Economics of the Mass Media

2. Economics of the Mass Media

3. 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

4. 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

5. Capitalism and Communication • Communication IS market culture • Communication systems provide essential market infrastructure • By what economic rules should they play?

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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?)

15. 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

16. 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

17. Characteristics 2 • Not Destroyed in the Act of Consumption • Renewable: that is, unlike a pizza, not consumed • Non Excludable • Often available over free airwaves

18. 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

19. 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% $

20. 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

21. 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.

22. 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

23. 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)

24. 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

25. 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

26. Ways to Measure Trade Dominance • Share of Domestic Markets ( individual nation basis) • Share of total world trade

27. 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

28. 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)

29. 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

30. 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