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Labor Market of Cultural and Media Industries

Tadashi Yagi, Doshisha University

January 12, 2005

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1. Introduction

Until the 1980s, Japanese companies expanded their markets by producing

cheap and high quality products. In the 1990s, Chinese companies have been improving

the quality of their products through the rapid accumulation of both physical and human

capital. Using low and rich labor resources, and high quality equipments, Chinese

companies have increased their competitive power in the global market. Responding to

worsening market conditions, Japanese companies have been shifting factories from

Japan to China, and the de-industrialization of the Japanese economy has brought about

serious unemployment issues.

Confronted with this drastic change in economic environment, Japanese

companies and Japanese governments are forced to seek a new industry model. When

we consider such a new industry model, the experiences of France and Italy are highly

suggestive. France increased her cultural influence through strategic cultural policy,

and increased brand value of her products. The amount of central government’s

expenditure in the field of cultural policy is around three times of that of Japan, and the

ratio of the expenditure to GDP is around ten times of that of Japan1. It is believed that

the brand value of France increased the competitive power of various kinds of French

products in broad fields. In the same manner, with the rich cultural resources and the

accumulation of skills of craftsman, Italian cultural influence in global markets plays an

important role for the creation or expansion of markets for Italian products.

As is shown in the above example, cultural factor is increasing its importance

for improving the competitiveness of economy in “knowledge intensive society”. This is

the main reason why we need to study the cultural and media industries. The cultural

and media industries affect the competitiveness of manufacturing and other industries

through deepening cultural influences in global markets. Thus, the competitiveness of

cultural and media industries affects the competitiveness of other industries.

One of the important factors which affect the competitiveness of cultural and

media industries is the quality of artists and creators. Whether the quality of artists and

creators is developed via market mechanism depends on the characteristics of labor

1 According to the website of Japanese Agency of Cultural Affair, the ratio of budget for cultural policy in the total government budget is around 0.1%, while it is around 0.94% in France.

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market of the industries. The purposes of this paper are to investigate the market

structure of cultural and media industries and to examine whether the artists’ and

creators’ quality is developed through market mechanism by analyzing the labor supply

behavior of artists and creators.

The composition of the paper is as follows. Section 2 analyzes the market

structure of cultural and media industries. This section is important because the analysis

on labor markets of the industries is based on the analysis of market structure of the

industries. Section 3 analyzes the artists’ and creators’ labor supply behaviors in a model

with an uncertainty in demands. This analysis reveals how artists and creators respond

to changes in product market structure, and effects of labor policies.

2. The structure of cultural and media industries

2.1 The foundations for policy intervention to the industries

Cultural and media industries include industries, in which copyrights are

produced, such as movie, music, game, animation, TV, publishing, and performing arts

industries. In this sense, Throsby (2001) expresses these industries as “copyright

industry”. The term “copyright industry” is quite neutral to “art” and “entertainment”.

But, in reality, “entertainment” tends to dominate “art” in the market, because

“entertainment” attracts consumers more easily. That is, the development of cultural and

media industries does not necessarily lead to the improvement of artistic level of the

industries. The dominance of low quality programs of private TV channels would be a

well know example, and the larger market size of popular music compared with

classical music illustrates that high quality music in artistic sense does not attract

market.

One of the reasons for this kind of “market failure” rests on the fact that

understanding arts requires people some kinds of education. That is, it is often the case

that only educated people can enjoy “art”. On the other hand, any people can enjoy

entertainment. The problem is whether the policy for promoting “art” is necessary or not

for the nation. In general, the answer would be “yes.” For the national identity and

dignity, “art” has an important role. In addition, “art” can be a treasury of man-kind for

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long centuries. However, how much extent should a government supports “art” is a

difficult problem. If the promotion of “art” improves the quality of cultural and media

industries in the long run, the expenditure for “art” can be justified not only from the

reasons mention above but also from the positive externality of these industries on

economy as a whole.

In considering policies for cultural and media industries, expansion of market

size in short run is not an appropriate policy target. To improve the competitiveness of

the industries, policies for improving the artistic quality of the industries should be

implemented as far as “art” is a foundation of the industries. In this sense, the analysis

on labor market of artists and creators has an important meaning, and policies for

improving the quality of artists and creators should be examined.

2.2 The current situation of cultural and media industries in Japan

Annual growth rate of cultural and media industries in the world will be 6.5% in

2006 according to the report “Current situation and problems of cultural and media

industries” (METI (2004)). This growth rate is higher than the expected growth rate of

world GDP. The reason why METI is paying their strong attention to these industries is

rested not only on this expected high growth rate of these industries but on the fact that

they have some positive externalities to economy as a whole. One example is the

“Korean boom” in Japan caused from a TV drama, and the other example is the

“Japanese animation boom” in the world. The “Korean boom” was partly brought about

by Korean government’s policy for promoting their film industry. The Korean boom

improved the image for Korea and Korean products in Japan, and Japanese animation

boom increased the number of people who are interested in Japan. Actually, the number

of Japanese learner in foreign countries increased around twice from 1990 to 1998 (see

METI (2004)).

The other famous and important example is the export of American lifestyle to

the world through Hollywood movies. This created the markets of American goods and

fashion in the world. A survey on Asian consciousness of life researched by Hakuhodo

at 2001 shows that people in Hong Kong and Taiwan watches Japanese dramas more

than western dramas, and listens to Japanese music more than western music(See METI

(2004)). The same survey also shows that consumers in these countries evaluate

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Japanese manufacturing products more cool and more sensible. These results give us an

evidence for the positive externality of cultural and media industries, which means that

cultural penetration into the market brings about the expansion of the market.

More directly, some companies are utilizing these industries in marketing

strategy. One typical example is the “product placement (PP)” method. Placing a

product in Hollywood movies gives consumers the similar image of the movie on the

product2. It is reported that the effect of branding product by product placement in

movie is strong twice as much as that in TV. Not only companies but also local

governments are utilizing film production as a tool of advertising cities for attracting

tourists, and some governments are subsidizing film production.

It is meaningful to summarize the market size of cultural and media industries

based on the figures given by METI (2004). First, the box office of film industry in

Japan is 1.8 billion dollar, and the second largest market in the world. The ratio of

domestic and foreign films is around 3 to 7. Thus, the trade balance of film is negative

in large amount. The sales amount of video software is 4.5 billion dollar, and around 2.5

times as large as the box office. The market size of animation is around 2 billion dollar,

but the derived demands such as game, TV, movie, and character goods would soar up

around ten times. The competitive power of Japanese animation in the world market is

quite high, and around 60% of TV animation in the world is Japanese.

Concerning music market, Japan is the second largest market in the world, and

the total production amount of music CDs in 2002 is 4.5 billion dollar. In addition, new

business such as music sales for cell phone through internet is arising, and the new

market is created. Japanese music industry is expanding his market in Asia, but he is

facing some problems such as a pirate CD and parallel import.

Japanese game industry produces largest amounts in the world. The Japanese

domestic market size of hardware in 2002 is 1.5 billion dollar, and that of software is

3.1 billion dollar. Export amount of hardware from Japan in 2002 is 5.9 billion dollar,

and that of software is 2.1 billion dollar. However, Korean game industry is catching up

to Japanese game industry, and is going ahead in game using internet. In addition,

Microsoft is entering into the game industry. Because of these factors, domestic

2 The recent movement of PP is reported in NIKKEI newspaper: evening issue (Dec. 11, 2004).

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production amount of Japanese game industry is in declining trend.

Market size of publishing industry is decreasing. Compared with the peak size at

1998, the size as of 2002 is 13% smaller. Annual sales amount of book is 86 billion

dollar, and that of magazine is 108 billion dollar. The distribution structure of book

publishing industry is changing, and around 1000-1300 number of small and medium

size book stores is closing annually, and around 500-600 number of large size book

store is opening annually.

2.3 The changes in environment surrounding the cultural and media industries

The most important change in the environment surrounding the cultural and

media industries is the diversification of media. Popularization of broadband internet as

well as CATV and satellite broadcast has a strong influence on these industries.

Especially, the development of internet technology makes the video on demand business

technologically possible and economically profitable. Thus, the competitiveness of

these industries depends on the technology of producing and distributing software or

contents. According to the report issued by the research group on the vitalization of

cultural and media industries, Japanese technology level related with these industries is

superior in camera, DVD, VTR, semiconductor memory for cell phone, and 3D image

(see METI (2001)). On the other hand, the technology level of USA is superior in CG,

non-linear image editing, and media conversion.

As the technology of media distribution develops drastically, an infringement of

copyright is becoming a serious problem. For example, Napster lost a case on the

infringement of copyright through the free music exchange system via internet at

February 2001 in the U.S. After the case of Napster, other peer-to-peer file conversion

technologies such as Gnutella and Winny were developed, and the developer of Winny

was arrested in Japan.

Contrary to these cases, a U.S. federal circuit court of appeals ruled in favor of

peer-to-peer software makers at August 2004, stating that the companies behind the

Grokster and Morpheus services are not liable for copyright infringement due to the

actions of their users3. Judge Stanley Thomas for the unanimous panel in the case called,

3 See http://www.eff.org/IP/P2P/MGM_v_Grokster/030425_morpheus_win_pr.php.

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officially states that "from the advent of the player piano, every new means of

reproducing sound has struck a dissonant chord with musical copyright owners, often

resulting in federal litigation…The introduction of new technology is always disruptive

to old markets, and particularly to those copyright owners whose works are sold through

well established distribution mechanisms. Yet, history has shown that time and market

forces often provide equilibrium in balancing interests, whether the new technology be a

player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke

machine, or an MP3 player. Thus, it is prudent for courts to exercise caution before

restructuring liability theories for the purpose of addressing specific market abuses,

despite their apparent present magnitude.4" This judge states that a law should not

hamper the development of new technology because of the infringement of copyright.

For the artists, however, this judge is quite severe in the sense that they need to develop

a new business model by utilizing a new distribution technology.

It is not certain whether the judgment for the above case is commonly applicable

to other peer-to-peer technology or not. In addition, we can observe a movement of a

new legislation for protecting artists in the parliament of the U.S. The most important

thing is that the new technology should be utilized so that the right of artists is protected

without sacrificing the consumers’ convenience.

2.4 The global competitiveness of cultural and media industry and market creation

The global competitiveness of Japanese cultural and media industry is greatly

different depending on the field. The fields such as cartoon, animation and game have

strong competitiveness, while the fields such as film and music have inferior

competitiveness. The reason why we need to care about the global competitiveness is

that it is necessary to promote the domestic industries in order to bring up a domestic

creator. The transport cost and marginal cost of supplying products in cultural and

media industry is quite low, and the occupation of the market advances rapidly in global

level. Thus, the method of protecting domestic market from foreign competitors is quite

limited. It is one example that Hollywood film has conquered a Japanese market.

Shrinking domestic market shrinks the opportunity of domestic creators, and

4 http://www.ca9.uscourts.gov/ca9/newopinions.nsf/E9CE41F2E90CC8D788256EF400822372/$file/ 0355894.pdf?openelement

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deteriorates the quality of creators, which leads to the decline of the domestic industries.

The exception is the live performance of performing arts such as theater, musical

and live music concert. In these fields, it is possible to divide the domestic market and

foreign market because transport cost of artists and stage tools is enormous amount. It is

one example that Japanese musical is isolated from foreign musical such as Broadway

in New York. In such a case, Japanese creators can be relatively protected from foreign

competitors.

One of the important points for improving the competitiveness in the long-run is

the development of creators and producers. Without the high quality producer, artists

cannot find the opportunity of exhibiting their talents in global level. Strong

competitiveness of the industry attracts high quality creators and producers, and

provides them with the earnings opportunities. This promotes the development of their

talents. On the other hands, the decline of competitiveness may cause vicious cycle; that

is, the weak competitiveness shrinks earnings opportunity of producers and creators,

and thwarts the development of their talents. In this sense, the policies for improving the

talents of creators and produces should be considered.

In addition to the development of quality of creators and producers, policies

should be implemented for various issues, such as 1) improvement of legislation and

rules and 2) improvement of infrastructure for strengthening competitiveness.

Concerning the first issue, the protection of copyright in foreign countries is the urgent

problem to be solved. Currently, the prevalence of pirate products is a serious problem

mainly in Asian region. In 2001, Copyright Information Center in Japan (CRIC)

investigated the actual situation of the violation of copyright in foreign countries5. The

Association of Copyright for Computer Software in Japan (ACCS) established a

committee for solving foreign problems at 1997. This committee investigated the

violation of copyright in foreign countries, established the cooperative relationship

concerning measures, and supports the right execution activity of the members.

According to the commercial piracy report of International Federation of the

Phonographic Industry (IFPI), the illegal sales amount of music in the whole world was

4.5 billion dollar in 2003. This amount is around 35% of the total music sales amount.

5 The information written in Society for the Study of Media Contents Industry (2001) is quite useful for writing this section.

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Asian governments are getting sensitive to this problem recently, and started to

strengthen the control of pirate discs. In December 2003, Chinese government

abandoned a million of pirate discs in public at Beijing after the overall scale inspection

to the visual and music markets. However, the effectiveness of prosecuting the trader

who violates the copyright for decreasing the infringement is limited in a society where

broadband technology is prevailing. The measure for discouraging an incentive such as

the price reduction of regular products is necessary for protecting from the infringement.

In addition, the pirate disc business is an important financial resource for the

underground economy in developing countries. In this sense, applying new technology

such as Source Identification Code (SID) that can identify the producer of pirate disc is

necessary for this problem6.

The next issue concerning the foreign market is the price difference between

domestic market and foreign market. World Intellectual Property Organization (WIPO)

Copyright Treaty, Article 6 defines “Right of Distribution” as follows: (1) Authors of

literary and artistic works shall enjoy the exclusive right of authorizing the making

available to the public of the original and copies of their works through sale or other

transfer of ownership. (2) Nothing in this Treaty shall affect the freedom of Contracting

Parties to determine the conditions, if any, under which the exhaustion of the right in

paragraph (1) applies after the first sale or other transfer of ownership of the original or

a copy of the work with the authorization of the author. In this definition, “the

exhaustion of the right” is important point. From this point, a domestic producer cannot

prohibit the foreign trader from exporting the products re-produced in foreign countries

to Japan, once a domestic copyright owner licensees the foreign producer to reproduce

the product. Since the price of re-imported product is far cheaper than the domestic

price, the re-imported products hart the domestic market.

As for “the exhaustion of the right,” the idea that the right will exhaust in the

first distribution is dominant in worldwide. However, there are two ways of interpreting

the range where “the exhaustion of the right” is applied. One interpretation is the

exhaustion of the right is limited only domestically (domestic exhaustion), and the other

interpretation is that the right exhausts all over the world once the product is distributed

6 See http://www.jiten.com/dicmi/docs/s/10655.htm.

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in one country (international exhaustion). The former interpretation is favorable for the

license owner because he can prohibit a foreign trader to distribute products in domestic.

This, however, admits the range of the distribution right more widely than the present

practice in Japan, and has negative effect on the smooth circulation of the products. EU

takes the interpretation that the right exhausts within EU area, and the U.S. takes an idea

of “international exhaustion” with admitting the right of import separately. It is

necessary for us to consider the optimal strategy for advancing to foreign market

without harming domestic market. Admitting the import right would be a promising

measure for this purpose.

The second issue to be discussed for the improvement of global competitiveness

is the development of infrastructure. The infrastructure to be discussed here includes

international exhibition, international festival, and cultural influence in foreign market.

Recently, the number of international exhibition and festival for introducing Japanese

cultural and media products is increasing. For example, "Exposition of Japanese

Cultural Industry" by sponsoring of the MITI of Japan was held in Seoul, and the

popular culture in Japan like music, the movie, and the animated cartoon, etc. was

introduced in 1999. "Japan-South Korea exchange festival" sponsored by JETRO with

the backup of MITI started from fiscal year 2000 in South Korea. As a privately

organized festival, there is “Tokyo International Film Festival” sponsored by Tokyo

International Film Culture Promotion Foundation. This festival plays a role of world

trade fair market of film industry by using competition method, and aims to promote a

new talent who bears future filmdom. The point that should be paid attention is that

"Wind of Asia" section that intends to activate and spread the Asian movie in the world

plays the role of locating Japan as a base of the film industry in Asia. As is shown in

these examples, rating products by international standard is the most important part for

creating market of cultural and media industries.

Concerning film and music industries, authorizing an international festival held

in Japan is limited except for Asian market. This implies that creating market of

Japanese music and film industries in Europe and the U.S. through the festival in Japan

is quite restricted. For example, international jazz festivals in Japan are not authorized

enough to attract many foreign musicians. In the interview to a Canadian jazz pianist, I

got the comment on this as follows: “The evaluation to Japanese jazz musicians is not

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high in average because the creativity and originality are not distinguished in spite of

their excellent techniques. They are just copying western jazz, and ignore the Japanese

cultural elements. The originality and creativity rooted on the individual cultural

elements are effective for differentiating their music in the market.” This comment

expresses various difficulties for creating market of Japanese music in Europe and the

U.S. It is well known that pure Japanese traditional music has only a negligible size of

market in Europe and the U.S. That is, just an individual culture cannot be accepted by

foreign markets, and this differentiation does not lead to the market creation. In this

sense, the existence of producer who coordinates foreign artists and Japanese artists for

collaboration project is important. By utilizing the producer, it becomes possible to

develop a new music that contains Japanese cultural element with including the taste of

western people. In addition, it is necessary to deepen the cultural influence of Japan in

foreign countries for appealing the Japanese cultural elements in foreign market. This is

one reason why the cultural influence is an important social infrastructure.

2.5 The problems arising in distribution and creation process

It is often pointed out that the serious problem arising in creation process of

cultural and media industries is the unjustified low payment to creators. In addition,

belonging of copyright to consignor without clarifying it beforehand and unjustified

limitation on the second utilization of products by creators become troubles in many

cases. It can be judged that an unjustified disadvantage given to the creator by using

dominant position of consignor is against the Antimonopoly Law. For promoting the

circulation of products, it is important to keep the fairness of dealing and to share the

profit to creators properly so that the relation between consignors and creators can be

sustainable in the long-run. From this point of view, Japanese government revised

“Guideline in the Antimonopoly Law on the abuse of dominant position in the

consignment business of the labor” to improve the fairness in dealing between

consignors and creators (notification by the Fair Trade Commission on March 17, 1998).

Furthermore, the government announced to apply the law on preventing a delay in

payment to subcontractor properly for the dealing between consignors and creators with

the revision of the law (June 2003). For example, the rejection of receiving a product by

a consignor or the reduction of payment to a creator in a TV program production is

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regarded as a violation of this law. It is also necessary to spread the standard form of

contract so that a consignor and a creator establish a contract in documents, and a

creator has an incentive to create high quality products.

Concerning the issues on distribution of products, there exist various problems

such as the second use of TV program in internet, application of the Antimonopoly Law

to the act of restricting competition in distribution or the act of restricting the entry to

the industry. Exceptionally, the opportunity of new entry to the ground wave television

broadcasting is already disappeared, because the allocation of frequency for ground

wave television by the license system has almost finished. This is one reason why

ground wave television broadcasting companies have dominant position to program

production companies with the large gap in company size. In addition, the case where a

supplier of products establishes a contract with the condition that prohibits a distributor

to deal with the products supplied by competitive companies is regarded as the violation

of the Antimonopoly Law7.

2.6 Development of human resources for cultural and media industries

In the cultural and media industries, it is reported in various media that the

shortage of human resource is the most serious in producer8. Especially, not the line

producer, but the general producer who plans and manages the whole process of a

project is quite scarce. The range of the general producer’s job covers the planning of

contents, developing a new concept, excavating and developing a scenario, fund raising,

negotiating and establishing a contract with domestic or foreign partners, managing

products, protecting a copyright, marketing and managing performance. Thus, the role

of general producer is important for expanding market in global level. The scarcity of

this kind of general producer is serious also in the filed that is based on Japanese

traditional arts. The exceptional case is an event of traditional Kyoto food held at

Guimet Museum in Paris. This event was produced by a producer in Kyoto, who planed

the event, coordinated the cooks of some restaurants with tradition and status in Kyoto,

raised funds, and negotiated with partners in Paris. The important part of this case is the

7 See Research Group on Digital Contents and Competition Policy (2003). 8 For example, see http://www.meti.go.jp/policy/media_contents/downloadfiles/producer/ New_Folder/proucerjinzaiikuseishimohanki.pdf

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high ability of the knowledgeable producer that makes it possible to negotiate with

foreign partners in foreign language and persuade sponsors the importance of the event.

In other word, it is not easy for the most of Japanese artists to expand their markets in

global level because it is not easy to find such a talented producer in general.

METI of Japan issued a report on human resource development of producers in

cultural and media industries (see METI (2002)). In this, the details of current education

system for producer in Europe and the U.S. are reported. The most interesting part of

the report is that European countries aim to create arts that symbolize the dignity of

European culture seriously. That is, European countries are attempting to deepen their

cultural influence in non-European countries through the cultural and media industries.

For example, French government requires for film producers to include the essence of

French culture as a condition for subsidizing the film production.

The most remarkable program of human resource development in Europe is

MEDIA program, which includes development and distribution of film and

development of human resources. This program is funded by governments of several

countries in EU, and achieved an increase in film export from 246 to 456 titles. The

program offers an education system through a joint venture school composed of 10

companies and business schools as of 2001.

Graduate schools of U.S. universities are taking the leading position in educating

producer in the world. NYU Tisch School of Arts is one of them. One of the most

desirable educational career paths for being an independent producer is the learning in

Wharton Business School of Pennsylvania University after the graduation from Tisch

School. In Tisch School, seven full-time professors teach in graduate course, and fifty

numbers of professors teach in undergraduate course. Graduate course consists of

three-year course, and students have to choose the course for producer or for director

during the second year. During the third year, students complete a graduation research.

Around 50% of undergraduate graduates enter into cultural and media industries.

Income level of the graduates varies among individuals, but some earn $250,000

annually as a producer and there exists a producer who earns $1,000,000 annually.

It is not obvious whether the education of producer in graduate course is

necessary and efficient. Professors in graduate courses have careers in the real film

production places rather than academic achievements in most cases. Lectures in

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business field are non-academic or non-systematic, but rather practical in many cases.

The report based on a hearing from professors in these schools, the most important

abilities required for producer are the creativity and the active behavior, rather than

academic ability. In addition, it is reported that the opportunity of being an independent

producer is shrinking, and less than half of the graduates can work as a producer. That is,

the labor market for directors and producers is not large enough to absorb the graduates

from the schools, and only high ranking schools can function as a school for breeding

producer substantially.

One candidate for establishing an education system for developing human

resource of producers and directors in Japan is to establish a graduate course in

management schools or business schools by collaborating with TV companies and film

companies. This system makes it possible to teach both knowledge about business field

and the latest technology actually used in the real production site. Education through the

school has some merits in training producer, such as developing general and overall

abilities both in business and creative fields and establishing a broad human network. In

addition, breeding a independent producer is important for broadening the variation of

creative activities.

2.7 Importance of national identity in cultural and media industries

Deepening the understanding of Japanese culture has positive effects on the

expansion of foreign market of Japanese cultural and media industries. This also makes

it possible for Japanese companies to differentiate their products by using the Japanese

cultural elements with the expansion of Japanese cultural influence, and has positive

effect on the expansion of market for various kinds of industries including

manufacturing. The strategically designed cultural policy of France after the world-war

II is well known example. In the end of 1990s, British government started a new

strategy “Branding New Britain” based on this kind of idea. This aimed to strengthen

the competitiveness of British industries by deepening the influence of British culture in

foreign countries. Britain Abroad Task Force is established to advertise British national

identity. This institute issued CD-ROM about cultural and media industries, technology,

architecture, fashion, business, finance, higher education, law system, language, and

variety of culture in Britain, and constructed a web-site “Planet Britain”. In addition, TV

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documentary programs “The Edge”, “London Fashion Week”, and “Style Tribes” are

broadcasted in 120 countries in the world.

At this moment, the similar strategic policy for deepening Japanese cultural

influence in foreign countries is not taken in Japan. The main method of deepening

cultural influence in foreign countries is the cultural exchange program. There are the

following methods of conducting international cultural exchange.

(1) Dispatch by the Japan Foundation of the Ministry of Foreign Affairs. (Actual results

in 1998.)

a.. The dispatch person,

a-1. Specialist short-term dispatch

(i) Dispatch for introducing Japanese culture (13 groups, 70 persons, 163,570,000

yen)

(ii) Dispatch aids for introducing Japanese culture (39 groups, 147 persons,

22,920,000 yen)

a-2. Japan-Europe special exchange program

(i) The intellectual leader dispatch (1 group, 10 persons, 25,150,000 yen)

(ii) Grass roots exchange dispatch (auspices) (1 group, 25,890,000 yen)

(iii) Grass roots exchange dispatch (aid) (12 groups, 252 persons, 25,220,000 yen)

(iv) The intellectual leader dispatch aid (Japanese culture introduction) (7 groups,

30 persons, 53,020,000 yen)

(2) Person dispatch and invitation by the Agency for Cultural Affairs

a.. Person dispatch and invitation in the field of art and culture.

a-1. Art fellowship

(i) Artist training abroad program (In 2000, 587,000,000 yen. 74 persons for one

year dispatch, 13 persons for 2 years dispatch, 2 persons for 3 years dispatch,

47persons for special dispatch)

(ii) Overseas invited artist training program (In 2000, 90,000,000 yen, 33 persons)

a-2. Invitation program of overseas excellent artist (In 1999, 28,000,000 yen, 31

persons)

b. International exchange program

b-1. Promotion of international art exchange (Art Plan 21) (1,363,000,000 yen)

b-2. Asia art festival (48,000,000 yen)

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b-3. National cultural exchange project (111,530,000 yen)

(i) Asian cultural exchange project (38,000,000 yen)

(ii) Internationalization project for traditional cultural activities (10,000,000 yen)

(iii) International exchange project for local culture (27,000,000 yen)

(iv) Japan-China high school student cultural exchange project (22,000,000 yen)

(v) Japan-South Korean high school student cultural exchange project (14,000,000

yen)

b-4. International exchange project for movie culture (6 works, 24,000,000 yen)

(3) Cultural exchange by local governments

Mainly, subsidies are directed to overseas sister city exchange programs. In

addition, subsidies are paid to excellent local artists to appear in prominent art festivals.

(4) Cultural exchange by organizations such as universities.

(5) Cultural exchange by private foundations, and support by private companies (e.g.

the Massena activity).

(6) NPO, and international cooperation.

(7) Self-financed performance trips by artists and players

Based on the hearing from some artists, the international cultural exchange

programs subsidized by the government have some problems. One is the insufficient

review of the programs. It is necessary to evaluate the effectiveness of various methods

for deepening cultural influence in foreign countries as far as tax is used for the

programs. The basic reason why subsidy is justified rest on some positive externality

generated from cultural exchange. In this sense, it is important to study the effective

methods for achieving the purpose both in empirical and theoretical ways. For example,

the effective method of exporting Japanese traditional culture to foreign countries

differs depending on country or region. A certain producer who organizes the cultural

exchange program states that people in East Europe prefers pure original traditional

Japanese culture to the localized traditional Japanese culture, while people in West

Europe prefers the localized traditional Japanese culture to pure original traditional

Japanese culture. The academic research on this issue has not been conducted yet as far

as I know, and the necessity of academic approach is increasing.

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2.8 Development of city through the development of cultural and media industries

The importance of cultural and media industries for the development of urban

city is increasing. One important example is “Silicon Alley” in New York City, where

these industries are agglomerated. According to the report of Yukawa (1999), the

cultural and media industries are the fastest growing industries in New York, and the

size of industry reached to 2.8 billion dollar, i.e., the growth rate during 18 months from

April 1996 to October 1997 is 56%.9 Full-time employee increased 50% from 1995 to

96, and the number is 28,500. Total amount of salary payments increased 78% during

the same period. It is shown like this that the effect of job creation is considerably big in

New York.

The area of Silicon Alley locates in the southern part of 41st street in Manhattan,

and around 42.5% of cultural and media industries of New York City are agglomerated

in this area. Silicon Alley originates to Flatiron and SOHO districts, and these districts

are famous for the place where artists such as painters gather. Along with the

development of internet business, the demand for artists who can create artistic and

sophisticated design for digital contents such as website page has been increased. Then,

Silicon Array became famous by expanding the business to the field of re-engineering

or supporting business using internet technology.

Labor market and the employment system in Silicon Alley are strongly related to

the way of executing business of cultural and media industries. For example, in the case

of creating digital contents of internet media, a company hires freelancers when the new

project is undertaken. It is efficient for the company to utilize the freelancers with

specific skills suitable for the project. There are two types of freelances. One type is a

full-time freelancer who moves various companies in the tile of consultant by project

unit. The other type is a part-time freelancer who works as a side-job. The composition

of workers in cultural and media industries located in New York City as of 1997 is as

follows: 57% is full-time employee, 20% is part-time employee, and 23% is freelancer.

The turnover rate of regular workers employed in the firms in Silicon Alley is quite high.

It is reported that around 70-80% of them turnover during 18 months. This point is an

important property for characterizing labor market of cultural and media industries. The

9 Yukawa (1999) is quite useful in writing this subsection.

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high turnover rate can be explained by the fact that the most appropriate human

resource needed by a firm varies across projects. In addition, since the workers in these

industries seek for the job that brings them satisfaction, they do not hesitate to change

their job when a project changes. There is a peculiar system for job matching in these

industries. The most reliable recruiting method is head hunting by using the private

human network built through parties or events. This is because the human resource is

the most important and crucial input resource in production and the quality of human

resource varies much among workers. Firms need to know the details of workers in

recruiting with considering the type of project. It is usual that face to face job matching

is inefficient and costs time for finding the most appropriate worker in labor market.

The merit of agglomeration arises from this point, because Silicon Alley has some

infrastructure for this kind of job matching such as parties and events, and there are

various chances for people to know each other. That is, locating an office in Silicon

Alley decreases the risk and the cost of recruiting workers.

The growth of Silicon Alley can be partly explained by this kind merit, as is

shown in the research on the competitiveness of Silicon Alley10. One of the other

important factors for the development of Silicon Alley is the rich cultural environment

and social amenity that stimulates creativity of artists. In addition, the accumulation of

educational institutes for arts and business in New York City and supports for low

income artists by the city such as preferential rental rate of office and apartments

contribute to the success of Silicon Alley.

It is important to examine the role of the city government in the development of

Silicon Alley. In 1995, Lower Manhattan Economic Revitalization Plan was passed the

city assembly. This plan was designed to vitalize the downtown area of New York City.

For this purpose, it was necessary to create new industries, and the government decided

to promote cultural and media industries, professional service, and biotechnology

industry. This plan includes the following policies: tax reduction such as Real Estate

Tax Special Reduction and Commercial Rent Tax Special Reduction, lowering the price

of electricity (Lower Manhattan Energy Program), converting the use of land (Lower

10 See Coopers and Lybrand, 1996 and 1997 New York Media Industry Survey. This survey reports the main factors of the success as follows: 1) Abundant editorial and artistic talent, 2) the uniquely-high concentration of "content providers" - advertising agencies, publishing, and broadcasting, 3) easy access

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Manhattan Residential Conversion Program), and promoting the mixed use of properties

(Lower Manhattan Mixed-Use Property Program). In addition to these policies, the city

government accumulated software industry in Information Technology District, and

organized educational seminars for venture entrepreneurs with a help of NPO. There are

some other miscellaneous useful supports from the city government, such as holding an

event for making human network, making a telephone list of related companies,

coordinating office and professional service, building a community extranet

(networking the intranet in community level), and coordinating internship program for

universities. In 1997, the city government supported a real estate program named as

“Plug’ go”, which includes the provision of office with the good computer

communication system and the preferential rental rate for cultural and media

companies.

3. Labor supply behavior of a worker in cultural and media industries

Literature related with artists is growing recently, and there are various types of

studies both in theoretical and empirical approaches (for example, Filer, Randall K.

(1990), Galenson and Weinberg (2000), Landes (2001), Rengers and Plug (2001),

Hamano (2003)). There are, however, only a few researches on the labor market of

cultural and media industries except for Robinson and Montgomery (2000) and Caserta

and Cuccia (2001). The reason why we need to pay attention to the labor market

structure of these industries rests on the following facts: 1) the increasing importance

and size of these industries in the economy, 2) there are industry specific problems

related with the labor market, 3) the degree of externality generated from these

industries depends on the labor market structure of these industries. The first point is

discussed in the above section. The second point is complicated and arguable.

Cultural industry consists of the market for popular culture such as cartoon, pop

music and sport, and market for high culture such as artistic music and painting11. These

to major corporate customers. 11 A poet of Victorian era Matthew Arnold captured the conceptual essence of high culture in his literature “Culture and Anarchy” (1869). The term "high culture" has begun to serve for referring to

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two markets have quite different properties and different impact on the cultural

influence in foreign countries or national identity. The market of popular culture and the

market of high culture are substitutes in many cases, and the market of high culture is

often dominated by popular culture. For example, the music industry is shrinking the

market of classical and jazz music by shifting the marketing resource to popular music

because of the low profitability. It is not easy for artists of high culture categories to

continue their creative activities. The important point is that the high culture is more

important for exhibiting national dignity and deepening cultural influence in foreign

countries by receiving respects. In other words, high culture has some externalities in

overall economic and social activity in the long run. In addition, the quality of popular

culture is related with the quality of high culture. Especially in training human capital,

training in the field of high culture gives a basis of training of popular culture. For

example, it is often the case that a musician educated in the field of classical music can

gain the capability of creating high quality popular music.

One of the reasons why the market of high culture is small rests on the fact that

it is necessary for the people to be educated if they want to enjoy the high culture. On

the other hand, people are not required to be educated to enjoy popular culture. The

reason why high culture is deemed to be more valuable is that high culture usually

contains various elements such as traditional and historic formalities, religious

implications, and various social and historic backgrounds. Without understanding these

elements, it is difficult to understand the culture properly. The typical examples are

Kabuki or Noh in Japan. Thus, the possibility of the inefficiency in resource allocation

through market mechanism arises in case where externality or some barrier for entering

the market exits.

The difference in market properties between these two types of cultures is

crucial in characterizing the labor market of cultural and media industries. In case of

high culture labor market, the improvement in the quality of output increases externality

effects, while the market size is limited because of some barriers for enjoying it. Thus,

the policies that stimulate the labor supply of creators can be justified. In this section,

culture which are most highly valued and esteemed by a given society's political, social, economic, and intellectual elite. Opera, yachting, and painting are associated with high culture in the U.S. Popular culture (or "pop culture") refers to the culture employed by the majority classes in a society. The popular movie, popular music, popular television are included in this category.

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we analyze the characteristics of labor market of cultural and media industries, and

examine the justification and the effect of policies for the labor market.

3.1 Basic model of labor supply behavior

The literature on the market structure of cultural and media industries are limited

except for Rosen (1981). Rosen assumed a distribution of artists’ ability, and derived a

demand function for artist with a certain level of ability. Using this demand function and

the supply function derived from a production function, market equilibrium is

characterized. In his literature, labor supply behavior of a worker in cultural and media

industries is not analyzed. The purpose of this paper is to analyze the labor supply

behavior theoretically both for the case of uniform ability and the case where the ability

is distributed. This model is different from the theoretical study of Caserta and Cuccia

(2001) in a sense that we consider the case where earning from creative activity is

uncertain, and provides with a theoretical foundation for the empirical study of

Robinson and Montgomery (2000).

Case 1: The case of uniform ability.

First, we analyze the labor supply behavior for the case of uniform ability. In this

model, we assume that the marginal cost of production is zero and the fixed cost of

production consists of labor cost used for creating content. This simplified assumption

is used for capturing the property of supply condition of cultural and media industries.

This assumption is quite plausible for the case of computer software or music

distributed through internet. From this property, the profit depends only on the sales

amount.

Denote by y and p , respectively, sales amount and price. Let ( )cf y l;

represents the probability distribution of sales amount that depends on the time spent for

creating activity cl . Profitπ is defined by

0

( ) ( )cpy c f y l dyπ∞

= − ;∫ , (1)

where c is a fixed cost of creating product. Denoting by w the market wage rate of a

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standard worker, c is defined by

cc wl= . (2)

In other words, the fixed cost of producing contents is the foregone wage income of

creator in standard labor market.

We assume a lognormal distribution as the probability distribution of sales

amount, and the mean of lognormal distribution µ and the variance of lognormal

distribution 2σ are affected by the amount of labor supply spent for creating contents.

Using the property of lognormal distribution, equation (1) is rewritten as

2( ( ) ( ) 2)c c cpExp l l wlπ µ σ= + / − , (3)

and the optimal labor supply for creating contents is given by solving the following

objective function.:

2( ( ) ( ) 2)cl c c cMax pExp l l wlπ µ σ= + / − . (4)

F.O.C. is given by

2 ( ) ( )( ( ) ( ) 2)( ) 0c c

c cc c c

d l d lpExp l l w

l dl dlµ σπ

µ σ σ∂

= + / + − =∂

. (5)

Since 2( ( ) ( ) 2)c cExp l lµ σ+ / is the average sales amounts y , the optimal labor supply

is given by cl∗ that satisfies

( ) ( )

( )c c

c c

d l d lpy w

dl dlµ σ

σ+ = . (6)

This optimality condition states that a creator increases labor supply to the point where

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the marginal expected income increase from an increase in labor supply equals the

marginal opportunity cost of increasing labor supply (w). From this condition, policies

for decreasing the opportunity cost, such as scholarship for artists, will increase labor

supply for creating contents.

Income distribution of creators is given by

2 2( ) (2 )( ( ) 1)pV y pExp Expµ σ σ= + − , (7)

which is defined at the optimal labor supply level.

By comparative static analysis, we can analyze the changes in labor supply

corresponding to an exogenous change in variance. Totally differentiating equation (6)

with respect to σ and cl , we derive

( ) ( ) ( )

( ) ( )c c c

c c c

d l d l d lyp py d

dl dl dlµ σ σ

σ σσ

∂+ + ∂

( ) ( )

( )c c

c c c

d l d lyp

l dl dlµ σ

σ ∂

+ + ∂

222

22

( )( ) ( )( ( ) ) 0cc c

ccc c

d ld l d lpy dl

dldl dlσµ σ

σ

+ + + =

. (8)

Then, we get

2 2

2

( ) ( ) ( )

2( ) ( ) ( ) ( ) 2( )

( ) ( )

( ) ( ( ) )

c c c

c c c

c c c cc

c c c ccc

d l d l d lydl dl dlc

d l d l d l d ly d ll dl dl dldldl

p pydld p py

µ σ σσ

µ σ µ σσ

σ

σ σ σ

∂∂

∂∂

+ += −

+ + + +. (9)

Recalling that the distribution of sales amounts is lognormal, y σ∂ /∂ is positive. From

equation (6), the first term of the numerator is positive. The second term of the

numerator is negative when an increase in labor supply for creating activity decreases

the variance in sales amounts. The first term of the denominator is positive from the

optimality condition (6) and the fact that cy l∂ /∂ is positive. Negative terms in the

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second term of the denominator are second derivative terms, and are negligibly small.

Thus, an exogenous increase in variance of sales amounts increases labor supply for

creating activity when the negative effect of increasing labor supply on the variance is

large. On the other hand, when the negative effect of increasing labor supply on the

variance is small, the exogenous increase in variance of sales amounts will discourage

the labor supply for creating activity. These results are interpreted as follows: When the

creator judges that their efforts will decrease the risk of sales, an increase in uncertainty

will enforce the creators to work harder. In this case, an increase in uncertainty will

improve the quality of contents. On the other hand, when the creator cannot consider

that the effort is effective for decreasing uncertainty, an increase in uncertainty will

discourage creators in making effort. In this case, an increase in uncertainty will

decrease the quality of contents. That is, an increase in competitiveness among creators

will not directly lead to an improvement in the quality of contents. An increase in

competitiveness leads to an improvement in the quality of contents only when the

consumers of market can recognize the difference in the quality of contents.

One of the important complaints heard in hearing from artists is the

discouragement from the insensitivity to the quality. This is more serious in high culture

field as far as I know. For example, one pianist complained that the market did not

evaluate the high appreciation for the excellent performance in several international

music festivals. Nothing had happened to the pianist after the appearance in the festivals,

although he received thunderous applause in the festivals. The only positive merit he

could receive was the increase in career lines listed in his curriculum vitae. Music label

does not necessarily identify the quality of performance as the market value. Music

label prefers popular music to jazz or classical music because the market value of

popular music is higher. This is a kind of market failure, and is a negative factor for

improving the quality of high culture. In this sense, income support program for high

quality artists with enough achievement will contribute to the quality of high culture.

One young painter claimed that he wants jobs of painting, not through some

design company or advertise company, but directly from clients. He complained about

the big margin taken by the intermediary companies. One of the reasons why the

intermediary companies can take large margin is that the clients such as public institutes

have not enough information about quality of creators and are not capable of

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recognizing the quality of products. Thus, it is possible for the intermediary companies

to enjoy the premium generated from an insufficient information and incapability in

judging the quality of artists. This defect in market does not guarantee that the high

quality artists survive and low quality artists exist from the market. It is possible for the

intermediary to employ a low quality artist who can work at the low price, even where

the high quality artists are available. In this world, it is often the case that truly creative

artists have less job opportunity and have to endure low income, and finally have to exit

from market. To avoid this situation, policies that guarantee the portion of payments to

creators from intermediary companies are necessary.

Case 2: Case of heterogeneous creator

We consider the case where the ability of creator is distributed according to a

certain ability distribution, and assume that the mean and variance of sales distribution

depend on the ability. Denoting by a the ability level, income earned through the

creative activityπ is given by

0

( ) ( )cpy c f y a l dyπ∞

= − ; ,∫ , (10)

where ( )cf y a l; , is a sales distribution. Specifying the sales distribution by the

lognormal distribution, equation (10) is rewritten as

2( ( ) ( ) 2)c c cpExp a l a l wlπ µ σ= , + , / − . (11)

The optimal working time spent for creative activity is given by the solution of

2( ( ) ( ) 2)cl c c cMax pExp a l a l wlπ µ σ= , + , / − . (12)

The optimality condition for the problem is derived as

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2 2( ) ( )( ( ) ( ) 2)( ( ) ) 0c c

c c cc c c

d a l d a lpExp a l a l a l w

l dl dlµ σπ

µ σ σ, ,∂

= , + , / + , − =∂

.(13)

Since 2( ( ) ( ) 2)c cExp a l a lµ σ, + , / is an average sales amounts with ability a, i.e. ( , )cy a l ,

the optimal labor supply for creative activity ( )cl a∗ is given by solving the quation

2( ) ( )( , )( ( ) )c c

c cc c

d a l d a lpy a l a l w

dl dlµ σ

σ, ,

+ , = . (14)

Generally, the sign of /cdl da is not determined, and depended on the relative strength of

the effect of changes in ability and labor supply on the changes in the average and the

variance. The meaning of the LHS is the marginal increase in expected income from an

increase in labor supply. For example, when an increase in ability decreases the variance

of sales amounts much, this may happen. If an increase in ability shifts up the marginal

income from labor supply, an increase in ability increases labor supply for creative

activity. In this case, there exists a certain ability level for the creator to provide positive

labor supply. Define by 0a the ability level required to provide positive labor supply for

creative activity.

If the sign of /cdl da is positive for the relatively low ability creators, income

support program for creators will decrease the value of 0a . That is, the income support

program for the creators decreases the opportunity cost of creative activity, and make it

possible for low ability creators to live up with creative activity, although this support

program increases the labor supply of high quality creators. In this sense, income

support program should be designed with establishing the system of evaluating the

ability of creators. It should be reminded that, however, there is a possibility

that /cdl da is not monotonically positive.

3.2 Externality of cultural and media industries and subsidy policy

In this subsection, we consider a case where deepening cultural influence in

foreign countries through the activities in cultural and media industries have positive

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externalities such as an increase in demand for domestic manufacturing products, and

analyze the optimal subsidy policy for cultural and media industries.

Denote by τ the subsidy per unit of labor supply of creator, then the externality

generated through the activities in cultural and media industries ( ( ))cQ l τ∗ is given as a

function of the subsidy. Social welfare is given by

( ( )) ( ( )) ( ( ))c c c cW Q l y l pV l lτ τ η τ τ∗ ∗ ∗ ∗= + − − , (15)

where η is a parameter that expresses the degree of inequality aversion. The first order

condition for the optimal subsidy is derived as

cc cc c l ccl l l pQ yl l V lτ τ τη∗′ ′+ = +′ ′ ′ ′ . (16)

The LHS expresses the marginal benefits of subsidy, and consists of the marginal

contribution to externality and marginal contribution to the income of creators. The

RHS expresses the marginal cost of subsidy, and consists of the marginal tax needed for

financing the subsidy and the welfare cost of increasing income inequality. This

optimality condition expresses that the optimal subsidy is determined so that the

marginal cost of subsidy and the marginal benefit of subsidy equals, and the optimal

subsidy depends on the degree of effect of the subsidy on labor supply, the externality,

the income of creators, and the changes in income distribution. The larger externality

effect requires the larger subsidy.

4. Concluding Comment

Cultural factor is increasing its importance for improving the competitiveness of

economy in “knowledge intensive society”. This is the main reason why we need to

study the cultural and media industries. The cultural and media industries affect the

competitiveness of manufacturing and other industries through deepening cultural

influences in global markets. Thus, the competitiveness of cultural and media industries

95

affects the competitiveness of other industries.

One of the important factors which affect the competitiveness of cultural and

media industries is the quality of artists and creators. One of the important results are as

follows. When the creator judges that their efforts will decrease the risk of sales, an

increase in uncertainty will enforce the creators to work harder. In this case, an increase

in uncertainty will improve the quality of contents. On the other hand, when the creator

cannot consider that the effort is effective for decreasing uncertainty, an increase in

uncertainty will discourage creators in making effort. In this case, an increase in

uncertainty will decrease the quality of contents. In the case where ability of creators is

heterogeneous, the analysis shows that the income support program for the creators

decreases the opportunity cost of creative activity, and make it possible for low ability

creators to live up with creative activity, although this support program increases the

labor supply of high quality creators. In this sense, income support program should be

designed with establishing the system of evaluating the ability of creators.

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