1. Soc. 118 Media, Culture & Society Chapter Two: The Economics of the Media Industry

2. OVERVIEW The Economics of the Media Industry The Economics of the Media Industry Changing Patterns of Ownership Changing Patterns of Ownership Consequences and Effects Consequences and Effects Mass Media for Profit Mass Media for Profit Prime Time TV Prime Time TV News Media News Media The Impact of Advertising The Impact of Advertising

3. The Economics of the Media Industry Focus on media products as the result of social processes of production Focus on media products as the result of social processes of production The production perspective The production perspective Emphasis on broad structural constraints on media production Emphasis on broad structural constraints on media production How economic factors shape decision making and influence media content How economic factors shape decision making and influence media content Most critical fact about the media is that most are a for-profit business Most critical fact about the media is that most are a for-profit business Underlying goal of organizations Underlying goal of organizations

4. Changing Patterns of Ownership Who owns the media? Who owns the media? What is the connection between ownership and media products? What is the connection between ownership and media products? Three interrelated trends Three interrelated trends Conglomeration Conglomeration Concentration Concentration Integration Integration Effects and Consequences Effects and Consequences

5. Conglomeration Media companies have become part of larger corporations Media companies have become part of larger corporations They may have other diverse businesses They may have other diverse businesses Because it is profitable for big business Because it is profitable for big business Attractive properties for investors and buyers Attractive properties for investors and buyers Media has become key segment of American economy Media has become key segment of American economy Move from manufacturing to other types of service economies Move from manufacturing to other types of service economies Media products also major export Media products also major export Examples Examples General Electric General Electric Owns NBC Owns NBC Sony Sony From hardware to software From hardware to software Seagrams Seagrams Owns Universal Owns Universal

6. Concentration of Ownership Fewer and fewer corporations own the media Fewer and fewer corporations own the media Monopolies, mergers and takeovers Monopolies, mergers and takeovers Media companies own vast portfolios of products Media companies own vast portfolios of products Range of media formats and delivery systems Range of media formats and delivery systems Many media outlets with different names Many media outlets with different names Owned by same parent company Owned by same parent company Small independents bought up by larger companies Small independents bought up by larger companies

7. A small number of multinational companies dominate the industry A small number of multinational companies dominate the industry Within each sector, a handful of companies tower above competitors Within each sector, a handful of companies tower above competitors Books Books Bertlesmann (Random House), Pearson (Penguin), News Corp (HarperCollins) Bertlesmann (Random House), Pearson (Penguin), News Corp (HarperCollins) Magazines Magazines AOL Time Warner AOL Time Warner Motion pictures Motion pictures Universal, Paramount, 20 th Century Fox, Disney, Warner Bros., Sony Universal, Paramount, 20 th Century Fox, Disney, Warner Bros., Sony Music Music Universal (Vivendi), Sony, Bertlesmann (now merged as Sony BMG), AOL Time Warner, EMI (now Terra Firma) Universal (Vivendi), Sony, Bertlesmann (now merged as Sony BMG), AOL Time Warner, EMI (now Terra Firma) Television (less concentrated) Television (less concentrated) Networks: ABC, CBS, NBC, Fox, WB, other cable channels? Networks: ABC, CBS, NBC, Fox, WB, other cable channels? Radio Radio Clear Channel Clear Channel Newspapers Newspapers Gannett, Knight Ridder Gannett, Knight Ridder

9. Concentration of Ownership Video Clip: AOL Time/Warner Merger

10. Integration Two types of media concentration Two types of media concentration Owners perceive these arrangements as efficient and profitable Owners perceive these arrangements as efficient and profitable Vertical integration Vertical integration One owner acquires all aspects of production and distribution of a single media product One owner acquires all aspects of production and distribution of a single media product Concentrating ownership within one industry Concentrating ownership within one industry Horizontal integration Horizontal integration One owner acquires different kinds of media One owner acquires different kinds of media Concentrating ownership across different types of industries Concentrating ownership across different types of industries

13. Consequences of Integration Ownership patterns likely to affect what kind of media products are created Ownership patterns likely to affect what kind of media products are created Owners are likely to prefer products that can create "synergy” Owners are likely to prefer products that can create "synergy” Products that can be exploited by other components of the conglomerate Products that can be exploited by other components of the conglomerate Vertical integration Vertical integration Controls all aspects of production and distribution Controls all aspects of production and distribution Limits competition Limits competition Horizontal integration Horizontal integration Cross-promotion is driving force behind growth of this ownership trend Cross-promotion is driving force behind growth of this ownership trend Recent examples Recent examples

14. Consequences of Conglomeration The media are seen as necessarily profit-making The media are seen as necessarily profit-making Increased bottom-line pressure Increased bottom-line pressure Greatest concern is in the area of news Greatest concern is in the area of news Traditionally sheltered from such pressure Traditionally sheltered from such pressure News divisions had a public service commitment News divisions had a public service commitment Not expected to turn a profit Not expected to turn a profit Takeover of news operations by conglomerates Takeover of news operations by conglomerates MBAs have replaced seasoned journalists as company executives MBAs have replaced seasoned journalists as company executives Clashes between news divisions and corporate owners Clashes between news divisions and corporate owners NBC and the “boundary-less” company NBC and the “boundary-less” company No division between news, entertainment, sales No division between news, entertainment, sales News programs facing stiff competition for viewers News programs facing stiff competition for viewers Results in increased emphasis on entertainment and celebrity Results in increased emphasis on entertainment and celebrity The “Hollywoodization” of news The “Hollywoodization” of news Print journalism has also been affected Print journalism has also been affected Emphasis on attracting consumers rather than informing citizens Emphasis on attracting consumers rather than informing citizens Increasingly colorful, sensationalistic and dramatic Increasingly colorful, sensationalistic and dramatic

16. Consequences of Concentration Media Control and Political Power Media Control and Political Power Can ownership be translated into political influence? Can ownership be translated into political influence? First Amendment protects freedom of the press and protects against government censorship First Amendment protects freedom of the press and protects against government censorship Corporations (rather than gov’t) own “private ministry of information” Corporations (rather than gov’t) own “private ministry of information” Small number of firms with similar interests Small number of firms with similar interests Can owners use media outlets to promote political agendas? Can owners use media outlets to promote political agendas? Examples of Bloomberg (Mayor NYC) and Murdoch (News Corp) Examples of Bloomberg (Mayor NYC) and Murdoch (News Corp) Owners can also control information by excluding certain ideas and images Owners can also control information by excluding certain ideas and images The “corporate voice” has become the norm The “corporate voice” has become the norm Media generated discourse about the American economy Media generated discourse about the American economy Control and influence cannot be total Control and influence cannot be total But freedom of the press only for those who can afford to own one But freedom of the press only for those who can afford to own one Marx: “The ruling ideas are the ideas of the ruling class” Marx: “The ruling ideas are the ideas of the ruling class” More difficult for alternative voices to emerge More difficult for alternative voices to emerge

17. Gerald Levine—CEO Time/Warner CNN interview January 2, 2000 “Global media will be and is fast becoming the predominant business of the 21st century. So predominant, in fact, that the media business is now more important than government. It’s more important than education institutions and non-profit organizations. We’re going to need to have these corporations redefined as instruments of public service, and that may be a more efficient way to deal with society’s problems than bureaucratic governments.”

18. Consequences of Concentration Media Ownership and Content Diversity Media Ownership and Content Diversity Theory that competition leads to diversity Theory that competition leads to diversity Concentration and horizontal integration can lead to homogenization Concentration and horizontal integration can lead to homogenization Absence of competition Absence of competition Research on relationship between competition and diversity shows conflicting evidence Research on relationship between competition and diversity shows conflicting evidence Case studies of newspapers and popular music Case studies of newspapers and popular music

19. Case Study in Content Diversity: The Local Newspaper Monopoly Fewer cities with 2 or more daily newspapers Fewer cities with 2 or more daily newspapers Fear that monopoly (or joint-ownership/quasi-monopoly) papers will be less diverse than competing papers Fear that monopoly (or joint-ownership/quasi-monopoly) papers will be less diverse than competing papers Competition should lead to greater diversity Competition should lead to greater diversity Vertical diversity: range of actors mentioned and degree of disagreement within a single paper Vertical diversity: range of actors mentioned and degree of disagreement within a single paper Horizontal diversity: differences in content between two papers Horizontal diversity: differences in content between two papers All newspapers lack in diversity All newspapers lack in diversity Competitive papers must attract same advertisers and audiences Competitive papers must attract same advertisers and audiences Papers minimize costs and produce lowest-common-denominator product with broadest appeal Papers minimize costs and produce lowest-common-denominator product with broadest appeal

20. Case Study in Content Diversity: The Music Industry Competition leads to innovation and diversity in music Competition leads to innovation and diversity in music Measured by: Measured by: # of different songs # of different songs # of new and established artists in top 10 than competing papers # of new and established artists in top 10 than competing papers Diversity increases when concentration decreases Diversity increases when concentration decreases Dramatic shift occurred between 1940-50s and 1960s Dramatic shift occurred between 1940-50s and 1960s Opening of market through shift from national to local radio Opening of market through shift from national to local radio Increased oligopoly in 1990s Increased oligopoly in 1990s Diversity did not decrease Diversity did not decrease Change in system of production within industry Change in system of production within industry Shift from “closed” to “open” system Shift from “closed” to “open” system Record companies control manufacturing, distribution, promotion Record companies control manufacturing, distribution, promotion But use independent producers to maintain vitality of music But use independent producers to maintain vitality of music Higher ratio of record labels to record firms Higher ratio of record labels to record firms

21. MASS MEDIA FOR PROFIT: The Case of Prime-Time TV Programming decisions made with profits in mind Programming decisions made with profits in mind Need to have hit shows to attract large audiences Need to have hit shows to attract large audiences To charge premium rates for advertising time on those shows To charge premium rates for advertising time on those shows Failure is the norm in network TV Failure is the norm in network TV Only small # of shows are a success Only small # of shows are a success Hit shows provide large profits to make up for failures Hit shows provide large profits to make up for failures May represent only 10% of programming May represent only 10% of programming Search for the formula for success Search for the formula for success Programming strategies: Programming strategies: “The Logic of Safety” “The Logic of Safety” “Nothing Succeeds Like Success” “Nothing Succeeds Like Success” “Newsmagazine” and “Reality TV” programs “Newsmagazine” and “Reality TV” programs

22. Programming Strategies: “The Logic of Safety” Executives are never sure what audiences will watch Executives are never sure what audiences will watch Or why some shows succeed and others don’t Or why some shows succeed and others don’t Efforts to minimize the risk of losing money on programs Efforts to minimize the risk of losing money on programs “Risky” programs “Risky” programs Those that seem unlikely to attract mass audience or major advertiser Those that seem unlikely to attract mass audience or major advertiser General tendency to avoid controversy General tendency to avoid controversy Even when it might bring high ratings Even when it might bring high ratings

23. Programming Strategies “Nothing Succeeds Like Success” “Nothing Succeeds Like Success” Spin-offs Spin-offs Examples: (See link) Examples: (See link) Copy-cats Copy-cats Examples: Examples: Newsmagazine Programs Newsmagazine Programs Audience size and ratings are down from past decades Audience size and ratings are down from past decades Cost of production for dramas and sitcoms is up Cost of production for dramas and sitcoms is up Incentive to produce programs in-house Incentive to produce programs in-house Less expensive to use existing news resources and “found footage” Less expensive to use existing news resources and “found footage” Reality TV Reality TV Modest production budgets Modest production budgets “Unscripted” and no star salaries “Unscripted” and no star salaries

24. Hits, Stars and Decision-Making Fame and stardom are key resources in media industry Fame and stardom are key resources in media industry The business of celebrity The business of celebrity The “hit-system” or “star principle” The “hit-system” or “star principle” If hits are the goal, then producers want to find new or existing stars who can attract a large audience If hits are the goal, then producers want to find new or existing stars who can attract a large audience Producers decide which products and people have best chance for success Producers decide which products and people have best chance for success Stars are an agreed upon currency for assessing projects Stars are an agreed upon currency for assessing projects Heavy promotion and favorable scheduling of shows Heavy promotion and favorable scheduling of shows Commitment to stars and their reputations Commitment to stars and their reputations “Brought to you by” the writers, producers, directors of … “Brought to you by” the writers, producers, directors of … To reduce risk and uncertainty about what succeeds To reduce risk and uncertainty about what succeeds

25. Profit and the News Media News outlets now need to increase profits News outlets now need to increase profits Lowering the cost of gathering and producing the news Lowering the cost of gathering and producing the news Decrease # of journalists (especially investigative reporting) Decrease # of journalists (especially investigative reporting) Use larger % of wire service reports (Associated Press, Reuters) Use larger % of wire service reports (Associated Press, Reuters) Use video PR segments and press releases Use video PR segments and press releases Focus on preplanned events Focus on preplanned events Rely on a small # of elites and institutions Rely on a small # of elites and institutions Close foreign bureaus Close foreign bureaus Increasing revenues Increasing revenues Create light, entertaining programs Create light, entertaining programs Avoid controversy and present news in upbeat, reassuring manner Avoid controversy and present news in upbeat, reassuring manner Focus on personality-oriented journalism Focus on personality-oriented journalism Highlight intrigue, titillation and scandal Highlight intrigue, titillation and scandal

26. The Impact of Advertising Media rely on advertising base Media rely on advertising base Television, radio, magazines, newspapers Television, radio, magazines, newspapers Companies pay to place ads for their products Companies pay to place ads for their products Media are in the business of “delivering audiences to advertisers” Media are in the business of “delivering audiences to advertisers” How ratings are tied to advertising rates How ratings are tied to advertising rates Neilsen and other audience research Neilsen and other audience research Advertisers are buying audiences Advertisers are buying audiences Indifferent to content or programming Indifferent to content or programming Something to hang ads on Something to hang ads on Growth in advertising in new realms Growth in advertising in new realms Movie previews Movie previews Product placement Product placement Captive audiences Captive audiences Waiting rooms Waiting rooms Channel One in classrooms Channel One in classrooms

27. The Impact of Advertising Advertising and the News Media Advertising and the News Media News usually depict advertisers’ products and interests in favorable light News usually depict advertisers’ products and interests in favorable light Unconscious self-censorship on the part of journalists Unconscious self-censorship on the part of journalists “Lifestyle” sections focus on consumption “Lifestyle” sections focus on consumption News should maintain a tone that keeps a “buying mood” News should maintain a tone that keeps a “buying mood” Financial incentive to produce news that appeals to upscale audience Financial incentive to produce news that appeals to upscale audience Advertising and MTV Advertising and MTV Music videos are themselves advertising Music videos are themselves advertising Cable TV allowed for new programming Cable TV allowed for new programming Music industry provided videos to MTV at no charge Music industry provided videos to MTV at no charge Music videos are determined by promotional demands Music videos are determined by promotional demands Result of marketing rather than artistic decisions Result of marketing rather than artistic decisions Advertising and “New” Media Advertising and “New” Media Internet advertising Internet advertising Focus on search engines and other high traffic sites Focus on search engines and other high traffic sites Cable TV and “narrowcasting” Cable TV and “narrowcasting” Niche markets fragment audiences Niche markets fragment audiences