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 sovereignty

(or supreme and independent authority)(or supreme and independent authority) led to led to practices of protection against foreign ownership, practices of protection against foreign ownership, ways to favour local business,regulate airwavesways 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