AMERICA'S HOTTEST EXPORT: POP CULTURE The world's insatiable appetite for Hollywood and rock & roll is propping up the U.S. trade balance. But now the Japanese own Bruce Springsteen, and they want more.
By John Huey REPORTER ASSOCIATE Tricia Welsh

(FORTUNE Magazine) – INDUSTRIAL HARD GUYS like Henry Ford, Andrew Carnegie, and George Westinghouse probably wouldn't take much heart from what we're about to report, but there is good news for the U.S. these days on the export front: Around the globe, folks just can't get enough of America. They may not want our hardware anymore -- our cars, steel, or television sets. But when they want a jolt of popular culture -- and they want more all the time -- they increasingly turn to American software: our movies, music, TV programming, and home video, which together now account for an annual trade surplus of some $8 billion. Only aerospace -- aircraft and related equipment -- outranks pop culture as an export. Like it or not, Mickey Mouse, Michael Jackson, and Madonna -- her overseas sales are 2 1/2 times her domestic numbers -- prop up what's left of our balance of trade. Radio Free Europe and Radio Moscow are out; international broadcasts of CNN and MTV are in. The Japanese, who have invested $12 billion in American entertainment companies over the past three years, have a name for this so-called new media, which they expect to be the fastest growing global industry of the next decade. They call it omizu shobai, or the ''water business,'' meaning, in its most modern sense, tricky to get a hold on. ''Smoke and mirrors,'' Carnegie and Ford might mutter. Broaden the definition of pop culture to include licensed consumer products -- say, Teenage Mutant Ninja Turtle bubble bath -- throw in such culture- driven products as McDonald's burgers, Levi's jeans, and Coca-Cola's soft drinks, and you're looking at America's top seller abroad. A little statistical music, please, perhaps to the tune of ''Hi Ho, Hi Ho'': Last year Walt Disney Co. sold $1.5 billion of consumer products -- hats, watches, comic books -- in Japan, where Coca-Cola earns more money than it does in the U.S. In the past five years the overseas revenues of Hollywood studios doubled, and in a couple of years they should surpass domestic. The $20-billion-a-year American music business -- basically rock & roll -- collects 70% of its revenue outside the U.S. Sales of U.S. television programming to Europe are estimated at about $600 million a year. Almost everybody in the world watches Cosby, and everybody in the world watches Dallas. The most popular film of all time in Israel and Sweden is Pretty Woman, which already has garnered more than $360 million worldwide at the box office and hasn't yet opened in the two biggest markets outside the U.S. -- Japan and France. But forget boy meets girl; instead think emerging markets meet emerging technologies, with a pot of gold anticipated at every intersection. Not only is the production of entertainment software swelling to satisfy the appetites of pop culture consumers, the array of technology-driven hardware with which to deliver that entertainment is ever-evolving as well. Around the world, today's viewer of broadcast TV may be tomorrow's satellite subscriber, a dedicated renter of VCR tapes may eventually switch to laser discs, and a compact disc devotee may soon need a digital tape player as well. As new markets open up, more consumers rush to join what in some ways is becoming a one-world pop-tech civilization: When multitudes of East Germans first crossed the border into the West, the two items they most often demanded were oranges and records. Not that all pop culture is strictly American. About 20% of the world rock & roll repertoire is British. About three-quarters of the music sold in Japan is by Japanese artists. ''If you want to be a factor in the global music business, you have to be a factor in the cultures where you operate,'' says Robert Morgado, Time Warner's senior executive responsible for the Warner Music Group, who adds, ''You get a band up there and they're singing in Japanese. But it's still rock & roll.'' Any way you slice it, a fascination with American pop culture still drives the global pop culture Zeitgeist -- as it has since the glory days of jazz and Elvis. ''American movies are the only ones that are really international,'' says Keiji Matsushima, director of account services at Japan's Dentsu, the world's largest ad agency. ''Americans know how to entertain people. The French, the British, and the Japanese filmmakers are too intoxicated with themselves. They don't give a damn about audiences; they want their names in history books.'' More simply put: ''Hollywood, unlike Detroit, has found a product that the Japanese can't improve upon,'' says Roberto Goizueta, CEO of Coca-Cola Co. and the man who sold a piece of Tinseltown's business -- Columbia Pictures -- to Sony for $3.4 billion. AND THEREIN LIES the rub -- the bad news, if you're so inclined. While pop culture may be America's biggest hit abroad, the Europeans and Japanese have already bought up a serious chunk of the business and clearly want more. Of the five global record companies -- Warner, CBS, EMI, BMG, and Polygram -- only Warner (whose parent company also owns the publisher of FORTUNE) is an American corporation. Of the eight major film studios, only Disney, Orion, Paramount, and Warner are U.S.-owned. And Orion, seeking international capital, was recently rumored to be the target of Asian investors. What in part drives this acquisitiveness is the belief held by manufacturers of consumer electronics that, as Michael Schulhof, president of Sony USA, puts it, ''unless you have software to support your hardware, you can't have a successful industry.'' The success of both the videocassette recorder and the compact disc was software-driven, he says. ''The hardware companies like to know that their own software companies will make software available to support their new products -- especially in the early days.'' Hence Matsushita's acquisition of MCA (see box). When Sony bought CBS Records for $2 billion in 1988, it wasn't just looking for profits from Bruce ''Born in the U.S.A.'' Springsteen, Billy Joel, and Michael Jackson. It was also buying market entree for its digital audio tape, or DAT, format, against a rival format developed by giant Philips of the Netherlands. Hardware producers know that software consumers are popping up in ever- increasing numbers around the world, with most major markets growing younger and more affluent each year. The barely tapped Indonesian market, for example, includes 190 million people -- about half under the age of 20. The emergence of a single global youth culture becomes more apparent all the time. ''An 18-year-old in Denmark has more in common with an 18-year-old in France than either has with elders in their own country,'' says Bill Roedy, CEO of three-year-old MTV Europe, which has attracted some 20 million viewers. A sampling of Roedy's major advertisers drives home the point: Coke, Pepsi, Levi's, Wrangler, Lee, Nike, and most movie studios. The arrival of this global pop culture is a boon to marketers, but it has taken some of the romance out of world travel. If Humphrey Bogart were in Hong Kong today and needed a pack of butts, he could stop in any of the 246 7- Eleven outlets in the crown colony. At the Virgin Megastore, a giant music and video emporium on Paris's Champs Elysees, big banners proclaim ''Il Est ZZ Top,'' promoting the Texas rock band. A wall of TV sets blares MTV Europe across the store, and an outsize Elvis cutout hangs over it all. Nowhere is the pop phenomenon more apparent than in Japan. On trips to their favorite Shinto shrines, the faithful like to drop by one of their country's 750 McDonald's to wolf down Teriyaki McBurgers (no kidding). The teenagers who shirk the shrines may well be hanging around one of Japan's 12 Tower Records outlets, poring over the latest Pioneer Tokio Hot 100. It recently included hits by Hall and Oates, Janet Jackson, Whitney Houston, the Righteous Brothers, and -- at No. 50 -- somebody called Motoharu Sano. On the music scene, ''it's easier to find out what's happening in New York here than it is from New Jersey,'' says Keith Cahoon, Tower's managing director in the Far East. The Sacramento-based retailer last year sold $65 million of tapes, discs, and records in Japan. ''There's an obsession with international culture, particularly with New York and Los Angeles,'' Cahoon says. ''A lot of people thought rap wouldn't sell here because they don't understand the lyrics. Well, they don't, but they buy it anyway.'' Reugene Nishikawa, a 30-year-old whiz-kid marketing consultant and a columnist for something called Nikkei Trendy magazine, tries to explain the Japanese fascination with American pop culture: ''After the war, Japanese youth thought that everything American was cool,'' he says. Why? ''Because you won. American things were best. So we studied management things. We learned quality control from the U.S. But my father's generation had no time or money for culture or leisure. They had three cheap suits and three days off a month, working early in the morning until late at night. But when I was 9, my father bought a Sony color TV, which led to me watching The Gong Show. He bought a JVC record player, and I listened to Jimi Hendrix and Santana.'' So today, Nishikawa's culturally aware -- or corrupted -- generation has come of age in a market of 124 million people that boasts the highest VCR ownership in the world -- 79% of households that have TVs. Soon, well-financed new satellite broadcasters will shake up the old protectionist TV order. JSB, a satellite channel backed by Toshiba, Hitachi, Sony, Matsushita, Dentsu, and almost 200 other companies, is currently starting up. The channel, which will air 500 films a year, already has programming agreements with several major studios. Blue-chip Hollywood celebrities such as Harrison Ford are filming promotional spots for it. Japanese investment in pop culture isn't confined to high-profile deals like Sony's acquisitions and the Matsushita purchase of MCA. Pioneer Electronic Corp. paid $60 million for 10% of Carolco Pictures, maker of Rambo, Total Recall, and Terminator II. JVC (Japan Victor) invested $100 million in Largo Entertainment, whose principal, Lawrence Gordon, produced Die Hard, Predator, and 48 Hours. And Disney recently formed a partnership with Japanese institutional investors, including Yamaichi Securities and Fuji Bank, to provide $600 million in film financing for its studios. Alex Ying, vice president of Warner Bros. International in Tokyo, says that until recently, when the Japanese presence became an accepted reality in the industry, ''these packs of Japanese guys in black suits kept showing up at all the film markets saying, 'We want to get in the movie business.' And all these gold-chained Hollywood types were saying, 'Who are these guys?' '' Ying believes it could be the no-suit-or-tie individualism and creativity of the American industry that creates its mystique among the Japanese. ''It's a ( totally foreign concept in Japan's consensus society,'' he says. The Japanese are adapting to all sorts of foreign concepts, though, including the idea of retailing as pop culture. In the new age of American retailing, for example, a store can be as much about attitude -- Sharper Image, the Body Shop -- as it is about products. In that spirit, Seibu, the giant Japanese retailer, operates the incredible Wave music store -- a four- story extravaganza with inventory ranging from a tribute to Leonard Bernstein to Ted Nugent's Whiplash Bash to M. C. Hammer to Hawaiian reggae (really), much of it screenable on the laser disc jukeboxes popular in that country. No one in Japan has had more success with the concept of retailing as pop culture than entrepreneur idol Den Fujita, the national franchisor for McDonald's. Fujita is credited with much of that chain's spectacular success in Japan. He is now in business with two other legends of new-age American retailing -- Toys ''R'' Us, for which he has waged war against Japan's laws impeding large stores, and Blockbuster Video, with which he recently announced plans to open 15 prototype ''Superstores.'' Blockbuster should spark a boom in the video rental market, says William Pfeiffer, president of Disney Home Video Japan, which has enjoyed instant success selling cassettes of such classics as Pinocchio, Sleeping Beauty, and Lady and the Tramp. Disney occupies a special niche in the hearts of the Japanese, who will soon send their 100 millionth customer through the turnstile at eight-year-old Tokyo Disneyland. Aside from Mickey and Minnie appearing occasionally in kimonos, an Audio-Animatronics samurai act in one pavilion, and the visual shock of sumo wrestlers wandering around the park in full costume including mouse ears, the ambiance is totally American -- or at least Disney American. Halfway around the globe, the same principle applies. ''We're going to be American because America sells really well,'' says Robert Fitzpatrick, president of Euro Disneyland, the 5,000-acre park set to open just east of Paris in the spring of 1992. ''But we're the America of myth. We'll have gunfights every day at the Hotel Cheyenne and a Rockefeller Center-type skating rink at the Hotel New York.'' Even in France, where sentiment against American cultural imperialism is occasionally sponsored by the government, Disney has received a warm welcome. Perhaps this is because of the $4-billion-plus investment and the 35,000 jobs and billions of tourist francs the project is expected to create by the end of the decade. The French government has built roads and committed to constructing commuter train lines leading to this shrine of American pop culture -- expected to draw millions of German tourists -- described by one French critic as a ''cultural Chernobyl.'' For all that is heard about the decline of American competitiveness, ''there's still a lot of respect out there for the way some Americans do business,'' says Jack Myers, a Disney vice president. ''They respect McDonald's for its mass feeding ability, they respect Coke for its marketing ability, and they respect us for our ability to create magic. I think they admire something about the American spirit of ingenuity -- almost a wildness or a recklessness, a sense of fun -- that the more conservative cultures just aren't capable of.'' NOT ONLY DO residents of the global village like to see pop cultural fare at the movies, play it on their Walkmen, and soak it up at theme parks, they like to take little pieces of it home with them as well -- to wear, to play with, to bathe in, to read. ''They like those popularized Americana brands -- the Coca-Colas and the Disneys,'' says Bruce Nevins, the marketer who brought Perrier to America. Nevins is now seeking his next fortune bringing licensed Coca-Cola sportswear and accessories to Asia and Latin America as chairman of Hong Kong's Berleca Ltd. ''The 12- to 20-year-old female sees Coke as a popular American product,'' says Nevins. ''It's bigger than a normal brand, and we work from its image: a youthful, energetic, young, active lifestyle.'' So when people buy Coke -- and Coke sweaters, shoes, and handbags -- are they buying the product, the brand, America, or what? ''They drink the trademark,'' says Coca-Cola's Goizueta. ''Our message has been consistent since 1923, and it's always been an emotional one: family, friends, good times. What they're buying is the good things in life. Americans may say, well, that's the American way, but it's not really. There's a thirst out there everywhere to have a good time. It's everybody's way.'' The principle is the same at Disney, according to John Feenie, Hong Kong- based senior vice president for Asia/Pacific consumer products. ''We sell fabulous merchandise at very high prices -- telephones, clocks, toys, watches, stationery, gifts,'' he says. ''But what we really sell is the Disney characters -- warmth and honesty and family.'' Disney's Asian and Pacific consumer products business has doubled in the past 2 1/2 years and is expected to double again in the next four. The hottest boutique to open on London's swank Regent Street lately is a Disney store. Until recently, some 300 million Chinese watched The Mickey and Donald Show on television, but Disney pulled the program because it stimulated such demand for counterfeit Disney consumer products. Which brings up more bad news: American pop culture has become so popular that lots of folks out there are stealing it. The Motion Picture Association of America, or MPAA, spends about $20 million a year to fight an estimated annual revenue loss of $1.2 billion to piracy. The music industry estimates sales lost to record piracy at more than half a billion dollars a year. It's a worldwide problem, but nowhere is piracy more blatant than in Bangkok. For all its exotica -- the colorful fast boats and rice barges plying the klongs and the Chao Phraya River -- modern Bangkok represents a huge market, a city of six million in a country of 55 million, about the size of France. And, like much of Asia, it is a market of increasing affluence and increasingly globalized tastes. Both the market potential and the problem are evident at the Central Mall, a multistoried atrium shopping center just like thousands of others in America and Europe. On a Saturday afternoon it swarms with teenagers and young adults. Arby's, Pizza Hut, Swensen's, Kentucky Fried Chicken, A&W Root Beer, and Dunkin' Donuts are all jammed with hungry young Thais. The multiplex theaters are showing Dick Tracy, Robocop 2, Gremlins 2, and an Eddie Murphy movie. But the real action is in the video and tape stores, which look and feel like such stores anywhere else in the world. Except that here most of the tapes are pirated. Pretty Woman -- not yet released on home video in Asia -- is available for $5. It is packaged in a blank cassette box, and it is one of hundreds of recent releases listed in the stores' looseleaf catalogues. ''Bangkok is a complete shambles for the film industry,'' says Frank Knight, a Hong Kong private investigator who resembles actor Sydney Greenstreet in body and manner. He specializes in antipiracy cases. ''Here's a film,'' he says, picking up a cassette of Rambo III, ''that was copied in Bangkok and shipped to Karachi. Others just like it were shipped to South Africa.'' He describes the piracy operations as well organized and well financed, citing one bust in Malaysia in which 100 ''slave'' tape copying machines were seized. ''Anybody who's been involved in past mischief, such as drug exports, finds this to be a highly lucrative crime that's easier and less punishable,'' says Knight. Recently the MPAA filed a formal trade complaint, calling Thailand ''the worst offender in the Far East.'' THE OTHER BIG BUR under the saddles of U.S. pop moguls is old-fashioned protectionism, especially in Western Europe. Officials of the European Community have proposed quotas restricting foreign-made films and TV programs for post-1992 Europe. In that context, ''the term Fortress Europe crops up on both sides of the Atlantic,'' noted Steven Ross, chairman of Time Warner -- the largest of the entertainment-communications giants -- in a recent speech. Measures intended to protect cultural integrity also ''bash all countries outside the European Community,'' Ross said, adding that he was sure Europe would see its way to a free market. On behalf of the industry he called for ''the right of any company in any country to control its own product worldwide, free of restrictions so that it can respond effectively to the marketplace.'' Such is hardly the case in France, the third-largest film market in the world behind the U.S. and Japan, and a nation always in the vanguard of cultural chauvinism. ''France has yet to learn that you do not legislate taste by decree,'' says Mark Hunter, author of a book on Jack Lang, France's America-bashing Minister of Culture. In the Eighties, Hunter says, France more than quadrupled its subsidy of the national film industry, but this wasn't enough to stop a precipitous decline in attendance at French films. ''You have to ask if the kind of cinema they're promoting has any relation to what the public wants to see,'' says Hunter. ''What nobody wants to say is that American movies are doing so well in France because some of them are pretty good, and some of the auteur cinema is second rate.'' Nor does anyone want to say that French taste -- left unfettered -- can be less than inspired. Not long ago, Starsky and Hutch was the top-rated French TV show. La Roue de la Fortune (Wheel of Fortune) is a big hit. And there's always the Jerry Lewis worship problem. FRANCE'S RESPONSE to the introduction of the VCR typifies its approach to the pop culture industry. The government originally slapped a 33% tax on both foreign-made VCRs and prerecorded tapes (now only 22%), while withholding release of films to the video market for a year instead of the six months customary elsewhere, effectively destroying the video business. While the government gave the pay TV channel, Canal Plus, a major break by allowing it to broadcast to much of the nation on an earthbound relay network, it also requires that the station show 50% French programming. Under that rule, Canal Plus would be required to air about 200 French films a year. But France produces only 130 films a year. The emerging European TV industry's appetite for programming has considerably enriched Hollywood studios. Until the recent merger of Rupert Murdoch's Sky satellite channel with the rival BSB channel in Great Britain, the two broadcasters slugged it out with unprecedented outlays for the right to broadcast films. BSB agreed to pay as much as $800 million to Paramount and MGM, while Sky committed to more than $400 million to Disney, Warner, and Twentieth Century Fox for exclusive film rights, estimates Nick Lovegrove, a principal in McKinsey & Co.'s London office. But Lovegrove cautions would-be players in the Euro-TV market: ''You have to bring something to the party. Money isn't enough.'' He cites MTV as the most truly global broadcaster because of its pure pop culture programming, and Disney as the player with the most distinctive assets. Other promising players include Turner Broadcasting, with CNN in 101 countries and territories plus a film library; and Murdoch, should the assets of his Fox network, Sky Channel, and Fox film library come together correctly. At MTV Europe -- a joint venture between Viacom and publisher Robert Maxwell -- CEO Bill Roedy, an HBO veteran, can't contain his excitement. ''The programming has been so regulated over here, we're like an oasis in the desert,'' he says. ''And our idea is so simple: English-language music programming works regardless of the culture or the language. It's an international art form.'' At Turner, Terry McGuirk, executive vice president, says the only current impediment to global expansion is a sluggish international advertising market. He adds that nothing at Turner ranks ahead of international among internal growth possibilities. He argues that CNN's English format is almost universally appealing: ''There are different languages everywhere, but the best second language on a universal basis is English.'' McGuirk doesn't rule out the possibility of joint ventures, overseas entertainment channels, and foreign-language programming. < All pop culture marketers hope that someday Eastern Europe will explode into a massive consumer society. But for now, as Ramon Lopez, chairman of Warner Music International, observes, ''they have merely changed from poor Communists to poor capitalists.'' IN THE MEANTIME, nothing in what was East Berlin suggests that a pop boom is under way, except one old gentleman selling Elvis records from a suitcase on Alexanderplatz. West Berlin, by comparison, points up another lesson: Foreign fascination with American pop culture can go too far. This discovery was made at an establishment called the Alabama Berlin Country Music Club und Western Restaurant, whose clientele appeared to be entirely German. Here, local cowboys and cowgirls dress up in snakeskin boots and Texas hats and order things off the menu such as the Trucker Fruhstuck (breakfast). Gastronomically sated, they repair to the back room to guzzle from whole bottles of Jose Cuervo tequila, smoke hundreds of Marlboros, and howl ''Yeehaw!'' at the local talent, occasionally pausing to have a fist fight. To hear the thick German brogue belting out Hank Williams Jr.'s ''Just Leave This Old Long-Haired Country Boy Alone'' is to bring to mind another classic American lyric: ''Country roads, take me home.''