Chapter 3: Media Economics

It’s almost always about the money!

Mark Zuckerberg

• Starts with programming Atari and networking his house and his dad’s office.

• Used type of instant messaging before AOL • Harvard sophomore - develops Facemash

which becomes Facebook.– 700 million users/world’s leading social networking

service– Time magazine names him 2010 Person of the Year

Mark Zuckerberg (cont.)

• At age 26 became world’s youngest billionaire• Facebook’s global success has made him $19 billion rich * His mission = “making the world more open” * Donates to variety of sources * Investors poured in cash to get it off ground and advertising revenue sustains it – 10%

screen (other web sites avg. 20%)

Financial Foundations

• Capitalism: an economic system with private owners operating trade and industry for profit

• People put in charge of making profit- whoever creates media products that attract the most eyeballs/ears.

• If people don’t make money – business can’t pay bills – person in charge gets replaced

• transient (def.) Remaining in a place only a brief time; not lasting long

Financial Foundations (cont.)

• Revenue(income) streams – money made through advertising or direct sales

• Advertising: selling space or time to advertisers that need access to audience that a media product delivers.

*Commercial tv and radio rely solely on ads * Sales to media consumers – books, recorded music, and movies comes from selling

products * Newspapers/magazines depend on ads and subscriptions

Financial Foundations (cont.)

• Investors-individuals who see prospect for media success and pour in money w/hope of return on their investment-can also lose $

• Most investing in major media sell shares to the public – can take time to see profit

• Amazon – Jeff Bezos – didn’t make any $ first year

• Can be short or long-term investments

Financial Foundations (cont.)

• Venture Capitalists: investors who take substantial risk, typically in a new or expanding business

• Route Zuckerman took – also took 5 yrs to turn profit

• Dot-Com Bubble – Highly speculative investments in internet companies 1995-2000

• Dot-Com Bust – sudden collapse of value in internet companies 2005 (Broadband Sports, CyberRebate, Kibu.com, DigiScent)

Ownership Structures

• Frank Gannett- founder of Gannett media corporation. Started in 1906 – NY Gazette – bought half interest.

• Added papers and now owns 81 daily newspapers including USA Today

• Also owns 17 dailies in Britain and 23 tv stations – has been involved other enterprises

• Conglomeration – process of companies being brought into common ownership

Ownership Structures (cont.)

• Subsidiaries (def.) A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company.

• Giant media operations may seem to pop into existence but they take over slowly – like Rupert Murdoch’s News Corporation. Started w/one newspaper before taking control of Fox TV, movie studios, newspapers, books, magazines, and home-delivery satellite tv.

Ownership Structures (cont.)• Conglomerates are giant. Largest in 2011 when Comcast acquired

control of GE’s NBC Universal

NEW NOTES:• The reality that a few major corporations own the major

media does not sit well with everyone.• Al Franken – picked on NBC’s president on SNL and

subsequently lost promotion. As US senator though, Franken tries to block NBC-Comcast merger.

*Media industry spends $15 - $20 million a year lobbying. Comcast , in one year, put $5.5 million into political campaigns

Alternative Media Ownership• Rupert Murdoch: media mogul who earns $33 million a year and whose

empire includes Fox TV, Wall Street Journal, and HarperCollins books• Institutional Sponsorship: more sponsored media than stand-alone

media (employees, customers, colleges) *Best ex. = Christian Science Monitor* Community Foundations: funded w/donations, bias?* Nonprofits: cooperative model like Associated Press (1848) global news-gathering organization…only other major player is British agency Reuters…3 billion /day see AP news *Also NPR – National Public Radio (NPR) reaches 24 million /week*Worldwide 40 investigative reporting nonprofits are working

Sustainability?

Alternative Media Ownership (Cont.)

• University Media Generators – some emerging from colleges

• Family Ownership: Almost all media companies began as sole proprietorship

• Personality-Driven Media: pride-of-ownership in family media era made for better content• Pride of Ownership: local family’s reputation inherent

in product.• Death tax – causes major complication w/55% rate

Government Role

• Historic Media-Government Links – since the earliest days of the republic, government policy has shaped media economics

*early laws (1789) gave economic advantage to newspapers and led to gvmnt. even subsidizing (assisting) w/rates

*Broadcast Economics: The gvmnt’s biggest communication policy imprint has been on broadcasting. *Before radio industry recognized need for emergency broadcasting – on land and at sea

Government Role (cont.)

• In 1927 Federal Radio Act tried to solve problem of overlapping frequencies – built on scarcity model-shortage of frequencies needed regulation

• In 1934 Federal Radio Commission set up licensing of stations

• Gvmnt-Created Media Infrastructure: as protector of radio, gvmnt. created complex of policies to preserve system. FCC (Federal Communications Commission) regulates competition. Now w/14,000 stations not about scarcity but still control through licensure

Government Role (cont.)

• Favored Tax Treatment – 1970 Newspaper Preservation Act which encouraged competing local newspapers to combine operations w/out penalty of antitrust rules

• 56 newspapers created joint-operating agreements –combining ads, production, distribution, and business but keeping independent news and editorial staffs

(few remain)

New Media Funding

• For some media, the role of ads will diminish as they find new ways to connect on internet and subscriptions will dry up.

• On devices, limited access with options to pay• On-air fund drives for support from audience• More gvmnt. funding-based on public tv/radio• State and city funding• Less need for gvmnt. to ensure competition – 50

channels mentality

New Media Funding (cont

• Legals: paid advertising required by law in newspapers and magazines (drug info.)

• Philanthropy: generous donations for good causes• Underwriting: on-air acknowledgments of non-

commercial broadcast sponsors (This program is brought to you by…)

• Fund Drives: can be in the millions• Micropayments: being used by iTunes and Google• Auxiliary Enterprises: selling spin-offs and reuses

Media Economic Patterns

• Phase 1: Invention- starts somewhere – print media has roots back to Gutenberg

• Phase 2: Entrepreneurship – marriage of vision, capital, and risk (can lose a lot of money)

• Phase 3: An Industry – success breeds imitation– Oligopoly: industry in which a few companies dominate production distribution– Monopoly: single company dominates production, distribution in an industry, either

nationally or locally

• Phase 4: Maturation– Trade Groups: organization created by related endeavors

• Phase 5: Defending Infrastructures– Andy Grove – theorist on gentrification in industries

• Ignore new challenges/Resist change/Radical reform