Basic Economics of Radio

1. Basic Economics of Radio Marko Ala-Fossi University of Tampere Community Media and New Technology - where next? June 9, 2009 Lusaka, Zambia

2. Production and Distribution Economics of Radio • In broadcast radio, the content product is an intangible public good. Its consumption does not diminish its availability to others. • The actual number of listeners has absolutely no effect on production expenses. • The ratio of fixed to variable costs is relatively high • The bigger the potential number of program consumers is, the more cost-efficient the broadcasting operation becomes

3. Production and Distribution Economics of Radio • As the amount of web radio listeners increase, the more the bandwidth is needed and the more the station has to pay. Web radio is also intangible, but not a public good: its consumption diminishes its simultaneous availability to others. • The distribution cost structure is unpredictable and disadvantageous when compared to broadcasting • Big audiences are much more expensive for the radio operator to serve than small ones

4. Basic Economics of Radio • Basic economic model a fundamental system of generating income or revenue that finances at least a part of the expense of the continuous operation of a media organization. Most organizations and businesses use several economic models simultaneously, as well as combining them together in to new hybrid models

5. Basic Economics of Radio • subscription model (1893) • the customer pays the radio operator directly for audio programming. In a closed system, this model is nowadays rather easy to put in practice (cable and digital satellite radio). • exterior business financing (early 1920’s) • radio broadcasting is used to promote some other commercial business operation (for example radio manufacturing), and then part of the profits is used to finance the programming.

6. Basic Economics of Radio • exterior private financing (early 1920’s) • exterior non-profit private organizations provided the money for radio operations. • directtax funding (early 1920’s) • radio operations are financed by the public funds through the state or city annual budget

7. Basic Economics of Radio • license-fee model (1922) • first introduced in Great Britain. Generally more insulated from the government than direct tax funding, representing the interests of the wider society and rather than the state. • directly advertising-supported (1922) • started as “toll-programming” (WEAF, NY): different manufacturers and services buy broadcast time and pay to the station for delivering their messages to the audience.

8. Basic Economics of Radio • commercial sponsorships (mid-1920’s) • the advertiser pays a part or the whole production of a program and get control over the content as well as public credit for financing. • voluntary listener sponsorship (early 1920’s) • not a business model: people give money for the programs - or the individuals and private organizations are making payments primarily for ideological, social or cultural reasons.

9. Basic Economics of Radio • Subscription, exterior business financing, commercial sponsorship and direct advertising models are all market based or consumer dependent models, because the amount of income generated with these models is directly dependent on the quantity and quality of program consumers. • Tax funding, license fees, exterior private financing and voluntary listener sponsorship are non-market or non-consumer dependent models, becausethe amount of income is not directly dependent on the quantity and quality of program consumers.

10. The Difference between Commercial and Non-Profit Radio • Commercial radio can be defined here as a radio operation, which is striving to produce pure profit to be divided amongst its owners. This basic motivation makes the difference between non-profit (community) and commercial radio operations, not the amount of dividends or the economic models used. non-profit ≠ unprofitable