Chapter 3: Media EconomicsChapter Insights:- Economics explains most mass media companies behavior.- Conglomerates dominate mass communication, although not necessarily for the better.- Alternatives to traditional mass media business models are being implemented.- Government policy has shaped U.S. media development and industry infrastructure.- Hybrid revenue structures are emerging for mass media.- Media follow predictable business patterns from innovative to mature stages.Financial Foundations: Most media behavior can be explained by economics. Who pays the bills? Advertising generates most of the revenue for newspapers,magazines, radio and television. More and more, advertising also drives onlinemedia. On the other hand, books, music and movies rely largely on direct sales to consumers. Investors can also create revenue streams in hopes that self-sustaining revenue streams will come along. Today the mix of revenue streamsis in a major upheaval that is reshaping media companies and their products. - Capitalism Capitalism- Revenue Streamso Advertisingo Sales to Media Consumers- Investorso Venture Capital Venture capitalistso Dot-Com Bust Dot-Com Bubble Dot-Com Bust1. Why is profit a necessity for mass media in a capitalistic system?2. What’s happening with the historically primary revenue streams of U.S. mass media?3. What drives investors to risk money in unproven media ventures?Ownership Structures: One dynamic for media literacy is knowing the corporate structure within which media products exist. Knowing the entities comprising News Corporation, for example, explains a lot about the content issued by corporate stable mates Fox television and HarperCollins books. - Conglomerate Dominance Frank Gannett ConglomerationCase Study: The Franken Crusade: U.S. senator Franken argues that media consumers are disadvantaged by media megamergers. Despite Franken’s opposition, the proposed 2011 merger of NBCUniversal and Comcast gained federal approval. Franken was more successful in opposing the merger proposed by telecommunication heavyweights AT&T and T-Mobile, which fell apart when the government cited unfair market domination as a possible result.- Conglomerate Behavior- Divestiture 1. How do you explain the pluses of media conglomeration for mass audiences? Any downsides?2. How have ownership changes affected the performance of your local newspapers and television and radio stations?3. What do media companies do when profitability flounders?Alternative Media Ownership: Some media operate outside the usual capitalistic structure. The Christian Science Monitor has been a model of sponsored media since 1908. Other ownership models have emerged more recently, including those with funding from community foundations, philanthropies and government.- Institutional SponsorshipMedia People: The Complexity of a Media MogulRupert Murdoch: Global media mogul Rupert Murdoch, here in the set of his Fox News network Bill O’Reilly talk show, is upfront that he’s driven not by politics but profits. Money explains the content of Murdoch’s diverse media empire. In fact, economics explains most media behavior. Case Study: Christian Science Monitor Mary Baker Eddy Christian Science Monitor- Community Foundations Community foundations- Nonprofits Cooperative Associated Presso Nonprofits and Investigative Reportingo Nonprofit Sustainability- University Media Generators- Family Ownershipo Personality-Drive Mediao Pride of Ownership Death tax1. How aware do you believe media consumers are about institutions that sponsor some media products? How might this sponsorship affect media output?2. Should community foundations take over financially floundering media companies? Why or why not?3. What are some of the problems inherent in converting for-profit media organizations into nonprofits?4. Would an adjustment to the U.S. inheritance tax encourage family media ownership? Why or why not?Government Role: Government policies have affected the structure and economics of U.S. mass media since the beginning of the republic. These policies have included favoring media over other business with lower postal rates. The U.S. broadcast industry has been shaped by government policy. The decline of the newspaper industry has been cushioned by policy to preserve competitive newspapers.- Historic Media-Government Linkso Government Communication Policy 1789 Postal Acto Postal Favoritism- Broadcast Economics- Government-Created Media Infrastructure 1927 Federal Radio Act Scarcity model Marketplace model- Favored Tax Treatment Newspaper Preservation Act Joint operating agreements (JOAs)Media Counterpoints: News-Gathering Gone Too Far?1. Are government postal subsidies for print media still justified? Were they ever?2. What arguments, if any, remain viable for government regulation of broadcasting?3. How relevant is the FCC in light of the rapid changes in communications technology?4. If the Newspaper Revitalization Bill of 2009 had passed, how different do you think the news media industry would be today?New Media Funding: Advertising and subscription revenue are weakening as a revenue source for traditional mass media but they won’t disappear entirely. What will pick up the slack? A patchwork, possibly of more government funding and charity support, seems likely. Also, media consumers themselves may pay for media access through new mechanisms. - Advertising and Subscriptions- Hybrid Mixo Government Funding Legalso Philanthropy Philanthropy Underwritingo Fund DrivesCOUNTERPOINTDecency should trump newsgatheringthat invades privacy, interferes with criminal investigations, and has nothing to do with serving a public goodPOINTYou can’t have a free press without the press being free. This means uninhibited inquiry.o Micropayment Micropaymento Auxiliary Enterprise Auxiliary enterprise1. What is the future of advertising as a media revenue stream?2. Which hybrid mix of revenue can be expected to dominate mass media business models in the future and why?Media Economic Patterns: Media Technology is the product of incentive genius, but the application of technology to create a medium that in fact reaches a mass audience is a trial-and-error process. Eventually some entrepreneur gets it right, which spawns imitators. It’s an evolutionary process. Major media industries inevitably fall into a trap of their