Chapter 3 Media Economics Chapter 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 online media On the other hand books music and movies rely largely on direct sales to consumers Investors can also create revenue streams in hopes that selfsustaining revenue streams will come along Today the mix of revenue streams is in a major upheaval that is reshaping media companies and their products Capitalism Capitalism Revenue Streams o Advertising o Sales to Media Consumers Investors o Venture Capital Venture capitalists o Dot Com Bust Dot Com Bubble Dot Com Bust 1 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 Conglomeration Case 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 Sponsorship Media People The Complexity of a Media Mogul Rupert 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 Press o Nonprofits and Investigative Reporting o Nonprofit Sustainability University Media Generators Family Ownership o Personality Drive Media o Pride of Ownership Death tax 1 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 Links o Government Communication Policy 1789 Postal Act o 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 POINT You can t have a free press without the press being free This means uninhibited inquiry 1 2 3 4 COUNTERPOINT Decency should trump newsgathering that invades privacy interferes with criminal investigations and has nothing to do with serving a public good Are government postal subsidies for print media still justified Were they ever What arguments if any remain viable for government regulation of broadcasting How relevant is the FCC in light of the rapid changes in communications technology 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 Mix o Government Funding Legals o Philanthropy Philanthropy Underwriting o Fund Drives Micropayment Micropayment o Auxiliary Enterprise Auxiliary enterprise 1 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 o 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 success and either fade in the face of new competition or radically reinvent themselves Phase 1 Invention Phase 2 Entrepreneurship Phase 3 An Industry Oligopoly Monopoly Phase 4 Maturation Trade groups Phase 5 Defending