In the 1970s Korea had very strong industrial policies that protected the movie industry. Such policies, however, failed to develop the movie industry because they were not properly designed to encourage vertical integration. on the contrary, the policies at the time overly-protected the production sector and consequently built various barriers between the stages of the movie supply chain.

Moreover, the movie industry at the time was constrained by flaws in the industrial policy at the time. More specifically, industrial policy applied to the movie industry in the 1970s had fostered large-scale movie production companies. one of the key tools for this purpose was the exclusive import rights of foreign films for those movie companies that met a certain criteria. When a movie company produced a certain number of films, then it was provided an import quota for foreign films. Foreign films, especially Hollywood movies, were far more competitive than domestic films at the time, and as such, obtaining import rights was a very profitable business. The government in turn hoped to promote movie companies with capable of producing domestic films into large-scale ‘major’ companies using the benefit from sales of foreign movies.

Concentrating resources on a small number of competitive companies-which we might call ‘picking the winners’-is a typical feature of Korea’s industrial policy in the early period of economic take-off. The exclusive import rights of foreign films had been used as a kind of prize for competition as well as to facilitate capital accumulation in the movie industry. However, this policy did not produce the desired outcome. The main reason for this was that competition per se was not based on ‘quality’, but rather on ‘quantity.’ The criteria for the exclusive import rights should have been linked to ‘the performance of companies in the market’ and not to ‘how many movies the company produced.’ In other words, the criteria ignored the market discrimination process and consequently failed to pick and encourage competitive winners. 

The structural changes in the Korean movie industry cast implications about the screen quota. The purpose of the screen quota is to give domestic films “proper” screening opportunities or exposure in the market. Screen quotas can be justified if Hollywood films have a dominating distribution power in the Korean movie market. However, the current Korean movie industry is dominated by vertically integrated companies involved in nearly two-thirds of the production of domestic films, which furthermore are screened in theaters owned by the vertically integrated companies. Therefore, a situation in which domestic films are excluded in the screening market because of Hollywood films would not be possible. Interestingly, the total screening-day for domestic films has exceeded the mandatory quota for the past 5 years making the screen quota de facto unbinding. In such a circumstance, the benefits of a screen quota are much smaller than costs thanks to the spread of free trade. For the further improvement of the movie industry, policy makers should not rely on direct regulations such as screen quotas, but should focus on the overall improvement of the industry’s infrastructure such as the protection of intellectual property rights, introduction of completion insurance, transparency of cash flow from movie investment, etc.