CRITICAL ISSUES IN MEDIA
ECONOMICS
Professor Pieter Ballon
New Media and Society in Europe
2019-2020
Vrije Universiteit Brussel
,Table of Contents
Critical issues in Media Economics – Introduction to Media Economics .................................................................... 4
Looking from a business and economic perspective ....................................................................................................4
Critical issues in Media economics: ..............................................................................................................................4
Examination: ................................................................................................................................................................4
Introduction: Media + Economics = Media-Economics?............................................................................................ 5
Why media economics? ...............................................................................................................................................5
Critical issues in Media Economics – Introduction to New Media Economics .......................................................... 19
What is new media?...................................................................................................................................................19
New media vs. old media ...........................................................................................................................................22
CHARACTERISTICS OF NEW MEDIA GOODS ...............................................................................................................33
Critical issues in media economics – Discussions and doctrines .............................................................................. 42
Introduction: doctrines (or schools that exist within field of economics), critical approaches and new media .........42
Conflicting/ competing doctrines (that you can then use or distinguish within general mode of thinking) ..............48
Competing doctrines and new media issues ..............................................................................................................53
Critical issues in media economics – Media diversity and concentration ................................................................ 56
US hegemony vs. Cultural diversity? ..........................................................................................................................56
The importance of definition ......................................................................................................................................58
Markets and mimicry .................................................................................................................................................61
Do markets lead to diversity?.....................................................................................................................................63
Public broadcasting < 1986 ........................................................................................................................................65
Liberalization > 1986 in Europe ..................................................................................................................................65
But also problem with private provision of media .....................................................................................................66
Dangers of media concentration (even in liberal context) .........................................................................................66
Media concentration as threat to democracy ............................................................................................................69
Media concentration theories (Winseck, 2011) .........................................................................................................69
From the theoretical to the empirical – do not make myth out of media concentration ...........................................71
How to measure media concentration .......................................................................................................................71
History of media concentration..................................................................................................................................73
Concentration strategies ............................................................................................................................................74
Concentration globally: oligopoly and collusion ........................................................................................................76
But: concentration and deconcentration ...................................................................................................................77
But: WWW as antidote to media concentration? ......................................................................................................78
Or: crisis and further consolidation? ..........................................................................................................................78
Noam’s media concentration research (2014) ...........................................................................................................79
Is concentration rising or falling in the digital era?....................................................................................................81
, Which policy response to media concentration? .......................................................................................................81
Evolution in media concentration thinking: music business.......................................................................................81
Towards a new approach? (Barnett, 2010)................................................................................................................82
Critical issues in Media Economics – Platform competition .................................................................................... 83
Platform is the norm ..................................................................................................................................................83
ICT, modularity and interdependency ........................................................................................................................83
Horizontalization ........................................................................................................................................................84
Platformization ..........................................................................................................................................................85
Market implications ...................................................................................................................................................87
1-sided and 2-sided platforms....................................................................................................................................87
Platforms strategies to leverage network effects ......................................................................................................91
Towards typology of platform models .......................................................................................................................92
Level of control: ‘Open’ vs. ‘closed’ platforms ............................................................................................................92
Platform typology ......................................................................................................................................................93
Implications for regulation .........................................................................................................................................95
Platform types and regulatory concerns (EU regulatory moves) ...............................................................................96
First European moves towards platform regulation ..................................................................................................97
Moving beyond horizontal analysis............................................................................................................................98
Multisided, multilayered platformization ..................................................................................................................98
Multilayered platforms in media..............................................................................................................................100
Multi-platform matrix ..............................................................................................................................................100
Conclusion ................................................................................................................................................................103
Critical issues – Guest lecture. Should I stay, or should I go? ................................................................................ 104
Sami Mahroum ........................................................................................................................................................104
Where would you rather be to start a technology company?..................................................................................104
How can we explain this? .........................................................................................................................................105
How many of these place factors/ attributes are not only important but also critical for your business? ..............105
What are the factors and the conditions that contribute to the success of businesses in a particular place?.........106
The Ushnisky Twins ..................................................................................................................................................107
How to explain these successful start-ups in less favorable conditions? .................................................................107
What can we learn from these successful start-ups about the relationship between place and success? ..............108
How many of the 15 factors were available at the different locations? ..................................................................108
What can learn form counter-intuitive stories? .......................................................................................................108
Insights for entrepreneurs ........................................................................................................................................109
For government planners .........................................................................................................................................109
Every place has a certain type of ‘place surplus’ ......................................................................................................109
The 5 Cs of competitiveness framework...................................................................................................................109
Anna Karenina’s principle ........................................................................................................................................110
2
,Critical issues in media economics – Net neutrality .............................................................................................. 111
Background ..............................................................................................................................................................111
Discussion on net neutrality: ....................................................................................................................................112
Different doctrines ...................................................................................................................................................114
Definition..................................................................................................................................................................115
Evidence-based approach ........................................................................................................................................116
Business model innovation .......................................................................................................................................116
Platform economics .................................................................................................................................................116
Market drives towards openness and flat fee ..........................................................................................................117
Still huge dynamics and uncertainty ........................................................................................................................117
No reasons for concern? Basic rules? .......................................................................................................................118
Conclusions ..............................................................................................................................................................118
3
,Critical issues in Media Economics – Introduction to Media Economics
Looking from a business and economic perspective
Critical issues in Media economics:
- Convergence: Beelheads vs Netheads
- What about content
• Article 1: telephone is doomed -> with new medias (Whatsapp, ...) we will use
telephones less and less
• Article 2: internet vs. telecom -> telecom guy (suit and bell around his neck) who is
cutting cables of internet => time of net neutrality debate (charge us for everything we
do, they are positioning themselves as the more powerful people in the sphere; fortunes
of whole industries can change)
• Content media and news media: under big umbrella of media and digital media there
are different sectors and industries and they are fighting hard battle amongst each other
- Monopolies versus Legoland? Or Platform Competition?
• Microsoft: monopoly
• Every company, thanks to the Internet, could grow (this to the point where they became
bigger than Microsoft) -> Facebook, Google, … these are companies where we begin
to worry about (they began very small, agile, flexible, ...)
- Is public intervention: Justified? Necessary? Harmful?
- Data as Currency? Or Privacy as Human Right?
• E.g. start a start-up: what do you need to look at, what do you need to start, … -> DATA!
But on the other hand, we are suspected of misusing this data, so what about our
privacy?
Examination:
- Oral exam + written preparation
- Knowledge about topics treated in course -> know what it means, demonstrate your
knowledge
- Background literature important to understand: do not need to know everything by heart,
but advised to read them
- You NEED all 4C’s: Concepts + Complete (say as much as possible) + Concrete (give
examples; preferably not one that was given in class -> give own example) + Critical (be
critical and show that you have an opinion)
4
,Introduction: Media + Economics = Media-Economics?
- What is media (we talk about content media)
• Main characteristics
§ Means to distribute information and knowledge
§ Addresses
• Main objectives:
§ To provide factual information, opinions and entertainment
• Main values of traditional media:
§ Reliability (quality) and diversity
§ Innovation and competitive strength
• Main questions:
§ Public vs. private media
§ National vs. International Content
§ ICT and media
• Main scope:
§ In scope: radio, TV broadcasting, newspapers, periodicals
§ Partly in scope: rest of the cultural industry (music, films and games)
§ Out of scope: one-on-one (two way) communication
ð This will change dramatically with the new media/ ICT
- Media economics applies economics to media… but what kind of economics?
• Neo-classical Economics and the Perfect Competition model
§ Production, distribution and consumption of scarce goods
§ Supply and demand meet each other un market
§ Quantity and price are set at ‘equilibrum’
§ Market structures range between perfect competition and monopoly
§ Policy intervention (only) justified when there is market failure
• So, Media Economics is simply applying Economics to Media?
§ Production, distribution and consumption of scare information and opinions?
§ Information supply and information demand meet in the media market?
§ Media quantities and prices set at equilibrium?
§ We strive for perfect competition in media markets
§ Policy only intervenes when there is market failure?
Why media economics?
- Why is there no course on Washing Power Economics, while there is a course on Media
Economics?
• Media and cultural goods have specific, divergent economics characteristics
• Media economics is not just about ‘material’ layer of society, but also about ‘symbolic’
§ Virtual, symbolic side of economy is growing strongly
§ Specific public interest in outcome of economic processes in media sector (i.e.
because of huge ‘external effects’
• What is so different?
§ Specific characteristics of media good itself
§ Specific supply and demand characteristics
§ Specific industry and market structures
§ Specific interests
5
,1. Microeconomics: basic assumptions (what we typically except from market)
- What we see is a market: producer side -----à consumer side
• We are buying a bicycle
• Producer has produced a good and consumer wants to buy it: there is a transaction
(ownership is transferred)
§ Transaction (what to keep in mind)
Producer: how much did it cost me to produce this bike (essential
information) (= production cost) + what could I have produced otherwise
(could I produce something else? (= opportunity cost)
Consumer: does not care about costs -> thinks about what he can do
with the bike, needs to value this in his mind (the value of the bike, his
need for a bike) (=utility) + considering possible alternatives, where
could I get most utility from? (could also buy something else with his
money)
ð Both need to do this rational calculation: do not have unlimited time, money, resources,
… -> need to make a choice
(Producer: how many bike will I bring on the market and the price: quantity and price)
(Consumer: how many will I buy and the price he is willing to pay: quantity and price)
• But producer and consumer are not the only one on the market: supply side and
demand side
ð One depended on the other:
§ When market price low, will produce less; when market price is high, production
is higher (for consumers it is the opposite)
§ What happens in the market: where demand and supply side cross, this will be
the equilibrium (= quantity of goods that will produced and consumed against
this price)
§ What happens when another bike enters market: (demand side: more demand,
than equilibrium shifts, more bikes are sold, and the prices rise)
ð This happens only in free market: nobody is able to manipulate price and quantity
Marginal cost: how much does it cost me to produce one additional good of product (it changes:
if you start company and you only produce one bike, the marginal cost of that bike is enormous
-> very inefficient, you make a loss) (as you produce more bikes, you become more efficient)
-> first point where they touch:
As you keep on growing, you become less sufficient: you have to keep on building additional
plants, more workers on your floor, … -> e.g. carbage car (at some point it does not make
sense to expand even more, because you have already reached your maximum efficiency)
è Yet, you keep growing: where you stop, this is the point where you make most money
=> this is the exact quantity you are going to produce
è = Law of diminishing returns
6
,- Neo-classical assumptions:
• Goods:
§ Private goods (first they belong to producer, then owned by consumer
§ Scarcity of goods (you need to make choices)
• Supply:
§ Maximizes profit (want to keep costs down and maximize profit)
§ Law of diminishing returns (held back at some point in time)
• Demand:
§ Maximizes utility
§ Rational choice (between different options that are available on market)
• Price:
§ Most important bearer of information (tells you everything that you need to
know)
§ Equilibrium between supply and demand (prices indicates this
2. Characteristics of Media goods
A. Nature of goods:
• What is traded is information: (virtual aspect of media-economy)
§ ‘information is like air around us’ (information is everywhere, information-
overload, information is not thought about as a good, rather seen as a process)
§ How are you going to trade this information?
§ Information is a process, not a product? If it is a product, what is the unit of it?
(after trading racing bike, there is one less on the market) (not the same with
information: after giving information, you are going to spread it, so there is an
increase of information)
• No scarcity: means no economic logic? (because economics is the art of making
choice, in the face of scarcity)
• Information has characteristics of public good:
§ Non-rival: marginal cost of offering to another customer is zero; product remains
available after consumption (why would you pay for something that is available,
you do not have to compete for it)
§ Non-exclusive: hard to exclude non-paying customers
• Information always has a problem of free-riding (sometimes explains with example of
lighthouse: lighthouse gives light to boats, for all boatsmen the utility is huge; they want
to build another one, but no one is willing to pay)
ð Solution: government steps in -> market is not ready to find equilibrium and so they are
going to raise taxes; eventually lighthouse will be built
ð massive market failure? So Public provision?
7
,• BUT:
§ There is often an initial scarcity: when it is created, there is a small window for
scarcity that can be exploited
§ There are ways to create artificial scarcity
Bundle information that never goes away with a material good
(=something where you can put a bundle around and therefore create
scarcity)
Restrain accessibility (put copy-protection)
Restrain ‘shelf-life’ (convince someone that they need information right
here and right now)
Split up/fragment consumer market (convince all of us that we are part
of unique subculture and that you need information that is tailored
especially for you)
ð If all of this fails, there is one last option (especially online): give for free (but media industry
is selling you and your data)
§ Or: give away for free/ for low price in order to obtain other (indirect) revenues
Second product of media-industry = ‘eyeballs’ (producing attention)
• Still, there are huge externalities or external effects that re-introduce market failure
(what can we expect: massive governmental regulation, subsidies for public
broadcasters, etc.) (that what comes with information, but that are not captured in the
price)
§ Effects that go beyond the buyer-seller transaction and relation
§ Are not included in the price of the good (e.g. Volkswagen: huge cost that they
are causing the death of people because they did not give all the right
information)
§ Positive external effects: emancipation, citizenship, social cohesion, …
§ Negative external effects: apathy, violence, overconsumption, …
§ Are a source of market failures => example: ticket cinema:
both a rom-com and horror movie cost the same, but external effects are not
the same (Rom-com: you are positive about life) (Horror: you want to kill
everybody)
§ How to make sure externalities are internalized? -> regulation, fiscal measures,
subsidies, …
§ Question remains how far public intervention should go, as external effects are
hard to predict and hard to measure (=> regulatory failure)
Volkswagen: after they saw there was a fraud, government intervened
Media: cannot measure damage and cannot know what damage there
will be; there is market failure but also regulatory failure
8
, B. Nature of supply (pretty atypical): what is different from what we normally expect from
goods
• Example: Car industry -> before developing new models, the development of a
prototype is needed; some R&D is needed (they work on this) -> afterwards start
copying that model for several years (so yes, there is R&D activity, but rather short ->
main industrial activity is production or reproduction of that prototype)
• Media supply has prototypical, ‘craftsmanslike’, R&D-like character
§ Every new program/ newspaper is a new prototype
§ Always innovation involved
§ Visionary/ creative activities, scoping activities, gathering creative talent,
execution of idea, dealing with unexpected events/changes/ new insights (it has
to produce something new every day, week or even hour for online media)
§ High costs related to preproduction (e.g. scenario, location, casting) and
production of first copy (e.g. recording process)
§ Core of industry is not in production but rather in preproduction
• Relationship between development cost (all of creative activities) and cost of
reproduction is atypical
§ Development cost very high related to cost of reproduction (printing newspaper,
transmitting to a reviewer)
§ Marginal cost to reach additional viewer/ reader/ listener, is very low
(newspaper business: cost ink and paper, but that is much smaller than cost of
all creative activities) (radio and television: it is even more cubed; almost no
cost in reaching additional listener or viewer)
• Consequences: Market failure
§ Instead of law of diminishing returns -> ‘law of increasing returns’ (if almost all
costs are upfront and afterwards there are almost no costs for spreading, you
want to keep increasing and spreading) (no limit as to how big you can become)
§ Economies of scale (the larger I become, the more I produce, the lower average
costs become; if that happens, it is huge advantage for big companies
(American media companies), but disadvantage for small companies (Walloon,
Dutch, French media companies)
§ Concentration
• Consequences: (here it becomes paradoxical) Strategies of Media Companies
§ Formatting: if I have to invent newspaper every day, then what makes creative
activities easier -> format of past newspapers
§ Repeats, buying rights to existing content (e.g. Belgium’s Got Talent, Friends)
§ Limit innovation, limit quality
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