The Hollywood film industry garners a surprisingly large percentage of its revenues (nearly 75 percent) from foreign sales. This number is surprisingly large given several constraints that US films have when selling internationally. First, there are numerous piracy concerns. Even in the European Union (EU), where countries like Britain and France impose fines on producers and buyers of pirated content, other countries such as Spain have long been havens for the distribution of illegal movies and music. In February 2011, Spain passed a new law to provide better protection of copyrighted material, but enforcement may be difficult in a country where nearly 50 percent of all Internet users admit to illegally downloading copy-righted content (twice the EU average rate).

China is infamous for its rampant business in illegal materials. In 2010, a Chinese government report found that the market for pirated DVDs was $6 billion. As a comparison, the total box-office revenues in China in 2010 were $1.5 billion. One reason is that ticket prices for movies in China are steep and movies are considered luxury entertainment that few can afford. Another reason that “black-market” sales in China are so high is that legitimate sales often are not allowed. China allows only about 20 new non-Chinese movies into its theaters each year. Additionally, it has strict licensing rules on the sale of home-entertainment goods. Chinese censors are not likely to approve the sale of official DVDs for movies such as Lara Croft Tomb Raider: The Cradle of Life, Black Swan, and The Social Network. As a result there is often no legitimate product competing with the bootlegged offerings available via DVD and the Internet in China.

Movie studios are moving to simultaneous worldwide releases of expected block-busters in part to try to cut down on the revenues lost to piracy. International growth is expected to continue and take increasing shares of Hollywood film revenues, especially in the face of falling US DVD sales. China is reportedly building new cinema screens at a rate of three per day in 2011. Yet growth in China (and elsewhere) is not as profitable as traditional releases in the United States. For example, film distributors typically earn 50 to 55 percent of box-office revenues in America. The average in many other countries is closer to 40 percent (the rest goes to the cinema owner). But in China, a typical Hollywood film distributor gets only 15 percent of the box-office ticket revenue.

Given the forces on the Hollywood movie industry, is it likely we will see a decrease in the production of regional- and US-centered movies, or will small independent movie producers pick up a higher share of the domestic US market? Please explain.