The economic strength of the American film industry has depended since the 1920s on two essential components: first, a large and homogeneous national market; and second, an extensive international distribution network. The national market (sometimes described as North American, including Canada) of a billion or more spectators each year allows for production of hundreds of films per year with good production values and a relatively high average cost. International distribution adds a further chance for films to earn back their costs and return a profit. Further, because the primary cost of making a film lies in producing the first copy, it makes economic sense to distribute American films to small as well as large markets. For most countries, it is far cheaper to import American films than to support a competitive film industry of their own.

During World War II, Hollywood's earnings were strongly based on...