Similar concerns underlie the regulation of the industry in many other countries.
18. According to the European Commission, key weaknesses of the European programming industry include: fragmentation into national markets; a low rate of cross-border programming, distribution and circulation; chronic financial deficits; and an inability to attract the necessary financial resources. In this context, the audiovisual policy of the European Union has the objectives of establishing and ensuring a Europe-wide environment for audiovisual services and helping to develop a strong, progressive programming industry able to compete on world markets. Policies include encouraging training for professionals, supporting the production and distribution of European audiovisual products and eliminating internal barriers to EC-wide broadcasting distribution.17 Special programmes intended to contribute to the EU film industry include the Media Plan II of the EU Commission, designed to promote adaption to the demands of the single market; the Eurimages initiative of the Council of Europe, intended to enhance EU-wide co-productions; and the Eureka programme to promote the use of new technologies. Public funding to support domestic content production in the United States is at relatively low levels, but individual states do provide a range of incentives to attract production, and federal funds are distributed for film and video art productions.
19. Substantial subsidies are granted in a number of WTO members: the OECD publication, Policy and Regulatory Issues for Network-Based Content Services, for example, provides information on the support programmes of Australia, Canada, the European Union and the United States (details of various government expenditures in the audiovisual sector are provided in Tables 6, 7 and 8).18 Some countries also impose an obligation upon their TV chains to invest in domestic film production. 19 According to the same OECD publication, however, "OECD governments are increasingly relying upon policies aimed at indirectly stimulating domestic content creation through tax breaks or increased contributions from the private sector or non-profit organizations, rather than direct funding measures. This is sometimes a matter of historical tradition (as with public broadcasting in the United States), partly the result of increasing pressures to reduce government spending and budget deficits, and partly the product of a growing realisation that direct funding is less effective than indirect support".
20. The OECD notes that "a large number of institutions exist for the promotion of domestic content within OECD countries. In particular, national public broadcasters have often been dedicated to promoting and carrying a certain quantity of domestically produced audiovisual content, while direct grants, tax write-offs and low-interest loans are also provided for film production, and (in some countries) the development of special (and in particular digital) effects".20 The amendment of the "Television without Frontiers" Directive in 1997 strengthened the requirement that Television channels should broadcast a majority of European productions excluding news programmes, sporting events, advertising, games, teletext and teleshopping services.21 In Canada, the Canadian Radio‑Television and Telecommunication Commission promotes domestic content through a number of policies, including quotas on broadcast airtime. Private radio station licensees are asked to make financial commitments to domestic talent development as part of their license renewal applications. In India, as in a large number of other countries, market access for foreign films is formally restricted to a limited number of titles per year.22
21. Governments, as noted in the Introduction to this Note, will probably need to modify regulatory structures to accommodate the new multimedia audiovisual services. As observed by the OECD, "Governments have traditionally used the licensing of broadcasting facilities to ensure the implementation of policy goals in respect to foreign and domestic content carriage. The restricted electromagnetic spectrum available for analogue transmission provided a technological rationale for the regulatory procedures which underpinned these policy goals... . However, with the greater number of channels available for broadcasting which digital terrestrial over-the-air, satellite and cable technologies allow, [the new environment] makes a restrictive approach increasingly difficult to justify."23
22. Deregulation policies in the 1980's, for example, resulted in the increasing emergence of private television channels. With the liberalization of the telecommunications market in 1998 in many major markets, telephone and cable operators are expected to enter the television transmission market. In the emerging markets for digital television, control over decoding standards is expected to be the major issue, with competing groups attempting to impose their own standards. For music recording services, reforming policies concerning intellectual property rights is an important challenge, considering that most music copyright laws are administered nationally whereas on-line computer services such as the Internet are linked to international networks. Piracy of both music and video recordings is a major problem for many developing countries, such as India, as well as for developed nations.
23. Competition policy in respect to the audiovisual sector is another area where the OECD argues that changes may be needed: "With the increased number and variety of network-based services, competition policy also needs to play a much greater role in the regulation of audiovisual content. However, the evolutionary nature of convergence also means that competition policy needs to be applied with a more constant and detailed attention to market, sectoral, product and technological evolution".24
V. Negotiations on Audiovisual Services and Existing Commitments under the GATS
24. These social and economic concerns, and the pressures for change exerted by new technology, underlay the discussion of audiovisual services in the Uruguay Round, in which there was a heavy focus on the cultural specificity of the film and television industries, in particular. There was no specific recognitions of these concerns in the text of the Agreement, but at the end of the Round only 13 countries made commitments in this sector. A substantially larger number took MFN exemptions. As a result of accessions, the number of Members making commitments has since risen to 19.
25. The majority of the 19 Members who have made commitments to date in audiovisual services (Table 9), have followed the sectoral classification in W/120, with some modifications or exceptions. In some cases, however, national definitions have been used.25 In one case, CPC 7524 has been included under commitments on audiovisual services, but defined as "Radio and television cable services". For the numerous MFN exemptions taken in the audiovisual services sector, national definitions have primarily been used.
26. Among the six sub-categories which compose audiovisual services, Motion Picture and Video Tape Production and Distribution Services has a total of 17 specific commitments, followed by Motion Picture Projection Services with 10. Only the Central African Republic and the United States have made commitments in all six sub-categories. New Zealand has commitments in five sub‑categories (i.e. all except sound recording), Panama and Gambia in four, and Hong Kong and Japan in three.
27. Table 10 shows the distribution of commitments by mode of supply. It will be seen that the majority of commitments in all modes are subject to limitations, but this is true of most if not all sectors. In these industries, where temporary working abroad is so frequent, the level of limitations in market access commitments for the presence of natural persons may suggest significant trade barriers.
28. By individual sub-category, the instance of full bindings (i.e. "None") in respect to both market access and national treatment is greatest for Motion Picture Projection Services, followed by Radio and Television Services (Table 11). The lowest instance is in respect to the "Other" category. The highest level of full bindings in respect to both sub‑sector and mode of supply concerns national treatment for the cross-border supply of Radio and Television Services, at 71 per cent. This and other figures should be regarded with care, however, considering the low number of commitments in several sub‑categories.
29. The most common restrictions appearing in schedules, other than those concerning natural persons, include limits on foreign shareholdings, restrictions on the share of screening time allotted to foreign productions, and exclusion from national treatment in respect to domestic subsidies. In the case of market access in respect to the presence of natural persons, as for most sectors listed in GATS schedules, the most common entry is "Unbound, except as indicated in the horizontal section".
30. In the context of the Uruguay Round negotiations, audiovisual industry representatives in a number of Member countries suggested that the cinema and broadcasting sectors should be excluded from the Agreement in order to protect national industries and cultures from being overwhelmed by foreign products.26 An alternative approach was to suggest exemptions from certain disciplines in recognition of the cultural specificity of these industries.27 No agreement was reached on these approaches.
31. A large number of MFN exemptions have been taken in regard to audiovisual services. Counting the European Community as a single entity, a total of 33 MFN exemptions28 specifically mentioning the audiovisual sector are in place, with an additional eight MFN exemptions applying to all services sectors, potentially including audiovisual. The exemptions most commonly cover co-production arrangements for film and television productions, typically granting national treatment status in respect to eligibility for financial assistance, tax benefits and simplified entry procedures for natural persons.
32. Agreements mentioned in the MFN exemptions include those for the promotion of European, Latin American and Arab audiovisual works. Preferential treatment in regard to screen-time access is also given in many cases. The most wide-ranging MFN exemptions are those of the European Community and Venezuela. Some MFN exemptions also provide for potential retaliatory measures against unilateral measures imposed by trading partners.
VI. Sources of Additional Information
33. Relevant sources of additional information also include the following Internet sites:
- Asia-Pacific Broadcasting Union (http://www5.jaring.my/abu/intro.htm)
- Council of Europe (http://www.coe.fr)
- European Audiovisual Observatory (http://www.obs.c-strasbourg.fr)
- European Broadcasting Union (http://www.ebu.ch)
- European Cinema Yearbook (http://www.mediasalles.it/yindex.htm)