The Economics of the Media Industry

After studying this chapter, you will be able to:

LO 3.1: Name and outline the three key tasks of contemporary media companies.
LO 3.2: Document the patterns of media ownership, concentration, and integration, and pinpoint the qualities that make Google and Facebook media companies.
LO 3.3: Document consequences of the integration and conglomeration of media ownership.
LO 3.4: Describe consequences of concentrated media ownership, particularly in relation to political power and content diversity.
LO 3.5: Outline how profit demands shape media production.
LO 3.6: Compare the effect of advertising on the British and American press in the 1800s, and describe the relationship between advertising and content.

In March of 2019, the Walt Disney Company finalized a deal to purchase most of 21st Century Fox for over $71 billion.
Acquisitions included:
- 20th Century Fox movie and television production company with rights to franchises like Avatar, X-Men, and The Simpsons.
- Several domestic and international cable TV networks including FX and National Geographic.
- Fox’s 22 regional sports networks.
- 30% share of Hulu, granting Disney majority control of the streaming service.
This merger was the second-largest media merger in history, showcasing the rapid economic changes within media industries, particularly with the rise of streaming services.
The merger raised questions about its impact on contemporary culture and society:
- The potential influence of Disney's expanded reach on content diversity and media representation.
- The implications for media in the digital age and ownership concentration.

The chapter focuses on
- The for-profit orientation of most media companies, emphasizing profitability, cost containment, and ownership patterns.
- A sociological perspective that integrates social structures with media production.
Key to understanding media products is the production perspective, which emphasizes media output as a result of social processes within institutional frameworks.

Products: Media content such as movies, journalism, and music.
Platforms: Websites and services that host, display, and find media content (e.g., Facebook, YouTube, Netflix).
Pipes: The infrastructure (cable, wireless, DSL) that delivers media content to consumers.

Contemporary companies often engage in all three sectors (products, platforms, pipes), leading to overlaps in ownership and operation.

While social media allows user-generated content and commentary, traditional media companies remain central to the media landscape.
Examples of traditional media engagement in digital platforms:
- Original reporting predominantly comes from legacy news organizations.
- A significant number of the most viewed YouTube videos come from traditional media content.
Impacts on traditional companies include adaptations to the competitive streaming landscape highlighted by Disney’s strategy for content distribution.

Ownership concentration involves a small number of large firms dominating media production.
Ben Bagdikian documented this trend, detailing that by 2004, five companies controlled U.S. media:
- Time Warner
- Walt Disney Company
- Viacom
- News Corporation
- Bertelsmann
Major changes since then include mergers and transformations of these firms.
- Examples include Fox’s separation into 21st Century Fox and News Corp, Disney’s acquisition of Fox, AT&T's merger with Time Warner, and ViacomCBS unifying.

Media ownership is highly concentrated, characterized by conglomeration into multimedia firms:
- Vertical integration: Companies acquire every aspect of production and distribution. For example, a film company might own studios, theaters, and networks for full control.
- Horizontal integration: Companies buy diverse media types (film, TV, music) to promote synergy and maximize audience reach through cross-promotion. Examples include Disney’s integration of Marvel products across multiple media formats.

*Books: Penguin Random House dominates publishing with 275 imprints.
Movies: Six companies control 90% of box office receipts. Disney led with 27% of global box office revenues in 2019, earning $11.1 billion.
Music: The U.S. market is dominated by three companies, which together control 67% of recorded music sales.
Television: The landscape includes streaming platforms like Netflix influencing content, suggesting intense competition for quality programming.

The funding model of media relies heavily on advertising revenue, which impacts content focus, prioritizing audience maximization and entertainment over hard news.
The advertising-content relationship has roots in early press dynamics, leading to shifts towards commercially viable content and away from politically challenging news.
Historically, the switch from political to advertising-driven press changed the purpose and nature of news in significant ways by favoring middle-class interests over working-class perspectives.

The shift in ownership has implications for content diversity and censorship in media.
Concerns arise regarding the homogenization of media products and the influence these conglomerates can exert on public opinion and political power.
Case studies presented indicate direct links between media ownership and political influence, impacting content diversity and public discourse.
Examples include the rise of Silvio Berlusconi in Italy and Michael Bloomberg in the United States, both demonstrating ownership's role in political leverage and messaging control.

Economic considerations provide critical insights into media production; however, they do not paint the whole picture.
The interplay of political and organizational factors alongside economic principles should also be considered when evaluating media's role in society.