It's interesting to even fathom that someone would put cultural domain issues entirely within a capitalist context.
There are two fundamental reasons that content everywhere is subsidized and protected. They are of course related.
First, more obviously is the cultural aspect. The things we believe, the stories we tell, are part of our identities. With critical mass and investment those stories some will take root.
It's a little bit of a myth to suggest that a small creative team just 'makes something' and it goes big. This does happen, but generally speaking, it takes a machine. Many layers. 'Taylor Swift' should be thought of as a 'Brand and Production Company' - as opposed to a person.
You'll find that almost all truly creative endeavours are at least partly communitarian. The ballet exists only because Louis XIV, the most powerful man in the Western Hemisphere, personally created it.
Almost all such endeavours have a purely creative component, it's actually more rare than not that those works are purely commercial. The creative world is in constant tension between 'art and money'. You often hear famous movie stars say 'One for Me, One for the Studio' hinting at that.
Some cultures are stronger than others (aka European), and some have more of a critical mass in terms of audience (aka Indonesia), some have both (aka Japan). Some have contiguous histories of relative sovereignty (aka Thailand), some the opposite (aka Laos, Tibet) and so varying levels of support and protection are needed otherwise a lot of it would just evaporate.
Most countries provide fairly significant tax advantages etc. for creative works.
Second, is the fact that creative works on the commercial side, like anything, are an industry with similar kinds of underlying components and critical masses.
In that context it's a little bit glib to say to a group of people in a little region for example to 'compete' with a massive established industrial base. Whatever the industry.
Hollywood is big enough, has several very institutionalized layers of production, incredible degree of hyper-specialization (i.e. you will find more 'kinds of trades' and people who are really good at it there, than anywhere in that field). That includes access to capital, legal frameworks, specialized talent, workers guild specialization, harmonization with government (i.e. getting locations), talent agencies, distribution channels and relationships with Netflix etc..
This extends to the rest of the 'support' aspects of the industry like bookings on talk shows, morning shows, cover placements in magazines, media dockets etc.. It's all professionalized and mostly corporate.
Marvel films, in particular are a really good example of this - they are not particularly good films, but the production quality of them is basically '1st rate' at every turn, from writing, production design, direction, story narrative, the immense production support, post-production / effects, marketing.
Once you add in language and cultural barriers, i.e. the fact that a movie about 'Captain America' will have a strong enough audience domestically, with some acceptance abroad, and you have insurmountable competitive advantage. (Nobody is going to watch a film about 'Captain France', or 'Captain Japan' - or rather, many fewer).
The only other place that can compete really is the UK, which has many of those same foundational advantages, plus a long history of 'popular theatre' and especially the BBC which exists in part as a systematic support / lynch-pin under the auspices relevant to Point #1.
Canada, pound for pound, actually punches above it's weight relative to the US in a lot of production aspects. The new Dune film is Denis Villneuve, and his 'posse' of creatives are from Montreal. In some ways, it's a 'Canadian-led' film, but that just happens to be talent, it's not really part of the industrial base. Villneuve exists because Quebec strongly supports creative endeavours (and FYI for every Villneuve, there are 10 you've not heard of, 50 who never really had support or a shot, and 1000 who tried and failed).
FYI there is actually a lot of film production in Toronto/Van/Montreal, but mostly the 'labour' bits of production, not the choice roles.
The raw economics of entertainment, in the short run, optimize like anything else. Take a 'Large Open Economy' and put it next to 'Small Open Economies' and you'll see consolidation hugely disproportionately in the 'Large' economy, which is where all the talent, surplus, and good jobs end up.
Entertainment happens to be at least one sector, where due to 'Point #1' (i.e. culture), there's wide recognition of the need to support it via non-market forces, so at least there's that. But really the same applies to any sector.
If we really think that we should just all enjoy Marvel and Netflix - and that's that - well then all of that is fine - but it's such a hugely narrow aspect of creative output.
Finally, the true globalization of the industry has seen the biggest budgets move towards ever dumber films. Fast and Furious, Transformers ... they have to appeal not not just to 'working class Americans', but to 'the global working class' which is barely literate, and of course they're from diverse cultures so there's a lot less to draw upon for cultural reference. 'Transformers' , 'Godzilla' etc. are basically giant action sequences and that's it. Of course that's totally fine - but they suck up the budget and attention of other potential works, which don't get made. So ironically, this problem has manifested itself even for the 'Large Open Economy'.
For your reference, here are quotes from a few dozen industry luminaries on that subject [1]. It's a good read.
[1] https://www.nytimes.com/interactive/2019/06/20/movies/movie-...