MEDIA MARKETS & ECONOMICS, PART I Media & Society Lecture Notes

Media Corporations MAIN POINT: The media industry is dominated by giant corporations They want and need to make a profit. This has a tremendous impact on the shape of the industry (what we might call structural dimensions) as well as media content (TV shows, films, pop music, etc.)

Corporations vs. Individuals Different relationships between: 1. Legality 2. Debt/Assets 3. Taxes 4. Licensing 5. Contractual agreements 6. Liability

For-Profit vs. Non-Profit Corporations Nonprofit: Operations are run by an elected or self-appointed board that makes decisions They make money, but that money is reinvested in the activities of the non-profit. For-Profit: Operations are run by executives, as well as boards. Major difference from non-profits = shareholders. They make money and the profit is dispersed in the form of dividends (to shareholders) and bonuses (to executives)

C.R.E.A.M. The media industry is not a public service like roads, lighthouses, the government. The goal is to make money. This seems logical because we live in a capitalist world, but its actually kind of weird because media are not just like ‘any other product’. Most significantly, media (especially journalism) has historically been seen as a vital component to a functioning democracy.

The Big Media Corporation: Economic Motivations Shareholder Profits The index of the % of a given market that a corporation controls. Indicates how a corporation is doing in comparison to its competition. Net Profit The actual money made. Future Profitability Expected revenues based on current projections.

How To Maximize Profits 1. Destroy or contain competition – media corps. can operate at a loss for a while to drive out smaller companies. EFFICIENCY – streamlining, assembly-line rationale, cutting out labor intensive jobs. Ex. Disney pioneering animation cells. Also see Taylorism. PRICE OF PRODUCT – set to meet shareholder expectations rather than conditions of a given market. “Although the giants (Borders and Barnes & Noble) did not create this system, they are themselves the biggest problem with it, for it is they who have done the most to wreck the trade. From their book units, they expect profits way too steep for publishing, which never yielded high returns” – Mark Crispin Miller

How To Maximize Profits 2. Minimize Production Costs ECONOMIES OF SCALE – the more of single unit you produce the cheaper each unit will be (ex. CDs) FLEXIBLE PRODUCTION – contracting out stages of the production process that are not owned by the company. This is the opposite of Fordism. EXPORTING INFLEXIBLE PRODUCTION – moving the entire production process to where it will be cheaper to operate (i.e. where labor is cheaper, laws are made to benefit foreign companies)

How To Maximize Profits 3. Diversification – producing different products and entering new & different markets. These practices give a company more chances to accrue profits and write-off losses. 4. Maximizing Sales – sell, sell, sell MULTIPLE MARKETS WITH MINIMAL RETOOLING (ex. action movies translate to global markets) SYNERGY – when one product is marketed across many media contexts. Also known as cross-promotion. Ex. Warner Brothers cross-promoting it’s own films & soundtracks. Media corporations love synergy because 1) it is cheap and easy, 2) one product or trademark promotes all the others.

Types Of Synergy Product Placement – promotion of a product within a movie, TV show, song, or some other media text. Media Text Within A Media Text – similar to product placement but recognition of the layers of text. Ex. Magazine ads for TV shows. Celebrity Endorsements – appeals to star quality.

Kinds Of Markets Monopoly – when one company controls market for a certain product. Ex. AT&T had a monopoly on the phone system until the 1980s (in the 19 th Century monopolies were common w/ Rockefeller, Carnegie, etc.) Under anti-trust laws, Microsoft faced charges in 1998 and 1999 for monopolistic business practices Oligopoly –rule by small elite…just a few firms dominate THIS IS THE MEDIA INDUSTRY AS WE KNOW IT. Limited Competition –many producers and sellers but only a few differentiable products within a particular category. Ex. Radio formats (not many, very predictable)

Kinds Of Markets (Cont.) Conglomeration – when one company owns other companies. A small number of conglomerates end up owning many companies and many products. Free Market – assumes everyone starts at a level playing field with no external restraints on competition. Assumes that 1) the market functions in terms of natural laws of supply and demand, 2) everyone starts at a level playing field, and 3) there should be no external restraints on competition The free market is a fantasy. Put simply: media markets are NOT free markets