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Media economics combines the study of media with economics. The term media is usually interpreted broadly and includes sectors such as television or radio broadcasting plus newspaper, magazine, or online publishing; communications infrastructure provision; and also production of digital and other forms of media content. Media economics is concerned with unravelling the various forces that direct and constrain choices made by producers and suppliers of media. It is an area of scholarship that has expanded and flourished in departments of economics, business, and media studies over the past two decades.
A number of reasons explain why media economics has advanced quite significantly in popularity and status over recent years. The increasing relevance of economics has been underlined by the so-called digital revolution and its effect in reshaping media businesses while, at the same time, accelerating related processes of convergence and globalization. Deregulation of national media industries is another major trend that has shifted attention on the part of media policy makers and also academics from political toward economic issues and questions. So although media economics—the application of economics theories and concepts to all aspects of media—is still at a relatively early stage of development as a subject area, its importance for industry, policy makers, and scholars is increasingly apparent.
The earliest studies of economics of mass media can be traced back to the 1950s, and these looked at competition among newspapers in the United States. Competition and concentrations of ownership are still key and constant themes within media economics, notwithstanding the many shifts and changes that have redrawn the competitive landscape over time. Other early work that marked out economics of media as being a distinctive field includes studies of competitive programming strategies (i.e., of the different program content strategies used by competing broadcasters).
Some landmark studies in media economics owe their existence to the needs of policy makers who have asked for work on, for example, competitive conditions within specific sectors of industry or questions around market access or issues such as spectrum pricing. A very good example is the Peacock (1986) report, commissioned by the U.K. government ahead of the 1990 Broadcasting Act. As the first systematic economic assessment of the U.K. television industry, this report was to have seminal influence over subsequent broadcasting policy in Britain. More recently, a wave of interest, initially sparked by Richard Florida’s (2002) work on urban economics, has fuelled demand for work by economists on “creative industries” (which include media content production). Studies in this area (see, e.g., Hutton, O’Keefe, Schneider, Andari, & Bakhshi, 2007) are frequently concerned with the capacity for creative industries to drive forward growth in the wider economy.
The origins and approaches evident in economic studies of the media are varied. Some work has been theoretical, seeking to build on approaches within mainstream economics and, occasionally, to develop specialized models that take account of the special contingencies of the media industry. Much work so far in this subject area has tended to be in the applied tradition, looking at specific markets and firms under specific circumstances.
Generally, the broad concern is how best to organize the resources available for provision of mass media. Economists specializing in media economics have explored whether firms are producing the right sorts of goods and services and whether they are being produced efficiently.
Some (frequently drawing on an industrial organization approach) have examined the association between the markets media firms operate in and their strategies or their performance or their output. Another common concern, especially in work on broadcasting, has been what role the state should play in ensuring that the organization and supply of media output matches societal needs.
While research within the tradition of media economics has spanned across all aspects of all media sectors, including film, television, radio, newspapers, magazines, and the Internet, it is worth noting that an overlap exists between this and the related area of “cultural” economics. Cultural economics has a wider ambit; covering arts and heritage as well as media and cultural economics has developed as a separate field with its own concerns (such as subsidies for the arts). But there is some common ground, for instance, concerning the economics of creativity or optimal levels of copyright protection. Research into international trade in films, for example, can be regarded as equally at home in either of these fields.
As well as what might be termed mainstream economic research into mass media, the field of media economics is also strongly populated by work that emerges from political economy traditions. The “critical” political economy approach links sociopolitical with economic analysis. It adopts a more normative approach to the analysis of economic actors and processes, rather than focusing simply on, say, questions of efficiency. A number of influential thinkers in media and communications, such as Bagdikian, Garnham, and McChesney, have emerged from the critical political economy tradition. One such is Douglas Gomery (1993), who points out that “studying the economics of mass communication as though one were simply trying to make toaster companies run leaner and meaner is far too narrow a perspective” (p. 198).
So, media economics is a diverse and lively area of scholarship that draws on many different sorts of approaches. Those coming new to the subject will find a number of textbooks on hand to provide a basic understanding of economic concepts and issues in the context of media. The emergence of such books was traced recently by Robert G. Picard (2006), one of the leading figures in this subject. The first textbook appeared in French back in 1978 (Toussaint-Desmoulins), followed by a Spanish-language text in the mid-1980s (Lopez, 1985) and, later, the first German text (Bruck, 1993). Picard himself wrote the first introductory textbook in media economics in the English language (1989) and, in surveying later contributions from the United States, he (2006, p. 21) draws attention to textbooks by Alexander, Owers, and Carveth (1993); Albarran (1996); and Owen and Wildman (1992). Also highlighted is a textbook by a U.K.-based author (Doyle, 2002) that blends traditional economics along with political economy perspectives.
Helpful though textbooks are, the depth and diversity of the field can only be fully appreciated through acquaintance with the growing range of scholarly books, journal articles, monographs, research reports, and studies that focus on economic aspects of media. A rich and diverse body of literature has emerged over the years from a variety of sources, and as the subject grows, media economics continues to expand both in its ambitions and popularity.
This research paper introduces some key themes that are characteristic of media economics and have shaped the development of the field. This survey is not exhaustive, and although the discussion is broken into sections, in reality there are numerous overlaps and interconnections between topics and concerns central to this area of scholarship. In highlighting core issues that students working in the area of media economics are likely to encounter, the main aim here is to provide an introductory overview and a sense of what is special and interesting about this particular sub-field within economics.
Economics of Media Is Different
One of the main attractions as well as a key challenge of carrying out work on economics of media stems from the fact that media are a bit “different” from other commodities. It is sometimes said that media operate in dual-product markets—generating not only media output (i.e., content or messages) but also audiences (i.e., the viewers or readers who are attracted by the output) (Picard, 1989, pp. 17-19). The peculiarities of media as a commodity relate mostly to first sort of product: media content.
Collins, Garnham, and Locksley (1988) were pioneers in explaining the economic peculiarities of the broadcasting commodity. These authors flag up a similarity between broadcast output (e.g., a program broadcast on television) and other cultural goods insofar as “the essential quality from which their use-value derives is immaterial” (p. 7). Many cultural goods share the common characteristic that their value for consumers is tied up in the messages or meanings they convey, rather than with the material carrier of that information (the radio spectrum, CD, or the digital file, etc). Because messages or meanings are intangible, media content is not “consumable” in the purest sense of this term (Albarran, 1996, p. 28). Because of the “public good” characteristic of not being used up or not being destroyed in the act of consumption, broadcast material exhibits the peculiarity that it can be supplied over and over again at no extra cost. If one person watches a TV broadcast or listens to a song, it does not diminish anyone else’s opportunity to view or listen. In this respect, media seem to defy one of the very basic premises on which the laws of economics are based—scarcity.
The various insights offered by Collins et al. (1988) about, for example, the nonrivalrous and nonexcludable nature of broadcast output were an important early landmark in the development of thinking about how the economic characteristics of mass media differ from other industries. But later work by Richard Caves (2000) again highlighted the requirement for any understanding of the economics of creative industries, of which media are a part, to be based around an appreciation of the peculiarities of that sector. His influential work on “art and commerce” (Caves, 2000) applies economic analysis to the special characteristics of creative activities (e.g., uncertainty of demand, incentives and motivations guiding artistic and creative “talent”) and, in so doing, explores various aspects of the organization and behavior of creative industries.
Students and researchers cannot escape the challenges that derive from the distinctive nature of their area of enquiry. One such, in media economics, is the difficulty of measuring or evaluating the impacts that arise from a decision to allocate resources in one fashion rather than another. Communicating with mass audiences, as an economic activity, is inextricably tied up with welfare impacts. And media economics seeks to play a role in showing how to minimize the welfare losses associated with any policy choices surrounding media provision. But, as prominent economist Alan Peacock (1989, pp. 3-4) observed some years ago, welfare impacts are and still remain very difficult to measure convincingly.
Another problem is that, whereas notions of economic “efficiency” and assessments of whether efficiency is being achieved depend on clarity about objectives, the circumstances surrounding cultural provision often militate against such clarity. The perceived objectives associated with media provision are varied and at times contradictory, with some organizations operating in the nonmarket sector (Doyle, 2002, p. 11). So, when it comes to analyzing media, the application of all-embracing models based in conventional economic theory often proves inadequate. Thus, as many have observed, an ongoing concern for economists specializing in media is to build on and develop suitable and coherent overarching theories and paradigms for the study of this as a particular subject area (Fu, 2003; Gomery, 1993; Lacy & Bauer, 2006; Wirth & Bloch, 1995).
Other special challenges that media economists are faced with stem from, for example, the uncertainties, risks, and irrationalities associated with producing creative output or from seeking to analyze production, distribution, and consumption in an ever-changing technological environment for mass media (Doyle & Frith, 2006). The business of supplying ideas and information and entertainment to mass audiences is different from supplying other ordinary commodities such as baked beans, but the complexities that go along with this are central to the legitimacy as well as to the unique appeal of media economics as a distinctive subject area.
Audiences and Advertising
The business of media is about supplying audiences as well as forms of content, and indeed, many mass media are supported largely through advertising revenue. So, not surprisingly, work on audiences and their behavior and around advertising has featured strongly in media economics research and scholarship to date. The vast influence that patterns of advertising activity exert over the fortunes of the media industry has been underlined by the 2008 banking crisis and associated economic recession where a diminution in expenditure on advertising in newspapers, magazines, and broadcast channels has prompted wide-scale closures and job losses across the media in the United States and Europe. Work on the economics of advertising has addressed questions around the relationship between economic wealth and advertising, cyclicality in advertising, the economic role played by advertising, and the impact it exerts over competitive market structures and over consumer decision making (Chiplin & Sturgess, 1981; Schmalensee, 1972; Van der Wurff, Bakker, & Picard, 2008).
Audiences are another focus of interest. A number of studies have examined the nature of audiences (or of access to audiences) as a commodity, audience ratings, and how demand among advertisers for audience access is converted into revenue streams by media enterprises (Napoli, 2003; Webster, Phelan, & Lichty, 2000; Wildman, 2003).
Audience fragmentation, although present as an issue in early work about television audiences (Barwise & Ehrenberg, 1989), has risen to greater prominence in recent studies. As Picard (2002) suggests, fragmentation of mass audiences is “the inevitable and unstoppable consequence of increasing the channels available to audiences” (p. 109). In a recent study, Webster (2005) concludes that, despite ongoing fragmentation, levels of polarization among U.S. television audiences are modest so far. Nonetheless, the continued migration of audiences toward digital platforms and associated processes of fragmentation raises important questions for future work in media economics (and in media sociology too).
Media Firms, Markets, and Competition
Although some studies of the relationship between the economy and advertising are macroeconomic, most work by economists interested in media fits within the category of microeconomics. A central focus of interest is firms and how they produce and supply media and also the markets in which media organizations operate and levels of competition.
The concept of a media firm covers many different sorts of actors, but what they all have in common is an involvement somehow in producing, packaging, or distributing media content. Of course, all media firms are not commercial organizations. The prevalence, initially within broadcasting but now across digital platforms too, of non-market organizations devoted to providing public service content means that standard assumptions about profit maximization that are central to the theory of firms become questionable in the context of media. Another complicating factor is that ownership of media such as national newspapers is sometimes motivated by concerns that have little to do with economics, such as, especially, the pursuit of political influence. So firms are important within media economics research, but standard economic theories about the behavior of firms have their limitations in this context.
Be that as it may, the industrial organization (IO) model, which is based on the theory of firms, offers an analytical framework that has frequently proven useful to economists working on media firms or industries (Hoskins, McFadyen, & Finn, 2004, pp. 144-156). The IO model (and associated structure-conduct-performance or SCP paradigm) suggests that the competitive market structure in which firms operate will, in turn, affect how they behave and subsequently their performance. Although some doubts have been cast on the causal links of the SCP in recent years, it remains that many media economists have profited from the broad insights offered by IO theory about how, in practice, media firms behave under different market structures and circumstances.
Approaches toward analyzing media firms and markets sometimes take as their starting point the concept of the “value chain” approach first developed by Michael Porter (1998). The media industry can be broken up into a number of broad stages, starting first with production or creation of content (which usually, though not always, brings initial entitlement ownership of intellectual property), then assembling content into services and products (e.g.,a newspaper or television channel), and finally distribution or sale to customers. Definitions of markets and sectors in media economics studies are often implicitly or explicitly informed by this conceptual framework. All of the stages in the vertical supply chain are interdependent, and this has important implications for the kinds of competitive and corporate strategies media firms will pursue.
A notable feature of the economics of media is that firms in this sector tend to enjoy increasing marginal returns as their output—or, more properly, consumption of their output—expands. The prevalence of economies of scale is strongly characteristic of media industries, and the explanation for this lies in the “public good” nature of the product and how it is consumed. Because the cost of producing a newspaper or supplying a television service is relatively unaffected by how many people choose to consume that output, it follows that these activities will enjoy increasing returns to scale. Plentiful studies exist that confirm the tendency toward high initial production costs in the media sector accompanied by low marginal reproduction costs. The cost of producing a feature film, a music album, or a television program is not affected by the number of people who are going to watch or listen to it. “First-copy” production costs are usually high, but then marginal reproduction or distribution costs are low and, for some media suppliers, zero.
Another important feature is the availability of economies of scope. Economies of scope are generally defined as the savings available to firms from multiproduct production or distribution. In the context of media, economies of scope are common, again because of the public good nature of media output and the fact that a product created for one market can, at little or no extra cost, be reformatted and sold through another. Because the value of media output is contained in messages that are intangible and therefore do not get used up or “consumed” in the traditional sense of the word, the product is still available to the supplier after it has been sold to one set of consumers to then sell over and over again. The reformatting of a product intended for one audience into a “new” one suitable to facilitate additional consumption (e.g., the repackaging of a celebrity interview into a television news package, a documentary, a radio transmission, etc.) releases savings for the firm and therefore generates economies of scope (Doyle, 2002, pp. 4-15).
In any industry where economies of scale and scope are present, firms will be strongly motivated to engage in strategies of expansion and diversification that capitalize on these features. This is certainly true of media. Concentrations of ownership within and across sectors of the media are a highly prevalent feature of the industry. As a result, many scholars working in the area of media economics have taken an interest in questions about sustaining competition and diversity, measurement of concentration levels, and more generally around how strategies of expansion affect the operation, efficiency, and output of media suppliers.
The link between ownership patterns and diversity within the output offered by media firms is one area of enduring interest. Theories of program choice, the early versions of which are reviewed in Owen and Wildman (1992), are concerned with under what conditions— including the number of competing channels and ownership of broadcast channels—the marketplace will offer similar as opposed to different sorts of programming, or cheap as opposed to expensively produced programs, and so on. The connection between diversity of ownership and output has also been studied in the context of the music industry and the film industry.
Some studies (e.g., Albarran & Dimmick, 1996) have focused on defining and measuring concentration levels within media markets using either the Herfindahl-Hirschman Index (HHI) or a “concentration ratio” such as CR4 or CR8. Others are more concerned with analyzing the economic motivations that underlie strategies of expansion and diversification by media firms. Sanchez-Tabernero and Carvajal (2002) and others have analyzed advantages and also risks associated with a variety of growth strategies, including horizontal, multimedia (cross-sectoral), and international expansion.
A great deal of work in media economics has concerned itself with changing market structures and boundaries within the media. Economics provides a basic theoretical framework for analyzing markets based on the clearly defined structures of perfect competition, monopolistic competition, oligopoly, and monopoly. In practice, many media firms have tended to operate in markets whose contours are strongly influenced by technological factors, state regulations, or both. In addition, most media have tended to operate in very specific geographic markets and to be closely linked to those markets by the nature of their product and through relationships with advertisers. These factors have restrained levels of competition in the past. But times are changing, and this is reflected in much more fluid boundaries and competitive market structures.
Whereas, at the outset of broadcasting, market access was constrained by spectrum limitations, the structure of the television and radio industries has been transformed by the arrival and growth of new forms of delivery for television such as cable, satellite, and digital platforms. Many studies over the years have focused on the effect of channel proliferation and additional competition, as well as increased sectoral overlap between broadcasting and other forms of communications provision (Picard, 2006). Likewise, major changes in the economic organization of print media industries and their impact on production costs, market access, and levels of competition are frequently the subject of interest in media economics texts and studies.
Not only have the avenues for distribution of media been expanding, but also changes in technology and in state policies have opened up national broadcasting systems and contributed to a growing trend toward internationalization of operations by media companies. The process of globalization of media has been propelled forwards by digital technologies (Goff, 2006) and the growth of the Internet, which has created a major impetus in the direction of global interconnectedness. Much recent research work has addressed strategic responses on the part of firms both to common trends generally affecting the media environment, such as globalization and convergence (Kung, 2008), and to changes that are very specific to individual media markets, such as internationalization of Norwegian newspapers (Helgesen, 2002), deregulation of broadcasting in Finland (Brown, 2003), or the role of domestic quotas in the success of Korean films (Lee & Bae, 2004).
Media economics concerns itself with a wide range of strategies and behaviors that reflect the distinctive features and circumstances of this industry. Hoskins, McFadyen, and Finn (1997) have examined some key economic and managerial challenges facing firms in the television and film production industries, for example, the need to ensure that creative and business inputs function effectively alongside each other—an issue that has also been tackled in some depth by Caves (2000). Hoskins et al. explain how risks and uncertainties associated with producing high-cost audiovisual output are offset, for example, by the use of sequels and series that build on successful formats and through the “star” system, which helps to build brand loyalty among audiences and therefore promote higher and more stable revenue streams.
Strategies of risk spreading are important in media because of uncertainty surrounding the success of any new product. Production is expensive, and while market research may prove helpful, these are essentially hit-or-miss businesses. The factors that determine whether films, books, and music albums will prove popular (including fads, fashions, and the unexpected emergence of “star” talent) are difficult to predict. So strategies that counteract or mitigate risk are essential.
In television and radio, the fact that what is transmitted on any single channel is usually a whole range of products (a full schedule of programs) allows for some of the risks inherent to broadcasting to be reduced (Blumler & Nossitor, 1991, pp. 12-13). Control over a range of products greatly increases a broadcaster’s chances of making a hit with audience tastes and therefore covering the cost of producing the whole schedule or “portfolio” or programs. In the twenty-first century, digital compression techniques and more channel capacity have extended the opportunities for broadcasters to engage in portfolio strategies because, as well as offering variety within the schedule of an individual channel, many television companies have become multichannel owners offering variety across a range of related services (MTV1, MTV2, etc.).
The success of the Hollywood majors in counteracting risk and dominating international trade in feature films has been of enduring interest for scholars working in media economics, including De Vany (2004), Hoskins et al. (1997), Steemers (2004), and Waterman (2003). The key to risk reduction for Hollywood producers is again to be found in control over distribution and the ability to supply audiences with a range of product. The ability to support and replenish a large portfolio of output is dependent on being able to fully exploit new and old hits but, as with the music industry, this is now potentially under threat from illegal copying.
Many of the strategies for economic advancement adopted by media firms are based on sharing content and therefore exploiting intellectual property assets as fully as possible. “Networking” is a good example. In broadcasting, a network is an arrangement whereby a number of local or regional stations are linked together for purposes of creating or exploiting mutual economic benefits (Owen & Wildman, 1992, p. 206). Usually the main benefit is economies of scale in programming. Because they are based in different localities, local or regional stations that form part of a network can successfully share a similar or identical schedule of programs, thereby reducing per-viewer costs by spreading the cost of producing that service across a much bigger audience than would otherwise be possible.
A similar sort of logic is at work in, for example, the affiliations or networks of international publishing partners that may be involved (e.g., under franchise agreements) in publishing several different international versions of the same magazine title (Doyle, 2006). The ability to share content and images across the network means that the cost of originating copy material can be spread across a much wider readership, and each partner benefits from access to more costly elements of content (e.g., celebrity interviews) than could be afforded if the magazine were a stand-alone operation. Aside from reaping economies on content, being part of a network may also confer benefits in terms of shared deals on advertising sales.
The translation or reformatting of content from one media platform to another makes increasing economic sense in the context of globalization and digitization, especially so in times of economic recession when revenues are under pressure. This process, referred to by Murray (2005, p. 420) as “content streaming,” involves the coordinated distribution of strongly branded content across multiple delivery formats. The aim is to reap economies not by using content that appeals to a single mass audience but rather through building and leveraging brand loyalties among specific target audience segments.
For media content suppliers, profit maximization depends on the full and effective exploitation of intellectual property rights across all available audiences. So a crucial concept in the economics of supplying media content is “windowing” (Owen & Wildman, 1992). This refers to maximizing the exploitation of content assets by regarding primary, secondary, and tertiary audiences (e.g., on free vs. pay channels) as “windows” and by selling your products not only through as many windows or avenues as possible but also in the order that yields the maximum possible return. The idea behind windowing is to carefully arrange the timing and sequence of releases so as to maximize the profit that can be extracted from the whole process, taking into account factors such as audience size, profit margin per head, risks of piracy, and so on.
When Owen and Wildman (1992) explained the practice of windowing, it was in the context of releasing programs via pay and free television and video outlets in the United States and overseas markets. Approaches toward exploiting content have evolved considerably since then, with many media operators now adopting “blended” distribution strategies and operating a “360-degree” approach to commissioning (Pennington & Parker, 2008). In other words, product is created with the intention of selling it across numerous different delivery platforms, not just television but also mobile and Internet. In an increasingly cross-platform or converged production context, the need to devise and execute strategies for effective and full economic exploitation of intellectual property assets has become more pressing and more complex. So windowing remains an important theme in media economics, with potential to offer useful theoretical and practical insights for all media content suppliers.
Media Economics and Public Policy
It is usually assumed in economics that free markets will work better to allocate resources than centralized decision making by government, but intervention is sometimes called for to counteract deficiencies arising from the free operation of markets. This might be, for instance, because a “market failure” has occurred. A concern that is often at the root of work carried out in media economics is what role the state should play in ensuring that the organization and supply of media output matches societal needs. Which sorts of policies and what forms of intervention and regulation are needed to correct market failures and/or improve the allocation and usage of resources devoted to media provision?
So generally speaking, the most important economic reasons why state intervention might be needed are because of a need to address market failures, deal with the problem of “externalities,” or restrict or counteract the use of monopoly power. But it is worth noting that governments can and do very often intervene in media markets for noneconomic reasons too. Because of the sociocultural and political influence that accompanies the ability to communicate with mass audiences, media and communications tend to be much more heavily regulated than other areas of economic activity, with special provisions covering, for example, protection of minors, balance and impartiality, and so on.
Broadcasting—still the largest sector of the media in economic terms—is, as evident from much of the literature of media economics, seen as especially prone to market failure. An example of failure is that broadcasting would not have taken place at all in the first place if left up to profit-seeking firms reliant on the conventional mechanism of market funding (i.e., consumer payments) because at the emergence stage in radio and television, there was no way to identify and/or charge listeners and viewers.
But many failures stem partly from the public good characteristics of the broadcasting commodity already mentioned. With any good or service that is “nonexcludable” (i.e., you cannot exclude those that do not want to pay) and where customers do not have exclusive rights to consume the good in question, free rider problems are virtually inevitable. Being a public good, broadcast output also has the characteristic of being “nonexhaustible”— typically, there are zero marginal costs in supplying the service to one extra viewer. Thus, it can be argued that “restricting the viewing of programmes that, once produced, could be made available to everyone at no extra cost, leads to inefficiency and welfare loss” (Davies, 1999, p. 203). Another cause of market failure relates to the problem of asymmetric information. Graham and Davies (1997) summarize this by explaining that “people do not know what they are ‘buying’ until they have experienced it, yet once they have experienced it they no longer need to buy it!” (p. 19).
Another source of market failure is externalities. These are external effects imposed on third parties when the internal or private costs to a firm of engaging in a certain activity (pollution, for example) are out of step with costs that have to be borne by society as a whole. Broadcasting can have negative external affects when, for example, provision of violent content imposes a cost on society (through increasing fear of violence among viewers). Because the cost to society is not borne by the broadcaster, there arises a market failure in that broadcasters may well devote more resources to providing popular programs with negative external effects than is socially optimal. And this needs to be corrected through some form of public policy intervention.
Externalities in the media are by no means always negative. It is generally recognized that some forms of media content confer positive externalities (e.g., documentaries, educational and cultural output) and, equally, that such output may be undersupplied under free-market conditions.
Although advances in technology have gone some way toward correcting initial causes of market failure (e.g., absence of mechanisms for direct payments), there are still a number of ways in which it might be argued that when it comes to broadcasting, a completely unregulated market might fail to allocate resources efficiently. (Setting aside efficiency problems, some would say broadcasting is, in any event, too important in sociocultural terms to be left up to free market—a separate argument.) The most commonly used tools to correct failures have been regulation (e.g., content rules that apply to commercial television and radio operators) and public ownership. Much important research work carried out in the area of media economics over the years has focused on questions around market failure and the merits or otherwise of public ownership as a solution. Economists have put forward different sorts of evidence and arguments concerning how best to advance “public purposes” associated with broadcasting.
For some, the public good characteristics of broadcasting (nonexcludability and nonexhaustability) suggest it would best be supplied by the public sector at zero price, using public funds (Davies, 1999). And indeed, most countries have some sort of publicly funded and state-owned broadcasting entity to provide public service broadcasting (PSB). But in an era of increased choice and when the technology to allow viewers to make payments directly for whatever services they want is well established, others argue that the use of public funds to finance broadcasting is no longer appropriate (Elstein, 2004).
Aside from public ownership, other ways in which state authorities can encourage the dissemination of particular forms of output include provision of public subsidies directed not at organizations but rather at encouraging production or distribution of whatever sort of content is favored. Special support measures that encourage greater supply and consumption of media content that confers positive externalities are very common and have frequently been the subject of analysis in media economics research work.
Policy interventions designed to support media content generally take two forms. Some interventions are essentially protectionist and help domestic producers by restricting the permitted level of imports of competing nondomestic television or feature film content. Work on international trade in audiovisual content, as well as on the dominance of U.S. suppliers and the efficacy of policy measures to counter this, has been a staple in media economics over many years (Noam & Millonzi, 1993). The affect of tariffs, quotas, and trade disputes in the audiovisual sector have received attention from numerous economists, most notably Acheson and Maule (2001) and Hoskins et al. (1997, 2004).
An alternative approach, rather than imposing tariffs or trade barriers, is to provide grants and subsidies for content producers. European countries such as Germany and France have a long tradition of providing grants to television and film producers to boost indigenous production levels. Work in media economics has helped explain how production grants allow the positive gains to society arising from the availability of, say, indigenously made audiovisual content to be internalized by the production firm, thus correcting the failure of the market system to provide an adequate supply of such content. But the dangers that grants may encourage deviations from profit-maximizing behavior and promote a culture of dependency among local producers are also well covered in media economics texts.
One other very significant concern that arises from the free operation of markets and is frequently a focus in work by media economists is monopolization—the accumulation and potential for abuse of excessive market power by individual media firms and organizations. The prevalence of economies of scale and scope in media, as discussed above, creates an incentive toward expansion and diversification by media firms and, in turn, a natural gravitation toward monopoly and oligopoly market structures. So concentrations of media ownership are a widespread phenomenon, and notwithstanding ongoing technological advances affecting distribution, questions about how policy makers should deal with these have long been of interest to those working in media economics.
A key question is the extent to which media expansion strategies give rise to useful efficiency gains and how much they result in the accumulation of excessive market power within and across media industries. A tricky problem facing policy makers is that sometimes expansion and mergers in the media sector will result in both of these outcomes (i.e., expansion makes possible greater efficiency), but at the same time, it facilitates market dominance and therefore poses risks for competition (Doyle, 2002, p. 166). Concerns about the potential for exercise of monopoly power and about suitable measures to accommodate the development of media firms, while enabling competition, remain important themes in policy making that media economics specialists can help shed light on.
Impact of Technological Change
Because media industries are heavily reliant on technology, a recurring theme for work in media economics is the impact of technological change. From the arrival of the printing press to the era of wireless Internet, processes of media production and distribution have been heavily dependent on and shaped by technology. For media firms, the need to understand, participate in, and capitalize effectively on technological advancements is a constant challenge. For regulators, the task of protecting and promoting public interest concerns associated with mass communication is greatly complicated by ongoing technological change. So a great deal of work in media economics is about, in one way or another, exploring the implications of recent technological advances.
The introduction of digital technology and the growth of electronic infrastructures for delivery of media have been major forces for change in recent years. The spread of digital technology has affected media production, distribution, and audience consumption patterns with knock-on implications for advertising. In the United Kingdom, the Internet accounted for “nearly one in every five pounds of advertising in 2007” (Ofcom, 2008, p. 27).
In broadcasting, digital compression techniques have multiplied the potential number of channels that can be conveyed. Digital technology has allowed for improved and enhanced television and radio services and for a more efficient usage of available spectrum. Much recent work in media economics has examined the implementation of digital broadcasting, looking at, for example, systems of incentives to encourage broadcasters and/or audiences to migrate from analog to digital, as well as at the economic implications and advantages of redeployment of radio spectrum post-digital switchover.
Digitization has facilitated a greater overlap or convergence in the technologies used in broadcasting, telecommunications, and computing and has opened up opportunities for the development of multimedia and interactive products and services. Convergence is encouraging more cross-sectoral activity and conglomerate expansion, raising new questions about the blurring of traditional market boundaries and barriers. Shaver and Shaver (2006, p. 654) observe that, whereas scholars have tended to focus on individual media industries in the past, the challenges posed by cross-media development will require more evolved approaches in future decades.
The Internet is based on digital technology, and its expansion over recent years has had a seismic impact on the whole media industry. Media content is ideally suited to dissemination via this digital infrastructure. But the question of how much the Internet will revolutionize competition in media content provision is debatable. Graham (2001, p. 145) notes that, despite changing technology and widening market access, the economics of content provision and the importance of reputation (or strong brands) favor the predominance of large players. Goodwin (1998) similarly has argued that these fundamental economic characteristics and features that favor the position of large diversified media enterprises remain largely unchanged because of the arrival of digital technology.
However, for large media content suppliers just as much as small ones, the question of how best to take advantage of digital delivery platforms remains problematic, even a decade into the twenty-first century. Newspaper publishers, having followed their readers and advertisers online and adjusted to a more cross-platform approach, have not found it easy to convert their Web-based readership into revenues (Greenslade, 2009). Notwithstanding the growing popularity of online services based on user-generated content, social networking sites, and search engines and the increasing propensity for advertisers to invest in online rather than conventional media, concerns about the economic viability of Internet-based media provision still abound.
Internet-based television opens up the prospect of a further significant widening of market access to broadcast distribution, albeit that poor or unreliable reception and an uncertain legal environment for Internet-based television have to some extent served as deterrents to new market entry (Lobbecke & Falkenberg, 2002, p. 99). Be that as it may, few broadcasters are ignoring the growth of the Internet (Chan-Olmsted & Ha, 2003). As the infrastructure of the Internet continues to improve, research into organizational responses to new delivery technology in the television industry represents another important area for emerging work in media economics.
Some studies have paved the way in exploring how the Internet has affected mass media (Kung, Picard, & Towse, 2008) and problems that media enterprises have faced in establishing viable business models for Internet-based content provision services. However, in a climate of rapid technological evolution, further economic research work is needed to build our understanding of the transformative effect of this interactive delivery platform.
Ever-expanding avenues for distribution and the growth of interactive and cross-platform products and services have increased overall demand for attractive and high-profile content. At the same time, digital technology has reduced audiovisual production costs, opened up more possibilities for user-generated content, and generally made it more economically feasible to produce content aimed at narrow audience segments. But digitization and the growth of the Internet have also introduced new threats. The possibility of widespread intermediation of data (i.e., for reassembling or repackaging content lifted from other Web sites) is a significant threat for online publishers.
Copyright is an important topic affecting the economics of creation and supply of media output. A number of scholars working in the area of cultural economics have provided useful analyses of systems of incentives for authors to produce creative output that copyright provides. Prominent among these is Ruth Towse (2004), who explains that “ownership of copyrights is likely to be concentrated in enterprises with excessive market power” (p. 60), but on the other hand, potentially high rewards are needed to offset the risks and heavy initial costs involved in supplying creative works.
Digitization and the scope, created by the Internet, for widespread illegal reproduction and dissemination of copyright protected work have made it more difficult for rights owners to capture all the returns due to them. So far, this has affected the music industry more than others, albeit that recent declines in the revenues earned by record companies are attributable to factors other than piracy. Nonetheless, audiovisual material and indeed any information goods that can be conveyed in a digital format are also now increasingly fallible to large-scale electronic piracy. This poses significant potential challenges, for example, to film distributors. For all content creators and rights owners, electronic piracy or illegal reproduction of copyright protected works is now a major concern. Thus, identifying sustainable revenue models for the future represents a major challenge for many media suppliers, as indeed for economists working in this area.
Conducting scholarly work in the area of media economics can be problematic, not least because, on account of the industry’s reliance on technology, it is a sector that is almost always in a state of flux. Rather than deterring interest, however, such challenges are a source of attraction that continues to inspire innovative and exciting research work where the tools of economics are deployed in analyzing media issues and problems.
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