13.2 Characteristics of Media Industries

The merger of Comcast and NBC illustrates just one aspect of the myriad ways media companies conduct business. Television, print publishing, radio broadcasting, music, and film all have their own economic nuances and distinct models. However, these business models fall into three general categories: monopoly, oligopoly, and monopolistic competition.

Of these three basic media business models, most people have familiarity with the concept of a monopoly. A monopoly occurs when one controls a product or service—for example, a small town with only one major newspaper. Oligopoly, or the control of a product or service by just a few companies, commonly occurs in publishing; a few major publishers put out most best-selling books, and relatively few companies control many of the nation’s highest-circulating magazines. Television operates in much the same way, as the major broadcast networks—Comcast and GE’s NBC , Disney’s ABC, National Amusements’s CBS , and News Corporation’s Fox —own nearly all broadcast and cable outlets. Finally, monopolistic competition takes place when multiple companies offer essentially the same product or service. For example, longtime competitors Ticketmaster and Live Nation merged in 2010, with both providing the same set of event-management services for music and other live entertainment industries.

The last few decades have seen increasing conglomeration of media ownership, allowing for economies of scale that previous companies could not achieve. Instead of individual local radio stations competing for advertising revenue among a range of local companies, for example, large corporations can now buy wholesale advertising for any or all of their brands on a dozen different radio stations in a single media market all owned by a conglomerate such as iHeartMedia. The economics of mass media has become a matter of macroeconomic proportions: GE now makes everything from jet engines to cable news . The implications of this go beyond advertising. Because major corporations now own nearly every media outlet, ongoing fears of corporate control of media messaging have intensified.

However, critics often channel these fears into productive enterprises. In many media industries, an ongoing countercurrent exists to provide diversity not found in many corporate-owned models. Independent radio stations such as those affiliated with nonprofit organizations and colleges provide news and in-depth analysis as well as a variety of musical and entertainment programs corporate stations would not air. Likewise, small music labels have had recent success promoting and distributing music through online sales or digital distribution services such as the streaming service Pandora or Apple Music. YouTube makes it easier for videographers to reach a surprisingly large market, often surpassing even professional sites such as Hulu.

Raising Revenue

Companies employ many different ways to raise revenue for their services, but all boil down to two fundamental ideas: funding either comes from consumers or advertising. In practice, many outlets combine the two to give themselves a flexible stream of income. Equally, consumers may feel more willing to pay slightly more for fewer ads or to sit through more advertising in exchange for free content.

Traditional book publishers, which make practically all of their money by selling their products directly to consumers, lie on one extreme end of the spectrum. In some respects, cable companies use a related model under which they directly sell consumers the delivery and subscription of a bundled package of programming channels. However, cable channels primarily rely on a mix of media revenue models, receiving funding from advertising along with subscription fees. Magazines and newspapers may fall into this middle-ground category as well, although online classified advertising has caused print publications to lose this important revenue stream in recent years. Broadcast television offers the clearest example of advertising-driven income, as no one pays subscription fees for these channels. Because this lack of direct fees increases the potential audience for the network, networks can sell their advertising time at a premium, as opposed to a cable channel with a more limited and likely more narrow viewership.

Print Media

Print media fall into three basic categories: books, newspapers, and magazines. The book publishing industry basically operates as an oligopoly; the top 10 trade publishers made up 72 percent of the total market in 2009, with the top 5 alone comprising 58 percent of this (Hyatt, 2010) . Newspapers tend to function as local monopolies and oligopolies since relatively few local news sources have local competition. In the past classified advertising made up a substantial portion of newspaper revenue. However, the advent of the Internet—particularly free classified services such as Craigslist—has weakened the newspaper industry through dwindling classified advertising revenues. In addition, lucrative display advertising clients have also largely abandoned the medium.

Newspapers

Journalistic and editorial expenditures tend to cost a company more than the costs associated with newsprint and distribution. The transition from the labor-intensive process of mechanical typesetting to modern electronic printing greatly reduced the marginal costs of producing newspapers. However, the price of newsprint still goes through cyclical ups and downs, making it difficult to price a newspaper in the long run.

The highest costs of publishing a paper remain the editorial and administrative overheads. Newspaper publishers often combine back-office activities such as administration and finance if they own more than one paper. Unlike the historical restrictions on broadcast media that limited the number of stations owned by a single network, print media has faced no such ownership limits. Because of this, a company such as Gannett has come to own USA Today as well as mostly local newspapers in 33 states , Guam, and the United Kingdom (Columbia Journalism Review, 2008). Other companies, such as McClatchy, also run their own wire services, partly as a way of reducing the costs of providing national journalism to many local markets.

Magazines

Like newspapers, a few companies largely own most magazines. However, unlike newspapers, much larger media conglomerates own many magazine chains. Time Warner—the highest-ranking media company in 2003—owns numerous magazines, including Time, Fortune, and Sports Illustrated. Taking all of its publications into account, Time Warner controls a 20 percent share of all magazine advertising in the United States.  However, many smaller publishers produce niche publications, many of which do not aspire to a wider market . In all, magazines seem to be undergoing a period of economic decline, with a net loss of some 120 publications in 2009 alone (Flamm, 2009).

Television and Radio

As discussed in Chapter 9 “Television ”, large media conglomerates own nearly all television networks. Conglomerates typically own both national networks and local affiliates; however, stations such as Fox-owned WNYW in New York or CBS-owned KCNC in Denver can mix local content with national reporting and programming, much as large newspaper companies do.

In a local market, one cable company usually dominates the cable service market. In many places, one cable company, such as Comcast—the largest of the cable companies—provides the only option for customers. Satellite companies such as Dish Network and DirecTV, which can reach any number of consumers with limited local infrastructure, have introduced increased, albeit limited, levels of competition .

Even as cable has expanded, radio has become heavily consolidated. Since the 1990s, massive radio networks such as Clear Channel Communications (renamed iHeartMedia in 2013 ) have bought up many local stations in an effort to control every radio station in a given media market. However, the FCC has designated the lower part of the FM radio band for noncommercial purposes, including nonprofit programming such as educational, religious, or public radio stations—and continues to hold public discussions on frequency allocations. These practices help retain a certain level of programming diversity in the face of increased homogenization, largely because advertisers do not financially support such stations. Because they acquire funding from donations or nonprofit institutions, these stations benefit economically from catering to a minority of listeners who may support the station directly, rather than a larger majority that has other options for entertainment.

Music and Film

Because both the music and film industries face unique business opportunities and challenges, each operates on an economic model unlike either print or broadcast media. Just like those forms of media, however, music and film have undergone significant changes due to consolidation and technological and consumer shifts in recent years.

The Big Four

The music industry closely resembles the radio industry, and the two have a high degree of codependence. Without music, radio would not feature quite as lively or nearly as popular content; without radio, music becomes more difficult for listeners to discover, and potentially limits its scope to a local consumer base.

As radio companies have consolidated, so has the music industry. A total of four record companies , popularly called the “Big Four” within the industry, dominate the recorded music business and thus most mainstream radio airwaves. Because a conglomerate such as iHeartMedia would find it impractical to monitor and broadcast music and concerts catered to a local market—and because they find it easier to manage programming across a large regional area than on a station-by-station basis—the Big Four  record companies tend to focus on national and international acts. After all, if a label can convince a single radio conglomerate to play a particular act’s music, that performer instantly gains access to a broad national market.

Popular music therefore widely operates as an oligopoly, despite the presence of countless small, independent companies. A handful of major record labels with similar corporate structures dominate the market. Universal owns NBC, which was in turn owned by GE and now Comcast; Sony Music is owned by the eponymous Japanese technology giant; Warner Music Group, although now its own entity, was previously under the umbrella of Time Warner; and the EMI Group is owned by a private investment firm.

Consolidation and Ticketing

Although the Big Four dominate the recorded music industry, they have surprisingly little to do with live performances. Traditionally, musicians have toured to promote their albums—and sell enough copies to pay off their advances—and live shows presented both self-promotion and income opportunities. An artist’s record company provided financial support, but a concert ticket generated significantly more income per sale than a CD. Since the merger of ticketing companies Ticketmaster and Live Nation, the ticketing services for large venues have practically been monopolized. For example, Madison Square Garden, one of the largest venues in New York City, does not handle its booking in-house, and with good reason; the technology to manage tens of thousands of fans trying to buy tickets to a soon-to-be-sold-out concert the day they go on sale would likely break the system. Instead, Ticketmaster handles all of the ticketing for Madison Square Garden, adding a 10 percent to 20 percent fee to the face value of the ticket for its exclusive service, depending on the venue and price of the show.

Film

Because of the nature of film, the economics of the medium slightly differ from those of music. The absence of film in broadcasting, the lack of a live performance, and the exponentially higher budgets represent some of its unique facets. As with music, however, large companies tend to dominate the market. These massive studios have now connected corporately with other media outlets. For example, Sony and Universal both have partners in the music industry, while Disney controls major television broadcast and cable networks as well as film studios.

Just as record labels do with radio conglomerates, film distribution companies tend to sell to large chains, such as the more than 6,000-screens-strong Regal Entertainment Group  and the over 4,000-screens-strong AMC Entertainment , which have national reach (National Association of Theater Owners, 2009).  However, independent filmmakers still provide limited competition to these larger studios.