Economics of the Mass Media Objectives To introduce dominant form of market organization



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Economics of the Mass Media

Objectives

  • To introduce dominant form of market organization

  • Define key terms

  • Why does structure of ownership and control matter?

  • Introduce the idea of ‘economic censorship’: the propaganda of the market

Capitalism

  • An economic system in which all or most of the resources or means of production and distribution , such as land, inputs, factories, telecoms are privately owned and operated for profit

  • Since the fall of state socialism in Russia, the dominant economic form across the world

  • Postulates fully competitive markets/perfect information as inputs and outputs of production

Capitalism and Communication

  • Communication IS market culture

  • Communication systems provide essential market infrastructure

  • By what economic rules should they play?

Assumptions/ Key Ideas of Capitalism

  • Self-interested behavior

  • Postulate: though human pursuit of rational self-interested behavior the production, consumption and circulation of goods will be most efficient, provide for all wants

  • Neoliberals/libertarians argue this model works best with little or no state intervention

The Neo-liberal Thinking

  • ‘Invisible hand of market’—through pursuit of self interest, collective good will be found

  • Competition

  • Factors: technological capacity,access to large markets, ability to buy low and sell high: cost price advantages; promotion/marketing ‘brand’

  • Comparative Advantage

  • Countries producing goods most cheaply should specialize/ and trade/ to benefit their economies overall

Capitalism and the Liberal Ideology

  • Roots in libertarian rejection of any State role in the market

  • Today, more sophisticated: State must establish rules of the market ( enforce contract law, prevent abuses of corruption, enforce basic rules) but still minimal

Legitimate Role for State Intervention in Market in Liberal Ideology

  • Historically, to prevent abuse of dominant power

  • Prevent unfair trade practices: truth in advertising, prevent deception

  • With rise of nation state, the claim to sovereignty (or supreme and independent authority) led to practices of protection against foreign ownership, ways to favour local business,regulate airwaves

  • Competition Acts

  • Or in cases where a public good problem exists: ( a tendency to natural monopoly, extreme hazards: Regulation

Neo Liberal ( or neo-classical) Ideology

  • Looks at cultural products like any other

  • Restricts role of State in regulation

  • Looks at maximization of individual interest

  • Advancing aggressive platform for free trade globally

  • Pushing for domestic deregulation

Reform Liberal Ideology

  • Treats culture as a public good not like a private one

  • Expands role of State in regulation

  • Looks at maximization of the public/citizen’s interests

  • Looking for protections in the push to global trade( a special covenant internationally on cultural standards)

  • Pushing for reregulation: smaller business/creator entry, restraint of dominant players

Reform Liberal Ideology

  • A public good problem of cultural products is recognized

  • Metaphor is not a commodity but a (natural) resource: like air or water: scarce, but renewable, and common property

  • Cultural/Information/Media Products are more important than other products: they are either renewable( artistic creation) or non-renewable( the Buddhist statues ruined by Taliban)

  • The public good arguments:

  • ( liberal humanist goal of ideal citizenry/continuity of a society/political integrity/ creativity of expression/)

  • (nation-building) a sense of belonging

  • Tied to education/intergenerational social cohesion

Reform 2

  • State Must thus correct for Market Failure

  • Protect a sphere of public expression, regulate competition law, regulate media under “social responsibility” model– this model unequally applied in Canada to print and electronic media

The Underlying Micro-economics of the Media

  • not a commodity like others

  • High margin

  • Characteristics of the commodity lead to concentration of ownership, tendency to market failure for small markets in the global economy

  • Trade dominance of large entertainment markets ( US, Europe… soon to be China?)

Nature of Communications Commodity

  • Some, like CDs, books, etc. easily a tangible commodity

  • ( commodity: a useful thing/convenience/anything bought or sold)

  • Some, like plays, TV shows or live music performances intangible

Characteristics of Communications “Commodity”

  • Not tangible/material

  • Ie. Not a physical thing or tool

  • Novelty

  • Consumption is a one time event: nothing older than yesterday’s news. Ephemeral.

  • Short shelf life

Characteristics 2

  • Not Destroyed in the Act of Consumption

  • Renewable: that is, unlike a pizza, not consumed

  • Non Excludable

  • Often available over free airwaves

Characteristics 3

  • Low Marginal Cost

  • Cost of a TV show is 1.5 million per episode

  • Duplicate costs of same episode low to zero additional ( or marginal) cost

  • Easy reproducible digitally or electronically

  • Rapid Taste Change: innovation, or ‘trends’

  • Therefore High Risk

Risk provides Rationale for Conglomerates

  • High risk forces vertical and horizontal integration

  • hit rule”: a very small proportion of titles account for most of the revenues. 80:20 rule

leads to imitation

  • Hits cross subsidize losses

  • Need to amortize losses across a wider base

  • Need to afford $ for big stars

  • Big studios produce 1/3 of films/ 80% $

Concentration

  • The communication business tends ‘naturally’ to concentration

  • Effort to become bigger: control larger markets

  • Cross media ownership: mergers and acquisitions

  • Ie. Concentration of firms

  • But also Concentration of..

  • Products

  • Media formats

  • Markets

Trends to Concentration of Media Ownership in Canada

  • Before WW1: 138 dailies with different owners

  • By 1992: only 18 independents remaining– now even fewer

  • Mostly owned by CanWest-Global who bought Hollinger…42% of dailies

  • Hollinger takeover of Southam in 1995 was appealed by Council of Canadians but failed in lower courts.

Canadian Media Concentration of O

Bell Canada Enterprises

  • February 2000 bought CTV for 2.3 b

  • Acquired Globe and Mail

  • Also own Expressvu: satellite

  • Also own Telco in Ont/Quebec

  • Owns Sympatico internet portal

Canadian Concentration of O

  • Canwest ( Global) bought Southam Inc 2000

  • Now owns National Post

  • Quebecor owns TVA Videotron

  • Rogers owns Maclean Hunter mags

  • Electronic players buy out the print

  • Made in Canada media moguls: Conrad Black, Thompson, Seagrams/Vivendi now MNCs ( most sales off shore)

History of Economic Organization

  • Until 1980 predominantly within National Borders

  • Most countries had local ownership rules ( no more than 20 % foreign media control, and indigenous boards, reporting if publicly traded companies)

  • Entertainment markets begin to globalize through film, videogames and TV series: increasing trade in all media sectors

US dominance of World Trade

  • Controls 75% of world trade in audio visual media

  • If look at top ad agencies, takeovers of American MNCs, see growing foreign (non American) share

  • Still a dominant market power: after defense, entertainment is the US biggest export

Ways to Measure Trade Dominance

  • Share of Domestic Markets ( individual nation basis)

  • Share of total world trade

US Share of Canadian Domestic Market

  • 80% of books and magazines consumed in Canada are American

  • 66% of viewing time to English TV is to US

  • 97% of movies are US

  • Comparison: less than 2% of US TV is foreign

US Share of World Trade

  • Estimated in Burnett, Global Jukebox, 1995:

  • Broadcast and cable 75%

  • Film: 55%

  • Video/sound recordings:55%

  • Books: 35%

  • (caution: difficulty of source checking)

Why the Dominance

  • US products can recover up to 80% of their costs in their home market due to size of their market and consumer preference for US made media

  • Thus can afford to sell abroad more cheaply

  • Costs of foreign licensing of US product are between 1/6 to 1/10th the cost of original production

  • thus there are strong incentives to buy US fare and repackage it to maximize profits

  • There is a huge large market advantage ( and small market disadvantage) in the ‘block buster’ media and entertainment market

Conclusion:

  • As the number of corporate owners drops, more content is controlled by fewer companies. Oligopoly describes this condition.

  • Journalists find themselves in a conflict of interest situation in reporting on the malfeasance of their owners

  • Societies debate whether the media are public or private goods every generation– Ideological pendulums shifts

  • Should governments regulate competition? How?

  • States are concerned about world market dominance of US—call for fair trade not free trade

  • An International Movement led by Canada now is trying to protect smaller countries against overwhelming US global dominance




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