Media Economics

I will give a brief introduction to the field of media economics by defining media economics, defining media management, explaining the special characteristics of media products, giving an overview of the areas of interest for key scholars in the field – Albarran, Doyle, Chan-Olmsted and Picard, and listing sources for information for further inquiry and study of the field. Moreover, in the final part of this essay, I will briefly discuss future issues of concern for the field in particular regard to crossmedia and multi-platform distribution that opens new creative avenues for transmedia storytelling but introduces new economic and managerial challenges.

Doyle’s Understanding Media Economics (2002) lists the key definitions of the field of media economics used in academic literature; for instance Picard defines media economics as a field of study that is concerned with “how media operators meet the informational and entertainment wants and needs of audiences, advertisers and society with available resources” (Picard cited in Doyle 2002). Downing, McQuail, et al. define media economics as a field that applies “economic theories, concepts, and principles to study the macroeconomic and microeconomic aspects of mass media companies and industries” (2004). Furthermore, Albarran provides a rationale for the study of media economics, as the “context within which one can better understand the behavior of media firms, media markets, and consumers” (2002) when answering questions such as why did one company merge with another.

Special Characteristics of Media Products

Mainstream media economics literature considers media products to have high fixed costs, however Bourreau, Gensollen and Perani argue media products costs to be variable, with a positive correlation between increased production cost and audience traction (2002), pointing to large-budget Hollywood productions. Movies in particular make use of what is known as windowing – each release with a certain timeframe set for each successive channel, accompanied with a marketing push for each window in order to hedge against failure in a high-risk environment, with multiple tries to sell the product becoming an insurance policy. Staggering of distribution is used to create exclusive windows where 3rd party actors (not necessarily the original content producer but license-buyers) act to market the content; the release of the same product in distinct distribution channels at different times aims to maximize profit from each channel and increase positive word of mouth with each release. Because word of mouth can also turn negative, an established film franchise with a new tentpole release is a safer investment than an entirely new movie. Cinemas, international cinemas, DVDs and Blu-ray, television, and online streaming and download platforms such as Amazon and YouTube, each have their own window of release. When the consumer misses the theatrical release, there’s still a chance to capture their attention in the following windows, with free television licensing fees and long-tail DVD sales as the final opportunity. Some argue though, that windowing is a thing of the past and movies should be released on the same day and date across channels to maximize profits (Wilson, 2012).

In order to navigate the changing media markets with confidence, media managers make use of a number of analytical tools to inform their strategic thinking and communicate in a systematic, clear and actionable manner that’s applicable in managerial decision-making and corporate processes of planning and assessment of the company’s competitive advantages in the marketplace. The most common of such tools is SWOT, an analysis of strengths and weaknesses, referring to the internal characteristics of the company; and opportunities and threats, referring to the phenomena outside of the company – the marketplace, the consumers, the other companies, the regulatory frameworks in the country – and increasingly outside of the home country as media products are subject to cultural preferences, which must be taken into account as understanding cultural biases towards a product may affect managerial decisions. While such strategic approaches are valuable in decision-making, Chan-Olmsted also argues that strategy should leave room for opportunism (2009) in cases where a higher degree of flexibility in management may be the more prudent approach.

A media business exists to make money for its owners in a private company or shareholders in a public company. Increased net profits come either from increased 1) license sales while costs remain steady, 2) increased efficiency within the company that decreases costs or 3) from increased market power through corporate expansion. Convergence of media companies into larger conglomerates is a global trend; media companies’ strategies for expansion include international, multinational, shared-language-based, and multilingual global expansion through vertical integration of service providers (downstream expansion), distributors (upstream expansion) or both (balanced expansion). Moreover, through a strategy of horizontal expansion by buyout of – or merger with –companies in the same market and with the same functionality; an example would be a children’s books publisher buying a competing children’s book publisher in order to grasp a larger product portfolio of books at lowered costs and possibilities for creative synergies between storyworlds. Furthermore, companies expand through a diagonal strategy that incorporates aspects of both vertical and horizontal expansion in a comprehensive approach. Finally, media companies  engage in talent acquisitions that involve buying out a company for their skilled workforce and discontinuing the company’s former functions. The key thinker in this area, Chan-Olmsted, focuses on competition between media firms and competitive strategies in a changing media environment (Competitive Strategy for Media Firms: Strategic and Brand Management in Changing Media Markets, 2009).

As business becomes larger, economies of scale are achieved when distributing the product to more markets with the average costs of distribution decreased and the average cost of production also decreased. In production an in-front investments into high quality camera equipment can be amortized over a number of years while it adds value in the production number of media products. In distribution an established brand name can reduce the cumulative marketing cost associated with each media product released by the company as the brand has earned a degree of consumer trust through previous products.

In the digital economy, the marginal cost of reproduction of a digital media is close to zero, which means copies are easily made and distributed. While copyright is protected, licenses for content provide theoretically an easy revenue stream. However, with markets saturated by media products where a substitute product is easily found, attention becomes the highest scarcity, as there is too much content for anyone to watch available. Moreover, because media companies have a double-sided revenue-model, with consumers and advertisers bringing in revenue, in businesses where the consumer pays for content, copyright and piracy become issues for lost revenue. However, in models where advertisers pay no such problems exist as increased viewership is to the benefit of the advertisers (and usually here the content is released for free).

Another aspect of large companies is the economies of scope. Economies of scope are achieved through the repackaging of content for new media products, achieved by companies large enough to have accumulated an archive of assets that can be incorporated into new products, thus saving costs. This applies also to repackaging content for a foreign market or repurposing content for a different use, such as a television show on traffic safety created for distribution on national free television but later repurposed as content for showing inside an educational game used in primary education. Another example is the practice or remaking old Hollywood movies with modern technology. With the studio already holding rights to the screenplay and an existing awareness of the story bringing a built-in audience, economies of scope can be achieved. By diversification into similar products, economies of scope save from the higher costs of original production.

Areas of Interest

A further branch of interest in media economics is the consolidation of ownership. The trend of an increasingly small number of media increasingly large media conglomerates owning the media, also known as the concentration of media ownership, and the structure and reach of these companies merits its of branch of economic analysis. Doyle focuses on the horizontal, diagonal, and vertical expansion of European media companies, especially in the UK (2002). Downing, McQuail, et al argue that with “increasing consolidation and concentration across the media industries, media economics emerged as an important area of study for academics, policymakers, and industry analysts” (2004), highlighting how media economics can provide quantitative methods and statistical analysis for guidance in financial and policy-related decision-making.

Media economics has only recently started to move towards studying particular companies, and differences between them. As a formerly television-focused scholar, Picard has emerged from a political analysis of the role of media in democracy (1985) towards incorporating more economic study into his argument. Picard analyses companies in detail in Media Firms: Structures, Operations and Performance, showing how media companies that have traditionally worked with a single product (such as a newspaper, a magazine, a TV channel) now juggle a variety of products that may number in the hundreds and span mediums in highly complex portfolios of media products (2009).

Future studies of media economics will have to accommodate for and expand upon the emerging trends of 1) attention economy 2) crossmedia distribution and 3) artists taking a stronger role in their own economic well-being. Albarran and Arrese already focus on the role of time from a consumer, producer, and advertiser perspective (2009), however the latter areas remain relatively un-explored. While some artists are visibly successful at building attentive audiences and large follower-bases, the question remains whether and how these followers can produce enough economic value for the artist so the activity is sustainable. New forms of funding, such as crowdfunding and micropayments, while still minimal in total input of financing, are emerging trends and will have to be focused on more in future economic studies. Studies into artists like the Pixies who sell merchandise and tickets directly through fans, cutting out middlemen with Amazon and Apple Books becoming the entire distribution channel will have to be explored.

Further Sources for Information

Conclusions and The Changing Landscape

Firstly, the globalization of media with content accessible from new entrants like South Africa or Australia on the media market, increases competition between media producers in separate parts of the world, while also increasing global interdependency through increased cultural ties. Secondly, media corporations have more opportunity to open up and re-package content stored in siloes to international audiences through franchising licenses across the planet; for example a show that is popular in the US may create demand in Bulgaria without any targeted marketing as Bulgarians see clips of the series in YouTube; when a legal way to see the show is not provided increased piracy of the content is likely to occur. Thirdly, removal of the middlemen is a threat for distributors, as when there is no need for a traditional publisher and Amazon and Google Books with 1-click-publishers are the largest global platforms that act as a single marketplace where consumers 1) find movies, books, music, and other types of media in a single platform through advanced content discovery engines, 2) can pay with 1-click through an integrated payment processor and 3) have access to advanced delivery mechanics that make the content available independent of consumption device  (iPad, iPhone, iTV), there is little the distributor can offer as added value. The value chain is flattened, with media products created by a single person – a book, written, edited, and published and marketed through an online platform, without the help of a professional team, with lowered barriers of entry with insignificant initial capital costs, while time costs remain the same.

Finally, in a world with more content than time to consume it (the attention economy), the platforms for content aggregation, curation and repackaging, such as iTunes and Amazon but also crowd-powered platforms such as Pinterest, Quora, Facebook, Twitter and others become a crucial part of media economics and the convergence of traditional, single media companies from publishing, broadcasting, movie producing and other media backgrounds into transmedia companies that provide content trough different platforms and across media making use of transmedia storytelling to immerse the audience and gain attention will be an important focus of economic study in media.

Adapted from a paper at the Crossmedia MA at the Baltic Film & Media School.