Future Directions in Media Economics Research Media Economics Workshop Roundtable New Economic School, Moscow October 28-29, 2011 Lisa George Hunter College and the Graduate Center City University of New York

Two Themes Economics of Digital Media Markets Media & Institutional Corruption Connections

−Arianna Huffington Co-Founder & Editor-in-Chief The Huffington Post Promiscuity is not a good thing in relationships, but it’s a great thing in news.

−Arianna Huffington Co-Founder & Editor-in-Chief The Huffington Post Promiscuity is not a good thing in relationships, but it’s a great thing in news. Translation- Aggregation of atomistic content enables consumption of more information from more sources in greater variety. Question: At what cost? Aggregators, search and other new media institutions are central to positive & normative understanding of media markets.

Industrial Organization of Media Markets Supply: Fixed supply costs, transport costs. Demand: transport costs (tastes) Ads: Vertically-differentiated advertisers Models: Differentiation Supply: Low fixed costs, proliferating content. Demand: search costs, quality verification Ads: Horizontally-differentiated advertisers Models: Vertical Integration & Contracts Transaction costs, consumer switching Disintermediation Quality Endorsement Competition for advertisers Traditional Media Markets Digital Media Markets New Media Institutions

Illustrations Regressions on this data show that holding viewing time constant, heavy “searchers”: Consumer access of online media sites is highly diverse Comscore Media Metrix Data May 2008 Visit more unique media sites Read fewer pages per site Spend less time per site

New Media Institutions - Literature Demand Chio & Tucker (2010); DeSmet (2011); Dellarocas, Katona & Rand (2010); George & Hogendorn (2011) Aggregators can increase participation and multi-homing, benefitting small outlets at the expense of large ones, niche advertisers at the expense of mass market ones. Supply Jeon & Esfahani- Platform specialization & quality investments.

New Media Institutions - Questions How does disintermediation change the nature of content produced and consumed? Intellectual property & investment incentives Content proliferation & excess entry – When consumers must search, more content can lower welfare (Share matters) – Search engine incentives for content proliferation (competition) Meta-media (Kottke/Robotke) Superstar markets (outlet, journalist) – When does disintermediation lead to less diversity in consumption? Unobservable quality and advertiser conflict – Adverse selection & market collapse “New” News – Can only search what you know – Barriers to “new” news

What is really behind this picture? News consumption is declining, not shifting. The share of “hard” news consumed is shrinking. We have not looked hard enough at why. Source: Pew Research Center for the People and the Press, Ideological News Sources: Who Watches and Why. September 10, Sample size about 1500.

Media & Institutional Corruption Compelling political science literature on distortions of US campaign finance regime and resulting tune-out (Lessig, Republic Lost, 2011) – Distortion of campaigning toward extreme voters (donors) – Distortion of legislative agenda toward corporate (donor) concerns – Measured by mismatch between values in surveys vs platforms and campaigns Media Analogs – Theoretical & empirical framework directly applies Advertiser bias & conflict – beliefs & demand Are outside options getting better, or news getting worse? – Link between media & institutional corruption in political process. How closely does coverage match underlying consumer demand? Does coverage match the political agenda? Influence it? How informative is news? – Advertiser bias

Conclusion & Research Links Theoretical framework for disintermediated markets – What is the nature of content produced inside & outside of the firm or platform – Consequences for nature of content supplied and consumed Empirical characterization of content attributes – Variety, quality, verifiability, “new” topics New welfare benchmarks – Limits of consumption measures – Informativeness – Bias benchmarks – “Bias compared to what?