Research in media economics

I liked Picard's overview on the history and trends of research in media economics. I did some searching to look for similar big-picture reviews of the field (and related works). Here are two that caught my attention:

Media Economics: Research Paradigms, Issues, and Contributions to Mass Communication Theory.

Authors:

Albarran, Alan B.

Source:

Mass Communication & Society; Summer/Fall98, Vol. 1 Issue 3/4, p117, 13p

The field of media economics has mushroomed recently, highlighted by the introduction of the Journal of Media Economics, an expanding literature base, and wider interest among academicians. In this article, I examine the main research paradigms, issues facing the field, and contributions to the larger body of mass communication theory. I also argue that media economics has made at least 4 major contributions to the communication literature. It (a) provides a means to understand media as economic institutions; (b) helps further understanding of continual globalization of media industries; (c) provides a diverse alternative to mainstream mass media; and (d) offers an interdisciplinary focus to contemporary mass communications research.

A Content Analysis Guide for Media Economics Scholars.

Authors:

Fico, Frederick G.¹
Lacy, Stephen² slacy@msu.edu
Riffe, Daniel³

Source:

Journal of Media Economics; 2008, Vol. 21 Issue 2, p114-130, 17p

Abstract:

The study of demand for media products requires an understanding of audience members' preferences, which are shaped by their taste for content. Despite the central role of content in understanding some aspects of media economics, media economics scholars sometimes apply content analysis in ways that are inconsistent with the generally accepted practices of the method. This article deals with some basic concepts underlying the method of content analysis to familiarize media economics scholars with the method. The adoption of accepted content analysis practices will yield better data and, in the long-run, help advance the understanding of media economics.

Historical Trends and Patterns in Media Economics

Picard brought up an excellent observation when he stated that most in our field have backgrounds in psychology, sociology and other scholarly fields that comprise of very different understanding of research compared to the economics field. And before, according to Picard, it did not matter because the media was not the commercial giant it is today. Right under our noses, scholars in our field have suddenly (at least to it seems sudden to me) awoken to these giant conglomorates and are now scrambling to understand why the city's newspaper has shrunk to only one newspaper and even then is laying off staff that have worked there for decades.
Should our field revamp the structure and alter the thinking and teaching methods to include the new wave of our media field? And if so, how can we do that?

If the value is still content, then what content and how should we package the content?

As Picard said, 

A business model involves the conception of how the business operates, its underlying foundations, and the exchange activities and financial flows upon which it can be successful.

Different media need different model. What fits one medium might not fit another. Right after reading Gao’s Participation Business Model, I started thinking if we could use a participation business model for online news. Many newspapers’ online sites indeed have participatory features, such as blog, comment, rating, or allowing users to submit photos and videos. These do not seem to be very innovative or popular features if we compare these features to MyShow, Super Girl, or American Idol. 

Probably participation is not a major “value” users expect from a newspaper web site, as both Picard and Gao emphasized value is the center of a business model. So if we go back to wheat Picard said that content is the core business of publishing industry, then now in the digital and online environment, what “kind” of content? Instead of telling people what to do or what to read, why not say: how may I help you today? In addition to what kind of content a user would value from a local newspaper site, a different kind of navigation maybe? Something like google's front page or iPone's main page that there are several preset icons and users can modify those icons. 

rss ads

The Business Week article mentioned RSS feeds as a factor which decreases the number of page views on blogs and other sites. This skews visitor stats and thus ad rates and the like.

However, RSS has also had a couple other impacts on the online advertising world.

Many RSS feeds actually include ads at the end of each entry. This seems like an important detail that the Business Week article neglected altogether. Furthermore, experts have also noted some interesting distinctions about RSS users vs normal site visitors.

RSS feeds can either consist of the full content of articles or just teasers for articles. Some groups even just use RSS to list headlines, neglecting any body text at all. (I would argue that these people are using the technology improperly but that's really outside the scope of this discussion.) Anyway, at least one RSS expert declared use of teaser text as a kind of ad. These "ads" serve to drive readers to the site to read the full article.

Reinvestment and newspaper companies

"Reinvestment is the return of profits to a firm to further develop the company and its activities. If profits are continually taken from a firm without reinvesting an adequate portion in the company, it is denied resources needed to help it improve its operations, grow, and remain competitive." (Picard, p. 236)

Hmm, is there a better description of the present demise of newspaper companies in an era of unbundling?

As we learned in the readings this week, media companies (including newspapers) need thriving financials to justify further capital investment ... and yet, during the 1980s and 90s, when newspaper profitability was stratospheric (20% margins were practically the norm), there was precious little investment in R&D, innovation, and other creative measures that would have better insulated newspaper companies from the catastrophic disruption created by Web economics.

Perhaps in something of an update from Picard, in 2006 he warned of dire days ahead for newspapers with little investment in innovation:

"... But if any of these newspapers are to survive, capital investment will be essential to their ability to function now and to innovate for future growth. To warrant investors' dollars, new revenue streams must be found; keeping revenues stable will not suffice. Achieving this, however, will call upon levels of creativity, innovation and entrepreneurship infrequently found in newspapers in recent years."

Market indications

The industry has been up in arms about the state of traditional media and the rise of Internet news media. But the changes in demand have pushed these media companies to respond to these shifts in demand. And like Picard pointed out, large-scale demand changes can be caused by the age of the users. So they brought out their own Web sites.

With the number of people going online for their news feeds for the day, it is obvious to foresee where the Internet is taking us. And if this becomes a trend for the next generation, where does this leave power-houses like the New York Times and Washington Post? Maybe with just their online presence?

But I digress. If it is safe to assume that there will be a permanent change in demand, then where does this leave newspapers? They have tried to be a 'constant-cost industry,' where there is no change in price of the product. Apparently, this hasn't worked either (refer the case of the Austin American Statesman).

Advertising online seems like a cheaper option for many advertisers, streamlining the workforce and cost cutting can only be done to a limit. So what next?

financial health indicators

As we see in the reading that there are indicators for economic health and financial health (Picard, p.230), I think it is harder for me to identify financial health indicators now. The numbers are very overwhelming. Here's why I started looking at GOOG's balance sheet:

In Business Week's Best Brands of 2008, Google ranks the 10th, a huge jump from the 20th of 2007 ranking.The brand value is $25.6 billion, which is a 43% increase from 2007. After reading the chapters, I want to know what does this $25.6 billion mean, so I started looking through GOOG's balance sheet.

For me, economic indicators seem to be more straightforward. For example, for economic health, when ComScore reported that google's search engine share increased from 61.9% to 63% within a month, it seems to me to be a growth in market share: an indicator for economic growth.

Picard's chapters are helpful in terms of explaining financial indicators, such as the definitions of assets, liabilities, and debt, but applying those to real world is difficult.

In Millions of USD (except for per share items)	As of 2008-06-30	As of 2008-03-31	As of 2007-12-31	As of 2007-09-30	As of 2007-06-30
Total Current Assets	16,316.84	15,464.93	17,289.14	15,733.76	14,857.52
Total Assets	29,179.79	27,604.98	25,335.81	23,340.65	21,423.88

The table is obtained from Google Finance. As you can see for GOOG, there are total current assets and total assets. I am not exactly sure which one to look at when or which one is more important when deciding if a company is financially healthy. There are some ups and downs for total current assets and the total assets grow constantly. I think overall it looks pretty good? But I still did not find where the $25.6 billion (in Business Week) come from......

Online product differentiation

After reading about product competition, I was wondering how it really applies to the news market. In my opinion, I have several sources I get my news from and it really does not matter which one its from. But what I’m interested in is: With more media companies establishing an online presence, is it safe to assume that the online entity is another product?

Newspapers, radio stations and television channels are looking for ways to establish a larger online presence – complementary to their traditional medium. But since most of the content online has been ‘shovelled’ from the traditional medium, it is still another product? I prefer following news on CNN’s website more than on the television. So does this mean that I still like the same product? To what extent is the product differentiation?

concentration of online news industry

HMF is making me really really dizzy, so I decided to start with Picard's piece then a little on HMF…

If we wish to measure market concentration or measure the degree of market competitions, both according to HMF and Picard, what we need to do first is to define our industry (market) and identify firms that comprise the industry. For a news Web site, name it MSNBC or nytimes.com, what is the industry and which companies comprise the industry? Can they answer this question or can we answer this question (I cannot……)?

Picard argued there is seldom direct competition among media, such as newspaper versus newspaper, but different media compete with each other for audience time and expenditure (p. 139). Competition among and between media can be understood as: intermedia competition and intramedia competition. These two take place simultaneously, and I guess this is one of the reasons why we find so hard to define the industry of online news.

To define online news industry, we can first start with U.S. based English news Web sites. Then second, in terms of intramedia competition, we include all U.S. traditional news media (TV, print, radio, etc). Third, in terms of intrmedia competition, we include all U.S. based new Web sites, which are countless. Fourth, we cannot ignore portal sites (in PEW's 2008 news audience survey, Yahoo was name the most frequently visited news site, p.22). And fifth, if the competition is for news users' time, how should we account for multitasking?

Here are the top eight most frequently visited news Web sites from Pew's news audience survey
Yahoo—28%
MSN/Microsoft—19%
CNN—17%
Google—11%
MSNBC/NBC—10%
AOL—8%
Fox—7%
NYT—4%
Local news Web site—4%
(other Web sites are 2% or lower)

But if we look at online news only at this point and ignore the traditional media (TV, print, radio) just for a second, using Pew's data, we can roughly see how concentrated online news industry is (even though it is survey data instead of industry data). Adding up the percentage of the second table on p.22 of Pew's report, it is added up to 122% because multiple responses by a user were accepted. Adding up the percentages of the first four (from yahoo to MSNBC), we have 57%. If we manipulate the numbers proportionately, we have CR4=49.72 (122%: 57% = 100%: 49.72%). Using the same method, CR8 would roughly be 65.57%. We have both CR4 and CR8 for online news to be moderately concentrated. They are higher than the CR4 (42%) and CR8 (48%) of print newspapers Albarran and Dommick have in our HMF text p.147. What does this mean is… this moderate (or almost highly concentrated for CR4) concentrated online news industry is consistent with oligopoly I guess?

iTunes and iPods

As I was reading HMF this weekend, I kept thinking of iTunes and iPods and the market dominance that they've had. At the start of the year, iTunes sold about 80% of legally downloaded music according to Wired magazine. iPods, meanwhile, accounted for about 70% of mp3 players sold by units and 84% when measured in dollar volume according to Fortune magazine. Clearly they have huge market shares which are relatively close to being monopolistic. They blow the concentration ratio measures out of the water.

In section 7.2.1.1 of the HMF reading, we learn that if the sum of the percent market shares of the 4 largest companies are greater than 50% (CR4 >/= 50%) or the sum of the percent market shares of the 8 largest companies are greater than 50% (CR8 >/= 75%), then the market is considered highly concentrated. According to the Wired and Fortune numbers, then, even if iTunes and iPods were divided up between 8 different companies, they would still compose a highly concentrated market. (This is untrue, of course, for the unit sales of iPods, however, the fact that even this number is close to making this statement true in part proves my point.) the Hirschman-Herfindhal Index can't be applied to this case because I don't have the market shares for all competing companies readily available.

There have been some questions, as mentioned in the Wired article, of whether iTunes will lose market share as other services are able to offer more Digital Rights Management free files, songs, music and albums. So far, Apple says that iTunes market share has only gone up since the release of more DRM free songs by other services, but I find it interesting that the New York Times article doesn't include any specifics; Perhaps Apple didn't go into substantive details?

Also, I wonder exactly how these markets would be characterized? Are mp3 players and digital music monopolies or oligarchies? (Or maybe neither?) There is really only one firm to speak much of in each market but in reality there are a relatively large number of not so well known firms as well. Also, there are barriers to entry in that it's hard to break into Apple's market share and well known state. Which is it? (Apologies if the text addressed this question at some point, my eyes started glazing over at the game theory section. I haven't had good experiences with game theory.)