Chapter 13 Media Economics
Structure of the Media Industry
 Three structures characterize the media business…
1. Monopoly – single firm dominates production and distribution
2. Oligopoly – when just a few firms dominate one industry
3. Limited Competition (monopolistic competition) – characterizes
a media market with many procedures and sellers but only a few
different products within a particular category.
The Performance of Media Organizations
 Two ways the media collects revenues
1. Direct Payment – media products supported primarily by
consumers, who pay directly for a book, CD, move, Internet
Service Provider or cable TV subscription.
2. In – Direct Payment – media products supported primarily by
advertisers who pay for the quantity or quality of audience
members that a particular medium delivers.
 Economists look at many elements of the commercial process, which
include
1. Program and Product Cost
2. Price setting
3. Marketing strategies
4. Regulatory practices
 Economies of Scale Principle – refers to the practice of increasing
production levels so as to reduce the overall cost per unit
Transition to an Information Economy
 During the 1950’s we move from the Industrial Age to the Informational
Age.
 Outsourcing of many U.S. jobs and breakdown of the economic borders
due to NAFTA (North American Free Trade Agreement), GATT (General
Agreement on Tariffs and Trade), and the WTO (World Trade
Organization).
 Outsourcing helps keep prices down, but takes away from jobs in the U.S.
 First half of twentieth century emphasizes mass production and companies
competing on product v. product.
 Shift to the Information age when media industry began marketing music,
movies, television programs, and computer software on a global level.
Deregulation Trumps Regulation
 Government regulation has often been denounced as a barrier to the more
flexible flow of capitalism.
 Deregulation began under the Carter Administration (77 – 81)
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Under President Regan most controls on business were drastically
weakened.
Telecommunications Act of 1996 lifted most restrictions on how many
radio and TV stations one corporation could own.
Deregulation has returned media economics to nineteenth – century
principles that suggest that markets can take care of themselves with little
government interference.
Consolidation and Merger mania
 Government has been one sided on the break ups and merging of several
companies
 When ITT tried to buy ABC in the 60’s, protests and government
investigations sank the deal. But when GE purchased RCA/NBC in the
80’s the FTC and FCC found no problems with that.
 Most media companies have “skirted” monopoly charges by purchasing
diverse types of mass media rather than trying to control just one. EX.
Disney, not only owns Pixar and most of the movie industry, they also
own ABC in the news industry.
Flexible Markets, “Downsizing,” and the Wage Gap
 80 to 90 percent of new consumer and media products typically fail.
 Few movies are hits but many more miss, and studios hope to recoup their
losses via DVD rentals.
 Companies want to be more productive, more competitive, and more
flexible, and as a result law of workers, this is also known as downsizing.
 Two side effects of downsizing
o Businesses aren’t able to compete well because of fewer
employees
o A decline in innovation
 The average salary of America in 1970 was $32,522, which rose to $35,
864 in 1999. A 10% increase in 29 years.
Global Markets and Specialization
 With the downsizing of companies and larger demand for products,
companies began outsourcing to other countries.
 Global firms sought greater profits, they looked to even less economically
developed countries that were short on jobs and lacked national health and
safety regulations for workers.
 Synergy (the promotion and sale of different versions of a media product
across the various subsidiaries of a media conglomerate), distinguishes
current media economics to international levels.
 American DVD, CD, and VCR makers have cut their costs by moving
production plants to other, more impoverished countries.
 Some TV programs that do not become hits in the U.S. may become hits
internationally.
Disney: A Postmodern Media Conglomerate
 The first economic period for Disney (1920’s – 1940’s) set the standard
for popular cartoons.
 The second Disney period (1950’s – 1960’s) encompassed corporate
diversification.
 Disney produced its first live action feature, Treasure Island in 1950.
 One of the first film studios’s to embrace television.
 Disney then began buying up companies such as ABC, Buena Vista, Pixar,
and ESPN.
 Disney began the global expansion of its theme parks in the early 90’s by
opening up “Euro Disney.”
The Limits of Antitrust Laws
 Current consolidation of media owners has limited the number of
independent voices and owners.
 Diversification strategies promote oligopolies in which a few large
corporations control media production and distribution.
Consumer Choice v. Consumer Control
 Capitalism is arranged vertically, with powerful corporate leaders at the
top and hourly wageworkers at the bottom. But democracy represents a
more horizontal model in which each individual has an opportunity to
have his or her voice heard and vote counted.
 Most of the time this principal does not work.
 Citizens of economically developed nations clearly have options among a
range of media products. Yet consumers and even employees have limited
power in deciding what kinds of media get created and or circulated.
Cultural Imperialism
 Cultural Imperialism – American styles in fashion, food, and media fare,
dominate the global market.
 America forces its idea’s onto other people through the media
 U.S. dominance in producing and distributing mass media puts a sever
burden on countries attempting to produce their own cultural products.
 Greatest concern regarding a global “economic village” is that the people
whose standard of living are not portrayed in the contemporary media are
not encountered.
Media Marketplace and Democracy
 Due to growing consolidation of mass media, it has become difficult to
sustain a public debate on economic and ownership issues. From a
monetary exchange perspective, the relationship of our mass media system
to politics is highly functional. From a democratic prospective, the
relationship of our mass media system to politics is highly dysfunctional.