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Media Economics and the Global Marketplace

Chapter 13

Media Takeovers, Mergers, and Corporate Consolidations• At the heart of the “brave new media world” is a media

landscape that has been forever altered by the emergence of the internet• Control is shifting from companies like Time Warner and

Comcast to companies like Apple, Google, Facebook, and Netflix• The internet has forced almost all media business to rethink

not only the content they provide, but the entire economic structure within which our capitalist media system operates

Analyzing the Media Economy

Analyzing the Media Economy

• What role does the government need to play in determining who owns the mass media?

• Should it be a strong role, or should the government let competition and market forces dictate what happens?

• Should citizen groups play a larger part in demanding that media organizations help maintain the quality of social and cultural life?

• Does the influence of American popular culture worldwide smother or encourage the growth of democracy and local cultures?

• Does the increasing concentration of economic power in the hands of corporations too severely restrict the number of players and voices in the media?

The Structure of the Media Industry

• Media industries are typically structured in one of three ways:

1. Monopoly2. Oligopoly (the most common structure)3. Limited competition (typical of the radio and newspaper

industries)

The Performance of Media Organizations

• In analyzing the performance of media organizations, economists pay attention to a number of elements—from how media make money to how they set prices and live up to a society’s expectations

Collecting Revenue

• Direct Payment: Media products supported primarily by consumers, who pay directly for a book, movie, music download, or internet or TV service

• Indirect Payment: Media products supported primarily by advertisers, who pay for the quantity or quality of audience members that a particular medium delivers, such as radio and the internet

• Many forms of mass media generate revenue both directly and indirectly, including newspapers, magazines, online services, and cable systems

Commercial Strategies

• When selling media content, media industry executives look to the most advantageous balance in the commercial process, including program or product costs, price setting, marketing strategies, and regulatory practices• For example, when corporate executives trim news budgets

or fire news personnel, such decisions ultimately reduce the total number of distinct news stories that cover a crucial topic and may jeopardize the role of journalists as watchdogs of society• Media economic decisions thus affect the society in which

we live

Price

• How high can the price be raised of a book, movie, video game, music download, or internet service before people won’t buy it?• How much can Netflix charge per month before its

subscribers begins to switch to competing services?

Length, Frequency, and Tolerance

• How long will people tolerate a commercial break before they change the channel or click on something else?• How many seconds should Google allow a commercial to

run prior to a desired YouTube video before a user can “skip the ad?”

Data Mining and Privacy

• How much data can media companies such as Google or Facebook collect on customers before they find it an invasion of privacy?

Regulation

• How much advertising of alcohol to underage audiences can a media company get away with before drawing the attention of media critics, consumer organizations, and regulatory boards?

Transition to an Information Economy

The Transition to an Information Economy• The 20th century can be divided in two:• The first half of the century emphasized mass production, assembly

lines, the rise of manufacturing, and intense rivalry between U.S. based businesses and businesses from other nations that produced competing products

• The second half demonstrates a transition to a new cooperative global economy as the machines that drove the Industrial Age changed gears for the new Information Age

• Offices slowly displaced factories as major work sites• The emphasis on mass production slowly shifted to the cultivation of

specialized niche media markets

Deregulation Trumps Regulation

• During the rise of industry in the 19th century, entrepreneurs in the railroad, steel, and tobacco industries created monopolies• Congress responded by creating the first antitrust law in

1890, which outlawed monopoly practices and corporate trusts that fixed prices to force competitors out of business• Today, the FTC and the antitrust division of the Department

of Justice are responsible for enforcing these laws

Deregulation Spurs Formation of Media Conglomerates• The corporate regulations introduced between 1890 and 1950

were meant to increase competition between companies and prevent any one company from having too much control over the market• Companies used PR to fight this conception, and pushed the

idea that regulation was bad for business and bad for America• Under President Reagan, most controls on business were

drastically weakened• Deregulation led to easier mergers, corporate diversifications,

and increased tendency towards oligopoly

Deregulation Spurs Formation of Media Conglomerates• Some economists thought the new competition would lower

consumer prices• Others predicted more mergers and an oligopoly in which a

few megacorporations would control most of the wires entering a home and thus dictate pricing• Who was right?

Media Powerhouses: Consolidation, Partnerships, and Mergers• Despite their strength, the antitrust laws of the 20th century

have been unevenly applied, especially in terms of the media• Until the 1980s, antitrust rules attempted to ensure

diversity of ownership among competing businesses• What has occurred consistently, however, is media

competition being usurped by media consolidation• Most media companies have skirted monopoly charges by

purchasing diverse types of mass media rather than trying to control just one medium

Business Tendencies in Media Industries

• In addition to the consolidation trend, a number of other factors characterize the economics of mass media businesses• These are general trends or tendencies that cut across

most business sectors and demonstrate how contemporary global economies operate

Flexible Markets and the Decline of Labor Unions• Today’s information culture is characterized by what business

executives call flexibility—a tendency to emphasize “the new, the fleeting…and the contingent in modern life, rather than the more solid values implanted” during a time when relatively stable mass production drove consumption• The new elastic economy features the expansion of the service

sector—including health care, banking, real estate, fast food, internet ventures, and software—and the need to serve individual consumer preferences• This type of economy has relied on cheap labor, and on quick,

high-volume sales

Flexible Markets and the Decline of Labor Unions• The era of flexible markets also coincided with the decline in

the number of workers who belong to labor unions• Labor unions reached their peak in 1954, representing 34.8

percent of U.S. workers• Many jobs were exported to avoid the high price of unionized

U.S. labor• As large companies bought up small companies across national

boundaries, commerce developed rapidly at a global level• Now, union membership is about 11.3 percent of the population

Downsizing the Wage Gap

• From the beginning of the recession in December 2007 through 2009, the U.S. lost more than 8.4 million jobs, creating the highest unemployment contraction since the Great Depression• As the economy slowly recovered, 95 percent of

postrecession income growth was captured by the top 1 percent—those Americans with the greatest income• Media corporations are among those with the highest wage

gaps• The flexible economy is on trend towards more low-paying,

part-time jobs due to corporate downsizing

Economics, Hegemony, and Storytelling

• Hegemony: The acceptance of the dominant values in a culture by those who are subordinate to those who hold economic and political power• A ruling class in a society maintains its power not simply by

military or police force, but more commonly by citizens’ consent and deference to power• People who are without power do not routinely rise up against

those in power because “the rule of one class over another does not depend on economic or physical power alone but rather on persuading the ruled to accept the system of beliefs of the ruling class and to share their social, cultural, and moral values”


• Companies and rulers can’t lead people until the people consented to what those companies or rulers were trying to do• Companies, rulers, and politicians convinced consumers and

voters that the interests of the powerful were common sense and therefore normal or natural. This created an atmosphere and context in which there was less chance for challenge and criticism• “Common sense” is particularly powerful because it contains no

analytical strategies for criticizing elite or dominant points of view and therefore certifies class, race, or sexual orientation divisions or mainstream political views as natural and given

You can’t argue with common sense


• It is crucial to understand the central importance of storytelling to culture

• The narrative—as the dominant symbolic way we make sense of experience and articulate our values—is often a vehicle for delivering common sense

• Ideas, values, and beliefs can be carried in our mainstream stories—the ones we find in daily conversations, newspapers, political ads, books, magazines, movies, favorite TV shows, and online

• The reason that common narratives work is that they identify with a culture’s dominant values: family, honesty, hard work, religion, capitalism, health, democracy, loyalty, fairness, authenticity, modesty…


• Hegemony helps explain why we occasionally support economic plans and structures that may not be in our best interest• Often, the American Dream story is so powerful in our

media and popular culture that many of us believe that we have an equal chance of becoming rich, and therefore successful and happy

Specialization, Global Markets, and Convergence

The Rise of Specialization and Synergy

• The new globalism coincided with the rise of specialization—niche marketing of media products• Synergy: The promotion and sale of different versions of a

media product across the various subsidiaries of a media conglomerate

Disney: A Postmodern Media Conglomerate• The Walt Disney Company is one of the most successful

companies in leveraging its many properties to create synergies• In 2014, ABC broadcast The Story of Frozen: Making a

Disney Animated Classic• It was to promote the movie, the soundtrack, and to hype

Once Upon a Time

The Early Years

• In 1937, Snow White and the Seven Dwarfs was the first feature-length cartoon• The studio gained a reputation for high-quality hand-drawn

cartoons• Each movie took years to make and demanded the

attention of the entire company• Disney was one of the first studios to embrace TV• In 1955, Disneyland opened in California (Disneyworld

opened in 1971)

Global Expansion

• The death of Walt Disney in 1966 triggered a period of decline for the studio• A turnaround began in 1984 following hand-drawn classics like

The Little Mermaid, Beauty and the Beast, The Lion King, Mulan, and Lilo and Stitch• Disney also distributed a string of computer-animated

blockbusters from Pixar, including Toy Story, Monsters, Inc., Finding Nemo, and The Incredibles• Disney came to epitomize the synergistic possibilities of media

consolidation

Disney Today

• The Disney and Pixar merger showed that Disney was ready to embrace the digital age• It also became a partner with NBC and Fox in the popular

video site Hulu• In 2009, Disney purchased Marvel Entertainment, bringing

with it Iron Man, Spider-Man, and X-Men• In 2012, it purchased Lucasfilm and the rights to Star Wars

and Indiana Jones

Global Audiences Expand Media Markets

• International expansion has allowed media conglomerates some advantages, including secondary markets in which to earn profits and advance technological innovations• Greatly facilitated by the internet, media products easily

reach the eyes and ears of the entire world• Globalism permits companies that lose money on products

at home to profit abroad• CNN and MTV are available in more than 200 countries

The Internet and Convergence Change the Game• For much of their history, media companies have been part

of separate industries• But, the internet and convergence have changed all that

The Rise of the New Digital Media Conglomerates• The digital turn marks a shift in the media environment,

from the legacy media powerhouses (Time Warner, Disney) to the new digital media conglomerates (Amazon, Apple, Facebook, Google, and Microsoft)• Given how technologically adept these five digital

corporations have proven to be, they still need to provide compelling narratives to attract people • It is the content—the narratives—that endures, while the

devices and distribution systems do not

The Digital Age Favors Small, Flexible Start-Up Companies• All the leading companies of today were once small start-

ups that emerged at important junctures of the digital age• Today, the juncture in the digital era is the growing

importance of social media and mobile devices

• Successful start-ups take one of two paths:1. Be acquired by a larger company (YouTube, Instagram)2. Go it alone and try to get even bigger (Twitter)

Social Issues in Media Economics

Social Issues in Media Economics

• Many large media mergers have accompanied stripped-down regulation, which has virtually suspended most ownership limits on media industries• As a result, a number of consumer advocates and citizen

groups have raised questions about deregulation and ownership consolidation• Although there are thousands of media products on the market,

only a few companies control the majority of these products• This represents a dangerous antidemocratic tendency, in which

a handful of media moguls wield a disproportionate amount of economic control

The Limits of Antitrust Laws

• American antitrust laws have been easily subverted since the 1980s, as companies expanded by diversifying holdings and merging product lines with other big media firms• These firms have also become among the most active and

powerful lobbyists in Washington D.C. and other political capitals• This consolidation has limited the number of independent

voices in the market and reduced the number of owners who might innovate and challenge economic powers, leading to renewed interest in enforcing antitrust laws

Diversification

• Most media companies diversify among media products, never fully dominating a particular media industry• The resulting oligopoly results in an economic arrangement

which makes it difficult for outsiders to compete in the marketplace• Media giants also prefer to deal with each other rather than

outsiders

Applying Antitrust Laws Today

• In 2001, a merger between Dish Network (EchoStar) and DirecTV was denied• In 2011, AT&T and T-Mobile scrapped a merger deal after

pressure from the Justice Department

• Antitrust laws have no teeth globally

The Fallout from a Free Market

• Since the wave of media mergers began with gusto in the 1980s, a number of consumer critics have pointed to the lack of public debate surrounding the tightening oligopoly structure of international media

• Economists and media critics have traced the causes and history of this issue to two major issues:

1. A reluctance to criticize capitalism2. The debate over how much control consumers have in the

marketplace

Equating Free Markets with Democracy

• In the 1920s and 1930s, commercial radio executives succeeded in portraying themselves as operating in the public interest while labelling their noncommercial radio counterparts (education, labor, religion) as voices of propaganda• They succeeded in aligning capitalism with democracy• Throughout the Cold War, it became increasingly difficult to

criticize capitalism

Consumer Choice versus Consumer Control• Capitalism is not structured democratically but arranged

vertically, with powerful corporate leaders at the top and hourly wage workers at the bottom• Consumer choice: Options among a range of media

products• Consumer control: Power in deciding what kinds of media

get created and circulated

Cultural Imperialism

• The influence of American popular culture has created considerable debate in international circles• The notion of freedom that is associated with innovation

and rebellion in American culture has been embraced internationally• However, American media are shaping the cultures and

identities of other nations• Cultural Imperialism: American styles in fashion, food, and

media fare dominate the global market

Cultural Imperialism

• Defenders of American popular culture argue that because some aspects of our culture challenge authority, national boundaries, and outmoded traditions, they create a global village in which citizens can raise questions• Critics believe that American cultural imperialism both

hampers the development of native cultures and causes people to abandon their own rituals to adopt American tastes• There is also a cultural disconnection for people whose

standards of living are not routinely portrayed in contemporary media

The Media Marketplace and Democracy

The Media Marketplace and Democracy

• The best way to monitor the impact of transnational economies is through vigorous news attention and lively public discussion• As consumers, do we care who owns the media as long as

most of us have a broad selection of products?• Do we care who owns the media as long as multiple voices

seem to exist in the market?

The Media Reform Movement

• “’Media Reform’ has become a catch-all phrase to describe the broad goals of a movement that says consolidated ownership of broadcast and cable media, chain ownership of newspapers, and telephone and cable-company colonization of the internet pose a threat not just to the culture of the Republic, but to democracy itself”• One key paradox of the Information Age is that for such

economic discussions to be meaningful and democratic, they must be carried out in the popular media as well as educational settings