Chapter 3: Media Economics It’s almost always about the money!

Mark Zuckerberg Starts with programming Atari and networking his house and his dad’s office. Used type of instant messaging before AOL Harvard sophomore - develops Facemash which becomes Facebook. – 700 million users/world’s leading social networking service – Time magazine names him 2010 Person of the Year

Mark Zuckerberg (cont.) At age 26 became world’s youngest billionaire Facebook’s global success has made him $19 billion rich * His mission = “making the world more open” * Donates to variety of sources * Investors poured in cash to get it off ground and advertising revenue sustains it – 10% screen (other web sites avg. 20%)

Financial Foundations Capitalism: an economic system with private owners operating trade and industry for profit People put in charge of making profit- whoever creates media products that attract the most eyeballs/ears. If people don’t make money – business can’t pay bills – person in charge gets replaced transient (def.) Remaining in a place only a brief time; not lasting long

Financial Foundations (cont.) Revenue(income) streams – money made through advertising or direct sales Advertising: selling space or time to advertisers that need access to audience that a media product delivers. *Commercial tv and radio rely solely on ads * Sales to media consumers – books, recorded music, and movies comes from selling products * Newspapers/magazines depend on ads and subscriptions

Financial Foundations (cont.) Investors-individuals who see prospect for media success and pour in money w/hope of return on their investment-can also lose $ Most investing in major media sell shares to the public – can take time to see profit Amazon – Jeff Bezos – didn’t make any $ first year Can be short or long-term investments

Financial Foundations (cont.) Venture Capitalists: investors who take substantial risk, typically in a new or expanding business Route Zuckerman took – also took 5 yrs to turn profit Dot-Com Bubble – Highly speculative investments in internet companies Dot-Com Bust – sudden collapse of value in internet companies 2005 (Broadband Sports, CyberRebate, Kibu.com, DigiScent)

Ownership Structures Frank Gannett- founder of Gannett media corporation. Started in 1906 – NY Gazette – bought half interest. Added papers and now owns 81 daily newspapers including USA Today Also owns 17 dailies in Britain and 23 tv stations – has been involved other enterprises Conglomeration – process of companies being brought into common ownership

Ownership Structures (cont.) Subsidiaries (def.) A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. Giant media operations may seem to pop into existence but they take over slowly – like Rupert Murdoch’s News Corporation. Started w/one newspaper before taking control of Fox TV, movie studios, newspapers, books, magazines, and home-delivery satellite tv.

Ownership Structures (cont.) Conglomerates are giant. Largest in 2011 when Comcast acquired control of GE’s NBC Universal NEW NOTES: The reality that a few major corporations own the major media does not sit well with everyone. Al Franken – picked on NBC’s president on SNL and subsequently lost promotion. As US senator though, Franken tries to block NBC-Comcast merger. * Media industry spends $15 - $20 million a year lobbying. Comcast, in one year, put $5.5 million into political campaigns

Alternative Media Ownership Rupert Murdoch: media mogul who earns $33 million a year and whose empire includes Fox TV, Wall Street Journal, and HarperCollins books Institutional Sponsorship: more sponsored media than stand- alone media (employees, customers, colleges) *Best ex. = Christian Science Monitor * Community Foundations: funded w/donations, bias? * Nonprofits: cooperative model like Associated Press (1848) global news-gathering organization…only other major player is British agency Reuters…3 billion /day see AP news *Also NPR – National Public Radio (NPR) reaches 24 million /week *Worldwide 40 investigative reporting nonprofits are working Sustainability?

Alternative Media Ownership (Cont.) University Media Generators – some emerging from colleges Family Ownership: Almost all media companies began as sole proprietorship Personality-Driven Media: pride-of-ownership in family media era made for better content Pride of Ownership: local family’s reputation inherent in product. Death tax – causes major complication w/55% rate

Government Role Historic Media-Government Links – since the earliest days of the republic, government policy has shaped media economics *early laws (1789) gave economic advantage to newspapers and led to gvmnt. even subsidizing (assisting) w/rates *Broadcast Economics: The gvmnt’s biggest communication policy imprint has been on broadcasting. *Before radio industry recognized need for emergency broadcasting – on land and at sea

Government Role (cont.) In 1927 Federal Radio Act tried to solve problem of overlapping frequencies – built on scarcity model- shortage of frequencies needed regulation In 1934 Federal Radio Commission set up licensing of stations Gvmnt-Created Media Infrastructure: as protector of radio, gvmnt. created complex of policies to preserve system. FCC (Federal Communications Commission) regulates competition. Now w/14,000 stations not about scarcity but still control through licensure

Government Role (cont.) Favored Tax Treatment – 1970 Newspaper Preservation Act which encouraged competing local newspapers to combine operations w/out penalty of antitrust rules 56 newspapers created joint-operating agreements – combining ads, production, distribution, and business but keeping independent news and editorial staffs (few remain)

New Media Funding For some media, the role of ads will diminish as they find new ways to connect on internet and subscriptions will dry up. On devices, limited access with options to pay On-air fund drives for support from audience More gvmnt. funding-based on public tv/radio State and city funding Less need for gvmnt. to ensure competition – 50 channels mentality

New Media Funding (cont Legals: paid advertising required by law in newspapers and magazines (drug info.) Philanthropy: generous donations for good causes Underwriting: on-air acknowledgments of non- commercial broadcast sponsors (This program is brought to you by…) Fund Drives: can be in the millions Micropayments: being used by iTunes and Google Auxiliary Enterprises: selling spin-offs and reuses

Media Economic Patterns Phase 1: Invention- starts somewhere – print media has roots back to Gutenberg Phase 2: Entrepreneurship – marriage of vision, capital, and risk (can lose a lot of money) Phase 3: An Industry – success breeds imitation – Oligopoly: industry in which a few companies dominate production distribution – Monopoly: single company dominates production, distribution in an industry, either nationally or locally Phase 4: Maturation – Trade Groups: organization created by related endeavors Phase 5: Defending Infrastructures – Andy Grove – theorist on gentrification in industries Ignore new challenges/Resist change/Radical reform