The recent crackdown by the CRTC, Canada’s communications regulator, of three adult channels because they didn’t show enough Canadian sex, gave the Vancouver-based Fraser Institute (FI) a reason to diss the entire Canadian government’s film and TV subsidy program.

In a study, FI, a donation-financed, politically conservative Canadian think-tank, stated that the reason for the crackdown is to “protect Canadian adult movie producers from international competition.”

According to Steven Globerman, the author of the 56-page study (titled “The Entertainment Industries, Government Policies and Canada’s National Identity“) the “Canadian governments support the entertainment industry in two main ways –– financially and through regulation, at a cost to taxpayers.”

According to Globerman, who’s an FI senior fellow and professor at Western Washington University in Bellingham, U.S., “The main focus of government regulation (mainly rules imposed on broadcasters) is to protect Canadian producers of entertainment programming from foreign competition. For example, private television licensees must devote at least 60 percent of the broadcast year, and at least 50 percent of the evening broadcast period, to Canadian programs.”

Moreover, stated Globerman, “according to CRTC regulations, all Canadian broadcasters must provide a majority of Canadian-owned channels to viewers. For example, if [a TVHH] subscribes to a 28-channel cable package from Rogers, 15 channels must be Canadian-owned.”

Both the federal and provincial governments provide grants to the Canadian entertainment industry, in addition to indirect funding in the form of tax credits. For example, Telefilm Canada, a federal corporation headquartered in Montreal, provides up to 49 percent of production costs (to a maximum of C$4 million per project) for Canadian films.

In 2012-2013, the federal government spent more than C$1.6 billion on entertainment industry grants and subsidies (although a large portion went to public broadcaster CBC). Globerman wrote that proponents of government funding say subsidies also help strengthen the entertainment industry’s role in the Canadian economy. “However, the arts, entertainment and recreation industries combined for about one percent of the GDP produced by all service industries in 2012, so it’s a great exaggeration to say that the entertainment industry makes a major contribution to Canada’s economy,” he said.

Globerman concluded, “Fundamentally, it’s unfair to expect the Canadian public to bear the costs of launching the careers of Canadian entertainers, especially considering the large financial rewards realized by successful entertainers.”

Responding to Globerman’s analysis, VideoAge’s Dom Serafini points out that the Canadian film and TV subsidy system is one of the best in the world, if not the best. In addition, the ROI from those state subsidies cannot be measured in direct GDP, but in benefits for the country as a whole. There is no better publicity for a country than a film or TV product: be it for its beer industry, oil, cars, wood or tourism, among others, giving Canada a good international trade balance. The strength of the Canadian film-TV subsidies lies in its export-oriented model that rewards risks — associated with production costs that cannot be recouped domestically — with financial support for international marketing. In addition, the fact that Canada borders the U.S. entertainment powerhouse, it needs an incentive to enter that market by being competitive in terms of costs, services, creativity and talent.

In order to be competitive, a country needs a strong domestic market that allows production costs to be be easily amortized. Lacking this element, it can never emerge as a viable place for production without some form of economic incentive.