25/09
1) Content media: you and a content
2) Connectivity media: you and people in your life
3) Context media: (uber, Airbnb)
The media sectors who are thinking in the intermediation business which once was a
small part of economy, with connectivity media it became much bigger, but still had to
do with adv. Now with context media every company behaves like a media agency
(uber needs to know about creating a digital platform that engages the customer)
Generally, media companies are aimed at informing production professionals such as
journalists or outside observers like theorists rather than media business managers or
investors. Historically, private media company owners think themselves as means to
secure social, cultural and political status. Economic factors has been treated as
contextual rather than endogenous.
The field evolved hand to hand with the growing commercialization of mass media and
rising concentration of firms in the 1950s.
PICARD, three media economics traditions. 1) theoretical: economic theories applied
to media to explain policy makers choices. 2) Applied school: graps topical trends and
changes in economy and consumer behaviour to help policymakers formulate
responses. 3) critical school: inform public policy on the interplay between political,
economic, social and cultural factors. These approaches are complementary and seem
to blend increasingly.
Media pervades everything now. It’s mainstream now, before it was niche.
“critical issues” there are some contentious issues and debates, f.i. link between
infrastructure and power (media has layers) (how the internet killed the phone
business, the economist was depicting the end of the telecommunication). The jury is
still out, they have found a way to co-exist. They have two conflictual business model
(the charging one and the more free one). In the middle, there is the media sector
(journalists). That is the real issue that will be evicted.
Microsoft was considered evil because it was a giant in the IT company.
A new narrative came along. Internet was generator of different companies,
everybody can have their own company. Chances for everybody. Maybe the truth is in
between. There are some giant companies that are not going away, but there are just
more big and they found a way to co-exist. There are many ad- developers in there.
Their power has an impact on different aspects of our life. The model introduced is
that one, the context media. Airbnb is the Netflix of hospitality. The type of model
implemented is of huge importance, it is a critical issue. Governments don’t want to
see big companies and too much power in their hands. Free competition can’t work,
they have too much power to impact our life. Ex apple coalition says that it should
drop the 30% of taxes for the app in the app store (telecom network before if you
wanted to put an ad, used to take 50 or 60% as a tax). Apple should have taken 70%,
they create a market. Before the intro, he decided to change the model. The app
providers say that they don’t need apple any more. Regulator think it can be an abuse
of monopoly. This determine what our economy will look like in the next decade.
What do the platforms do with the data? The revenue model is selling your data to
advertisers. This issue is touched by other subjects (philosophical and ethic), but
especially economical. This is the model of media in general, since the beginning, it
,was trading our eyeball for free content. People say that privacy is dead and we
should just move on. It’s economically harmful, it is against free trade “only good for
pedophiles”. If you are not a criminal, you should not have privacy.
Practicalities
Material: slides (canvas), course literature (reader on canvas).
Exam: oral exam with written preparation (draw a card with a question, you can
prepare an answer in 15/20 minutes, he grades what you say)(background about
topics said in class and on the slides, also about the reader files) (concepts, complete,
concrete and critical) (always give an example).
MEDIA + ECONOMICS = MEDIA-ECONOMICS?
- Information and knowledge
- It addresses a group of people (mass- niche media)
to provide information, opinion and entertainment
values: quality and diversity, competitive strength
application of economic point of view on media -> what kind of economics?
Neo-classical economics (production and distribution of scarce goods)
It is hugely problematic already: policy intervenes in many more way other than
market failure.
Why?
Goods have divergent and specific characteristics, it’s not general economics, it has to
do with a symbolic layer of society, not only material.
1. MICROECONOMICS: BASIC ASSUMPTIONS
In a market there is always a producer and a consumer. Ex. Business of racing bikes
The main considerations: producer (he has to know his production costs to make a
bike; opportunity cost, what am I losing not using those inputs to produce something
else,I could do something else with that material and energy). Consumer (utility that I
am going to get from that transaction, what value will I get from that; what are my
alternatives with the same money that could give more utility).
Decisions: producer (quantity and price), consumer (quantity and price).
They are not alone: there is a supply side and demand. They have something to do
with each other between the amount produced and the costs of making it. Same for
the amount demanded and the price consumer are willing to pay. Where those two
lines meet eachother, there is an equilibrium. Amount of bikes produced for a specific
price for the market to be completely efficient (all the bikes produced will be sold). The
equilibrium can shift according to different issues.
Issues: how do I producer know how many bikes should I produce? The price is fixed
by the market, so I have to consider marginal cost (the cost of producing one more
item). That fluctuates and it is different along the whole cycle, as I expand my
production. If I produce only 1 bike, the marginal cost is huge. I need a small factory
,and employees for only one bike. Not efficient. The more I produce the less is the
marginal cost. Where the price line touches my MC line I have my costs below the
market price, and that equals my revenue. The lowest point of the curve is where I am
more efficient and the maximum amount of profit I can ever hope for. After that point,
it starts raising again. If I keep on growing, it becomes less efficient. I need to expand,
buy a land, I need more people, there is a trade union with their demands with their
demands, materials struggle to arrive, I am not the only boss, I need to start
exporting. I am less efficient after a while. The law of diminishing returns (that’s what
creates free competition that decide the prices). I don’t stop producing. I cross the line
again with the market price and it would be idiot to keep producing, because I would
lose money. I stop either expanding or producing.
All of these notions are problematic in media.
2. CHARACTERISTICS OF MEDIA GOODS
2.A Nature of the media good itself
There has to be scarsity in the previous market. Here we are trading information
(symbolic content). It is something I can’t exchange with a quantity or price. It keeps
changing, it is everywhere, you can put it in a product. What is the marginal cost or
it’s unit?
There is no scarsity, there is abundance of information.
Public good: - non rival (the marginal cost is zero, the product is available after
consumption) , -non exclusive (it is hard or impossible to exclude who is not paying for
it)
The problem is that it is rational not to pay it (free-riding). The consequence is that
you become less naïve, and then no one is willing to pay for it. Massive market failure.
Should the government step in? there should be a public system where we value
information (same as the roads). We don’t expect the market to produce all of that
information for free, so tax money should pay public broadcaster. If that is the true,
how come we have media companies? There are ways of making money:
- Offer an initial scarsity (it needs time to spread it, there is a window of scarsity,
I give an urgent info)
- There are ways to create artificial scarsity (bundle the content in a material
good, restrain accessibility ex football match on a pay tv channel on payment,
restrain shelf-life (end by day) ex “news” yesterday’s news is already old, you
have to keep up with the info, split-up the consumer market ex. Subcultures and
you need content tailored to you, it slows down the spreading of information; I
have time to exploit this info scarsity) basic survival mechanisms otherwise
there wouldn’t be any media economy. In a lot of cases, the market fails in a lot
of cases and nobody is wiling to pay for information
- Second type of revenue: my new customer is the advertisement companies, you
person are not giving me money, so info is for free, I am selling your attention
to an advertiser (another solution to the public nature of information)
There will always be issues with media and information. Pay TV and then social media.
It is always changing.
02/10
, RECAP
NATURE OF THE GOODS
In economics we start from basic assumptions that are needed to make the logic work:
private goods that can be traded and that they are scarse, otherwise you wouldn’t
need an economic plan of analysis. In the media sector, content media have
problematic assumptions. The primary challenge is public/private goods,
scarsity/abundance. This coexistence of public intervention and private enterprises are
not unexpetcted. It is an old trade that just continues in the media as well. It is also
problematic the nature of Supply.
Producers wants the most profit they can get, we have to look at the marginal cost
and thanks to the law of diminishing return, there is competition. That keeps the free
market running. Media creates problematic things: supply has a prototype (first
version of the good that you are going to produce) and research. In a media company
is involved in everything that comes before the actual production. It’s not about a
single protype, but about making a new prototype all the time. The actual business is
less about mass production, but more about continuously making a prototype. It is
innovating every day, creative. Business has less to do with the marginal cost, it’s not
my purpose in media company. My production costs are in the stage of pre-production
(scenario, location, casting, journalist) and the production of the first prototype. Here
we have huge costs. As soon as we produce the second copy, the marginal cost drops
and stays low. I also have to reach my customers: the marginal cost to reach
additional viewer/reader is very low. As long as I keep growing my company, this
marginal cost will always be low. We have a law of increasing returns: the more I
reproduce, the more I can distribute it and the more I can make money. A bigger
company has more advantages because it can spread out the initial costs into many
viewers.
Problems
MARKET FAILURE: how is the market supposed to work? How can there be fair
competition? We have a market failure: companies are becoming bigger and bigger
(economies of scale), there is no limit. It leads to critical issues (media concentration).
Protectionism in media could be a good idea (ex Netflix have a huge production
budget but they recuperate it with the customers following them). Because of
economy of scale, competition is not possible. Some economic policies don’t work for
media.
STRATEGIES that MEDIA COMPANIES carry out: media is all about innovation, but at
the same time it has to be efficient and successful to drug down their costs, but at the
same time this reduces also creativity. The strange thing is that companies are by
nature creative, but they have to be the less creative as they get away with. Many just
make minimal variations to the same content.
IMPORTANCE OF SELECTION, PACKING AND DISTRIBUTION; Some of this companies
are not producing new content anymore. If I am a tv broadcaster, some I have to
produce, other I will buy from local small companies who are actually taking the risk. It
is important the selection process at this point. It is important INTELLECTUAL
PROPERTY RIGHTS (anybody can have ideas) but who owns the idea actually makes
money. Bundling is a mix of cheap and expensive content. There is a group of
expertise that do that and think how to separate the content (it is called also
“sandwiching”). The distribution is not part of the business, but it is hugely important.
