Soc. 118Soc. 118Media, Culture & SocietyMedia, Culture & Society

Chapter Two:Chapter Two:The Economics The Economics

of the of the Media IndustryMedia Industry

OVERVIEWOVERVIEW

The Economics of the Media The Economics of the Media IndustryIndustry Changing Patterns of OwnershipChanging Patterns of Ownership Consequences and Effects Consequences and Effects

Mass Media for ProfitMass Media for Profit Prime Time TVPrime Time TV News MediaNews Media

The Impact of AdvertisingThe Impact of Advertising

The Economics of the Media The Economics of the Media IndustryIndustry

Focus on media products as the result Focus on media products as the result of social processes of productionof social processes of production The The production perspectiveproduction perspective

Emphasis on broad structural Emphasis on broad structural constraints on media production constraints on media production

How economic factors shape decision How economic factors shape decision making and influence media content making and influence media content

Most critical fact about the media is Most critical fact about the media is that most are a for-profit businessthat most are a for-profit business Underlying goal of organizationsUnderlying goal of organizations

Changing Patterns of Changing Patterns of OwnershipOwnership

Who owns the media?Who owns the media? What is the connection between What is the connection between

ownership and media products?ownership and media products? Three interrelated trendsThree interrelated trends

ConglomerationConglomeration ConcentrationConcentration IntegrationIntegration

Effects and ConsequencesEffects and Consequences

ConglomerationConglomeration

Media companies have become part of larger Media companies have become part of larger corporationscorporations They may have other diverse businessesThey may have other diverse businesses

Because it is profitable for big businessBecause it is profitable for big business Attractive properties for investors and buyersAttractive properties for investors and buyers

Media has become key segment of American Media has become key segment of American economyeconomy Move from manufacturing to other types of service Move from manufacturing to other types of service

economies economies Media products also major exportMedia products also major export

ExamplesExamples General ElectricGeneral Electric

Owns NBCOwns NBC SonySony

From hardware to softwareFrom hardware to software SeagramsSeagrams

Owns UniversalOwns Universal

Concentration of OwnershipConcentration of Ownership Fewer and fewer corporations own the mediaFewer and fewer corporations own the media

Monopolies, mergers and takeoversMonopolies, mergers and takeovers Media companies own vast portfolios of Media companies own vast portfolios of

productsproducts Range of media formats and delivery Range of media formats and delivery

systemssystems Many media outlets with different Many media outlets with different

namesnames Owned by same parent companyOwned by same parent company

Small independents bought up by larger Small independents bought up by larger companiescompanies

A small number of multinational companies dominate A small number of multinational companies dominate the industrythe industry Within each sector, a handful of companies tower above Within each sector, a handful of companies tower above

competitorscompetitors BooksBooks

Bertlesmann (Random House), Pearson (Penguin), News Bertlesmann (Random House), Pearson (Penguin), News Corp (HarperCollins)Corp (HarperCollins)

MagazinesMagazines AOL Time WarnerAOL Time Warner

Motion picturesMotion pictures Universal, Paramount, 20Universal, Paramount, 20thth Century Fox, Disney, Warner Century Fox, Disney, Warner

Bros., SonyBros., Sony MusicMusic

Universal (Vivendi), Sony, Bertlesmann (now merged as Universal (Vivendi), Sony, Bertlesmann (now merged as Sony BMG), AOL Time Warner, EMI (now Terra Firma)Sony BMG), AOL Time Warner, EMI (now Terra Firma)

Television (less concentrated)Television (less concentrated) Networks: ABC, CBS, NBC, Fox, WB, other cable Networks: ABC, CBS, NBC, Fox, WB, other cable

channels?channels? RadioRadio

Clear ChannelClear Channel NewspapersNewspapers

Gannett, Knight RidderGannett, Knight Ridder

Concentration of Concentration of OwnershipOwnership

Video Clip:Video Clip:

AOL Time/WarnerAOL Time/Warner

MergerMerger

IntegrationIntegration Two types of media concentrationTwo types of media concentration

Owners perceive these arrangements as Owners perceive these arrangements as efficient and profitableefficient and profitable

Vertical integrationVertical integration One owner acquires all aspects of One owner acquires all aspects of

production and distribution of a single production and distribution of a single media product media product

Concentrating ownershipConcentrating ownership within within one one industryindustry

Horizontal integrationHorizontal integration One owner acquires different kinds of mediaOne owner acquires different kinds of media Concentrating ownership Concentrating ownership across across different different

types of industries types of industries

Consequences of Consequences of IntegrationIntegration

Ownership patterns likely to affect what Ownership patterns likely to affect what kind of media products are createdkind of media products are created

Owners are likely to prefer products that Owners are likely to prefer products that can create "can create "synergy”synergy” Products that can be exploited by other Products that can be exploited by other

components of the conglomeratecomponents of the conglomerate Vertical integrationVertical integration

Controls all aspects of production and Controls all aspects of production and distribution distribution

Limits competitionLimits competition Horizontal integrationHorizontal integration

Cross-promotionCross-promotion is driving force behind growth is driving force behind growth of this ownership trendof this ownership trend

Recent examples Recent examples

Consequences of ConglomerationConsequences of Conglomeration The media are seen as necessarily profit-makingThe media are seen as necessarily profit-making

Increased bottom-line pressureIncreased bottom-line pressure Greatest concern is in the area of newsGreatest concern is in the area of news

Traditionally sheltered from such pressureTraditionally sheltered from such pressure News divisions had a public service commitmentNews divisions had a public service commitment Not expected to turn a profitNot expected to turn a profit

Takeover of news operations by conglomeratesTakeover of news operations by conglomerates MBAs have replaced seasoned journalists as company MBAs have replaced seasoned journalists as company

executivesexecutives Clashes between news divisions and corporate ownersClashes between news divisions and corporate owners

NBC and the “boundary-less” companyNBC and the “boundary-less” company No division between news, entertainment, salesNo division between news, entertainment, sales

News programs facing stiff competition for viewersNews programs facing stiff competition for viewers Results in increased emphasis on entertainment and celebrity Results in increased emphasis on entertainment and celebrity The “Hollywoodization” of news The “Hollywoodization” of news

Print journalism has also been affectedPrint journalism has also been affected Emphasis on attracting consumers rather than informing Emphasis on attracting consumers rather than informing

citizenscitizens Increasingly colorful, sensationalistic and dramaticIncreasingly colorful, sensationalistic and dramatic

Consequences of ConcentrationConsequences of Concentration Media Control and Political PowerMedia Control and Political Power

Can ownership be translated into political influence?Can ownership be translated into political influence? First Amendment protects freedom of the press and protects First Amendment protects freedom of the press and protects

against government censorshipagainst government censorship Corporations (rather than gov’t) own “private Corporations (rather than gov’t) own “private

ministry of information”ministry of information” Small number of firms with similar interestsSmall number of firms with similar interests

Can owners use media outlets to promote political Can owners use media outlets to promote political agendas?agendas?

Examples of Bloomberg (Mayor NYC) and Murdoch (News Examples of Bloomberg (Mayor NYC) and Murdoch (News Corp)Corp)

Owners can also control information by excluding Owners can also control information by excluding certain ideas and imagescertain ideas and images

The “corporate voice” has become the normThe “corporate voice” has become the norm Media generated discourse about the American economyMedia generated discourse about the American economy

Control and influence cannot be totalControl and influence cannot be total But freedom of the press only for those who can But freedom of the press only for those who can

afford to own oneafford to own one Marx: “The ruling ideas are the ideas of the ruling class”Marx: “The ruling ideas are the ideas of the ruling class” More difficult for alternative voices to emergeMore difficult for alternative voices to emerge

Gerald Levine—CEO Gerald Levine—CEO Time/Warner Time/Warner

CNN interview January 2, 2000CNN interview January 2, 2000

““Global media will be and is fast Global media will be and is fast becoming the predominant business of becoming the predominant business of the 21st century. So predominant, in the 21st century. So predominant, in fact, that the media business is now fact, that the media business is now

more important than government. It’s more important than government. It’s more important than education more important than education

institutions and non-profit institutions and non-profit organizations. We’re going to need to organizations. We’re going to need to have these corporations redefined as have these corporations redefined as

instruments of public service, and that instruments of public service, and that may be a more efficient way to deal may be a more efficient way to deal

with society’s problems than with society’s problems than bureaucratic governments.”bureaucratic governments.”

Consequences of Consequences of ConcentrationConcentration

Media Ownership and Content DiversityMedia Ownership and Content Diversity Theory that competition leads to Theory that competition leads to

diversitydiversity Concentration and horizontal integration Concentration and horizontal integration

can lead to homogenizationcan lead to homogenization Absence of competitionAbsence of competition

Research on relationship between Research on relationship between competition and diversity shows competition and diversity shows conflicting evidenceconflicting evidence Case studies of newspapers and popular Case studies of newspapers and popular

musicmusic

Case Study in Content Diversity:Case Study in Content Diversity:The Local Newspaper MonopolyThe Local Newspaper Monopoly

Fewer cities with 2 or more daily newspapersFewer cities with 2 or more daily newspapers Fear that monopoly (or joint-ownership/quasi-Fear that monopoly (or joint-ownership/quasi-

monopoly) papers will be less diverse than monopoly) papers will be less diverse than competing paperscompeting papers

Competition should lead to greater diversityCompetition should lead to greater diversity Vertical diversity: range of actors mentioned and Vertical diversity: range of actors mentioned and

degree of disagreement degree of disagreement withinwithin a single paper a single paper Horizontal diversity: differences in content Horizontal diversity: differences in content betweenbetween

two paperstwo papers All newspapers lack in diversityAll newspapers lack in diversity

Competitive papers must attract same advertisers Competitive papers must attract same advertisers and audiencesand audiences

Papers minimize costs and produce lowest-common-Papers minimize costs and produce lowest-common-denominator product with broadest appealdenominator product with broadest appeal

Case Study in Content Diversity:Case Study in Content Diversity:The Music IndustryThe Music Industry

Competition leads to innovation and diversity in Competition leads to innovation and diversity in musicmusic Measured by: Measured by:

# of different songs# of different songs # of new and established artists in top 10 than competing # of new and established artists in top 10 than competing

paperspapers Diversity increases when concentration decreasesDiversity increases when concentration decreases

Dramatic shift occurred between 1940-50s and 1960sDramatic shift occurred between 1940-50s and 1960s Opening of market through shift from national to local radioOpening of market through shift from national to local radio

Increased oligopoly in 1990sIncreased oligopoly in 1990s Diversity did not decreaseDiversity did not decrease

Change in system of production within industryChange in system of production within industry Shift from “closed” to “open” systemShift from “closed” to “open” system

Record companies control manufacturing, distribution, Record companies control manufacturing, distribution, promotionpromotion

But use independent producers to maintain vitality of musicBut use independent producers to maintain vitality of music Higher ratio of record Higher ratio of record labelslabels to record to record firmsfirms

MASS MEDIA FOR PROFIT:MASS MEDIA FOR PROFIT:The Case of Prime-Time TVThe Case of Prime-Time TV

Programming decisions made with profits Programming decisions made with profits in mindin mind Need to have hit shows to attract large audiencesNeed to have hit shows to attract large audiences

To charge premium rates for advertising time on To charge premium rates for advertising time on those showsthose shows

Failure is the norm in network TVFailure is the norm in network TV Only small # of shows are a successOnly small # of shows are a success

Hit shows provide large profits to make up for Hit shows provide large profits to make up for failuresfailures

May represent only 10% of programmingMay represent only 10% of programming Search for the formula for successSearch for the formula for success

Programming strategies:Programming strategies: ““The Logic of Safety”The Logic of Safety” ““Nothing Succeeds Like Success”Nothing Succeeds Like Success” ““Newsmagazine” and “Reality TV” programsNewsmagazine” and “Reality TV” programs

Programming Strategies:Programming Strategies:“The Logic of Safety”“The Logic of Safety”

Executives are never sure what Executives are never sure what audiences will watchaudiences will watch Or why some shows succeed and others Or why some shows succeed and others

don’tdon’t Efforts to minimize the risk of losing Efforts to minimize the risk of losing

money on programsmoney on programs ““Risky” programsRisky” programs

Those that seem unlikely to attract mass Those that seem unlikely to attract mass audience or major advertiseraudience or major advertiser

General tendency to avoid controversyGeneral tendency to avoid controversy Even when it might bring high ratingsEven when it might bring high ratings

Programming StrategiesProgramming Strategies ““Nothing Succeeds Like Success”Nothing Succeeds Like Success”

Spin-offsSpin-offs Examples: (See link) Examples: (See link)

Copy-catsCopy-cats Examples:Examples:

Newsmagazine ProgramsNewsmagazine Programs Audience size and ratings are down from Audience size and ratings are down from

past decadespast decades Cost of production for dramas and sitcoms is Cost of production for dramas and sitcoms is

upup Incentive to produce programs in-houseIncentive to produce programs in-house Less expensive to use existing news resources Less expensive to use existing news resources

and “found footage” and “found footage” Reality TVReality TV

Modest production budgetsModest production budgets ““Unscripted” and no star salariesUnscripted” and no star salaries

Hits, Stars and Decision-MakingHits, Stars and Decision-Making Fame and stardom are key resources in media Fame and stardom are key resources in media

industryindustry The business of celebrityThe business of celebrity

The “hit-system” or “star principle”The “hit-system” or “star principle” If hits are the goal, then producers want to find new If hits are the goal, then producers want to find new

or existing stars who can attract a large audienceor existing stars who can attract a large audience Producers decide which products and people Producers decide which products and people

have best chance for successhave best chance for success Stars are an agreed upon currency for assessing Stars are an agreed upon currency for assessing

projectsprojects Heavy promotion and favorable scheduling of showsHeavy promotion and favorable scheduling of shows

Commitment to stars and their reputationsCommitment to stars and their reputations ““Brought to you by” the writers, producers, directors Brought to you by” the writers, producers, directors

of …of … To reduce risk and uncertainty about what succeedsTo reduce risk and uncertainty about what succeeds

Profit and the News MediaProfit and the News Media News outlets now need to increase profitsNews outlets now need to increase profits

Lowering the cost of gathering and Lowering the cost of gathering and producing the newsproducing the news

Decrease # of journalists (especially investigative Decrease # of journalists (especially investigative reporting)reporting)

Use larger % of wire service reports (Associated Use larger % of wire service reports (Associated Press, Reuters)Press, Reuters)

Use video PR segments and press releasesUse video PR segments and press releases Focus on preplanned eventsFocus on preplanned events Rely on a small # of elites and institutionsRely on a small # of elites and institutions Close foreign bureausClose foreign bureaus

Increasing revenuesIncreasing revenues Create light, entertaining programsCreate light, entertaining programs Avoid controversy and present news in upbeat, Avoid controversy and present news in upbeat,

reassuring mannerreassuring manner Focus on personality-oriented journalismFocus on personality-oriented journalism Highlight intrigue, titillation and scandalHighlight intrigue, titillation and scandal

The Impact of AdvertisingThe Impact of Advertising Media rely on advertising baseMedia rely on advertising base

Television, radio, magazines, newspapersTelevision, radio, magazines, newspapers Companies pay to place ads for their productsCompanies pay to place ads for their products

Media are in the business of “delivering Media are in the business of “delivering audiences to advertisers”audiences to advertisers” How ratings are tied to advertising ratesHow ratings are tied to advertising rates

Neilsen and other audience researchNeilsen and other audience research Advertisers are buying audiences Advertisers are buying audiences

Indifferent to content or programmingIndifferent to content or programming Something to hang ads onSomething to hang ads on

Growth in advertising in new realmsGrowth in advertising in new realms Movie previewsMovie previews Product placementProduct placement Captive audiencesCaptive audiences

Waiting roomsWaiting rooms Channel One in classrooms Channel One in classrooms

The Impact of AdvertisingThe Impact of Advertising Advertising and the News MediaAdvertising and the News Media

News usually depict advertisers’ products and interests News usually depict advertisers’ products and interests in favorable lightin favorable light

Unconscious self-censorship on the part of journalistsUnconscious self-censorship on the part of journalists ““Lifestyle” sections focus on consumptionLifestyle” sections focus on consumption

News should maintain a tone that keeps a “buying mood”News should maintain a tone that keeps a “buying mood” Financial incentive to produce news that appeals to Financial incentive to produce news that appeals to

upscale audienceupscale audience Advertising and MTVAdvertising and MTV

Music videos are themselves advertisingMusic videos are themselves advertising Cable TV allowed for new programmingCable TV allowed for new programming Music industry provided videos to MTV at no chargeMusic industry provided videos to MTV at no charge

Music videos are determined by promotional demandsMusic videos are determined by promotional demands Result of marketing rather than artistic decisionsResult of marketing rather than artistic decisions

Advertising and “New” MediaAdvertising and “New” Media Internet advertisingInternet advertising

Focus on search engines and other high traffic sitesFocus on search engines and other high traffic sites Cable TV and “narrowcasting”Cable TV and “narrowcasting”

Niche markets fragment audiencesNiche markets fragment audiences