The Proprietary Rights Initiatives in Canadian Film Distribution Policy

Introduction: In the past two decades, the Canadian federal government, the province of Quebec, and the federal broadcast regulator, the Canadian Radio-Television and Telecommunications Commission (CRTC), have regulated the film distribution industry by adopting proprietary rights policies. The term “proprietary rights” does not describe a characteristic of a film in isolation but a relationship between a potential distributor and a film. A film is proprietary to a potential distributor if that distributor meets or exceeds one of a set of benchmarks, such as ownership of copyright at the time that photography begins, the size of investment in the film, or control of world distribution rights. If none of these conditions are realized, the film is non-proprietary to the distributor. Under a proprietary rights policy, distributors can be divided into two broad categories. One set of firms, the sheltered group, may distribute all films whether proprietary or non-proprietary to them. All or some of the firms that do not meet the criteria may distribute films that are proprietary to them. This non-sheltered group may be separable into different subsets covered by a different definition of proprietary. A proprietary rights policy redistributes wealth. The “taking” and “giving” can take two forms. Existing distribution business may be reallocated among distributors or a future line of business may be reserved for the sheltered group and denied to other distributors. We present an analytical account of the evolution of Canadian proprietary rights policies, disciplined by economics, including our working knowledge of game theory and our familiarity with the Canadian 1 regulatory institutions and industry. In part I, we outline the different features and interrelated development 2 of the Canadian proprietary rights initiatives–the Quebec Cinema Act of 1983, an Investment Canada directive of 1988, and CRTC regulatory measures introduced as a condition of licence for direct to the home satellite pay-per-view (DTH PPV) and video-on-demand (VOD) services during the second half of the 1990s. In part II, as a background for assessing these policies, we analyse two competing systems of international distribution, an integrated distribution by a major studio and a more decentralized distribution by an alliance of regional studios. The former has a comparative advantage for mass market films and the latter for art-house films. The two systems compete at the margin of the upscale art-house films that may, if successful, crossover and be widely shown in conventional cinemas. The extent of the takings in the 3 proprietary rights initiatives was disciplined by international legal agreements, the likelihood of retaliation by other countries, and strategic options available to those distributors that were the targets of the takings–the Hollywood majors. The design of these policies reflects the sui generis process of determining Canadian film policy. All of these elements inform our concluding assessment of these policies.