Media Economics Study Guide

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MEDIA ECONOMICS
Theory
• Set of guiding principles
• Explains behavior
• Help us understand why things happen
• Predicts behavior
• Help us anticipate future actions, events
• Two theories to understand media economics
• Classic economic theory
• Media Economics
• Critical/cultural theory
• Political economy
Media Economics
• Media Economics
o Focus on economic forces

o How they shape media institutions
o Production
o Distribution
Media Economics
• Assumption …
• Media companies strive for efficiency
• Maximize profits
• “Economies of scale”
• As production increases
o Costs decrease
o profits increase
Media Economics
• Economies of scale
• Electronic media
• “Marginal costs”

• Initial production cost of first copy
o High
• Incremental cost of each additional copy
o Low
Media Economics
• Monopoly
Market dominated by one company

• Oligopoly
Market dominated by few companies

• Duopoly
Market dominated by two companies
Media Economics
“Limited competition”
Monopolistic competition
Market with many producers, sellers

Quantity
Limited differentiation of products within a category
Quality
“Barriers to entry”
• Methods
o Lower production/ distribution costs
• Economies of scale
• Force competition out of market
o Slash price
• Buy out competition
o Purchase or mergers
Types of revenues (profits)
Direct payment
• Products directly supported by customers

Indirect payment
• Products supported primarily by advertisers

Combination
• Direct and indirect payments

Media Theory
• Classical economic theory
o Media Economics
• Critical/cultural
o Political economy
Political Economy
• Forces of class domination
• How elites maintain power relations & dominance over subordinate groups Political Economy
• Assumptions
o Means of ownership shapes product
• Product shapes culture
o Maintains existing power relations & the “Status quo” Political Economy
• Status quo is maintained by social institutions
• “Mass media" industry
o Reflects interests of media owners
o Maintains media elites’ dominance
Trends
• Trends in media organizations
o Deregulation
o Conglomeration
o Globalization
o Specialization
Deregulation
• Government intervention
• Increasingly seen as barrier to capitalism
• Markets can take care of themselves

• Sherman Antitrust Act (1890)
• Restricted corporate attempts to control market by • Concentration of investments
• Monopolistic ownership
• Price fixing practices
Deregulation
• Telecommunications Act of 1996
o Lifted most restrictions on ownership
• “Cross-ownership”
o When one company owns more than one media outlet in local community • Allows corporations to own more than one media outlet in one community • Newspapers, TV, radio
Conglomeration
• Media corporate conglomerates
o Role of Federal Communications Commission (FCC)
o Number of corporations controlling U.S. media*
? 1983 ' 50
? 2004 ' 5
• “Cross-promotion”
o One conglomerate promotes a product across variety of media it owns • “Synergy”
o Promotion and sale of product throughout all subsidiaries o Small subsidiaries benefit from resources of a collective effort Globalization
• International media conglomerates
o To cut development and manufacturing costs
o Large companies move across borders for cheap labor Specialization
• Fragmentation
o Audience fragmented
• Narrowcasting
o Niche programming
• Production
o New...
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