Business strategies, government policy and the European film market during the interwar period: an economic-historical perspectiveThis paper identifies four basic economic characteristics underlying the evolution of the motion picture industry. First, the importance of endogenous sunk costs led to a quality race in the 1910s that left European companies behind. Second, the fact that marginal revenues equalled marginal profits led to extreme vertical integration. Third, a public-good characteristic of motion pictures - non-diminishability - led to a skewed income distribution among talent, with a few superstars taking most pay, although the Hollywood studios mitigated this with seven-year contracts. Fourth, the project-based nature of film production yielded large intra- and inter-industry agglomeration benefits, leading to geographical concentration. In reaction to this changing economic environment European firms formed alliances - eventually thwarted by the rise of protection and fascism - and focused on highly differentiated films. Policy makers reacted with protectionist legislation that offered European consumers more variety at the expense of quality; provided a countervailing power to the colluding Hollywood studios at the expense of increased national resources used in film production; enabled an improved balance of payment at the expense of trade friction with the u.s.; and created national agglomeration benefits possibly at the expense of other or new creative industries.

Netherlands Institute for Sound and Vision
Tijdschrift voor Mediageschiedenis

Bakker, Gerben. (2010). Bedrijfsstrategieën, overheidsbeleid en de Europese filmmarkt tijdens het Interbellum. Een economisch-historisch perspectief. Tijdschrift voor Mediageschiedenis, 13(2), 13–36. doi:10.18146/tmg.576