MEDIA ECONOMICS

Priyanka Chhaparia
 MEDIA ECONOMICS

CHAPTER 1

Media economics is a field that combines the principles of both, the media and
communication with economic principles for application in managing the firms in the media
sector.

It is concerned with how the media firms allocate resources to create entertainment content
and information to meet the needs of the audiences, advertisers etc.

Macroeconomics refers to aggregates in economics and how the economy works as a system.
In a sense of media industry, macroeconomics would include aggregate consumption,
investments, government expenditures, monetary policy and regulations. Microeconomics
encompasses how individual entities like firms and household make decisions regarding their
economic activity.

The economy as a whole certainly affects how each industry does their business. For
example, economy affects advertising trends in terms of frequency etc, economy affects the
disposable income of people and hence the buying power of goods and services and in turn
affect the revenues of the media firm.

Economics also affects how consumers, firms and governments behave. For example,
considering the law of diminishing marginal utility, the more number of times a consumer
watches a movie, the satisfaction he receives from every successive consumption reduces.

According to the traditional theory of the firm, it is assumed that every decision taken by a
firm is done in pursuit of profit maximization. But this can be refuted by examples from the
media industry. For some profit maximization is not the main goal. There may be a
completely different reason for running a business. A media firm can be established for the
seeking power and a platform for political and public influence.

According to the law of diminishing returns, in a production system with variable and fixed
inputs, each additional unit of variable input, yields smaller and smaller output, decreasing
the mean productivity.

But in case of media firms, marginal returns increase with the output. The reason behind this
is that, the c0ontent in case of media does not lie in paper but lies in its intellectual property,
which is, message, story meanings etc. This intellectual property is intangible in nature and
no additional cost is incurred in production in larger than smaller quantities. The cost of
producing media content does not increase with the number of people watching it.

Production function tells us the variation in costs at different levels of output produced. The
market structure in which a firm operates has a bearing on how a firm uses its resources and
does its business. This structure also indicates the power a firm has in the market. For
example, in perfect competition, a firm has no market power or zero market power, whereas
in monopoly, a firm has hundred percent market power.

Another kind of market structure is oligopoly where the market or the industry is dominated
by a small number of sellers. Most of the media firms lie in this category. The reason behind
this is that for most part of the media industry, the initial production cost is high whereas the
marginal cost for reproduction and distribution is low. The media firms enjoy what is called
economies of scale.

“Economies of scope” is similar to the “economies of scale”. According to the economies of

scale, the average cost reduces with increase in the scale of production for a single product,
whereas, economies of scope refers to the decrease in average cost with the production of two
or more products. Therefore, in the media industry operating large sized firms is more
advantageous.

The content or product of media industry is such that it does not follow the law of scarcity in
economics. However much a media product like a film, news story, music is consumed, it
does not make it used up or scarce in nature. No matter how many times how many people
watch a movie, it will still be equally available for anyone else to watch. In other words, such
products do not get used up in the process of consumption.

KEY ECONOMIC CHARACTERISTICS OF THE MEDIA:

 The media industry operates in a dual product market. There are two types of output
produced by the media industry, one is the content that it produces, like the TV
programmes, films, news articles etc., and the second commodity produced by them
are the audience who are targeted and attracted towards the first commodity-content.
The audience serves as a product for consumption by the advertising industry.
 The content produced by media is not consumable in a sense of tangibility. This is
because, the content like films, television programmes, articles, songs etc. are in a
way kind of cultural goods that enrich the cultural environment and hence are
different from commercial goods.
 Media content have features of a public good. For example, if someone watches or
consumes art pieces in an art gallery, it does not diminish the opportunity for someone
else to consume it.
 Marginal cost of providing a media product to an additional customer is very low.
 CHAPTER 2

CORPORATE STRATEGIES
Corporate strategy implies the overall scope and direction of a corporation and the way in
which it’s various business operations work together to achieve particular goals.

VERTICAL SUPPLY CHAIN FOR MEDIA:

In order to analyse the media industry, the activities involved can be broken down into
different stages in order to study each one closely. The reason behind this is that, the
activities in the media industry takes place in a certain sequence. It starts from producing the
content (like making films, television programmes, collecting news stories etc), followed by
packaging the produced content (like a newspaper) and finally distributing it (like selling to
the customer). All of these stages are interrelated. What will the distribution do if there is no
content to distribute?

Earlier, there were big barriers to entry like broadcast regulation and policies, license
requirement etc in the media industry. But now certain technological changes like the
availability of the media content on the internet has reduced these barriers to a large extent.

Due to globalisation and convergence, opportunities for exploiting economies of scale and
economies of scope have increased. Now the same product or the same media content can be
packaged and re-packaged into multiple formats like book, television series, movie etc and
can be sold to as many customers willing to pay.

The impact of globalisation and convergence is not just limited to this but also on the mergers
and acquisitions within the same and different business sector. No longer are media firms
limited to handling one or two types of media. There has been a growth of media
conglomerates who own a large variety of media.

A media firm can expand either vertically or diagonally (lateral expansion). Lateral
expansion takes place when firms diversify into other businesses like telecommunications.

Although a firm gains more security, but a disadvantage of vertical expansion is that the
danger of it dominating the market increases.
 INDIAN MEDIA AND BROADCAST INDUSTRY

Media and entertainment industry is one of the most flourishing sectors in India. The Indian
Media and Entertainment industry grew from Rs 35,300 corers to Rs 43,700 corers during the
year 2005-06.

The liberalization of the media sector has opened up the gates of opportunities and growth.
India is witnessing a revolution in this sector with the emergence of new technologies. Many
companies are taking initiatives to set up digital theatres, multi-plexus, etc. India is emerging
as a global destination for the Media and Entertainment players because of the following
reasons:

The number of channels is increasing

 India is emerging as one of the world’s largest market for digital and mobile music.
 Entry of private sector companies and increasing FDI and FII.
 The concept of crossover movies and crossover audience is also gaining momentum.
 The Indian Media and Entertainment industry is also making its presence felt in the
global market with its movies and music.
 Piracy and violation of intellectual property rights have posed a major threat to the
Media and Entertainment companies worldwide. Lack of quality content has also
become a major area of concern for the Media and Entertainment companies in India.
 Given the high rate of economic growth and technological developments, Indian
Media and Entertainment industry is poised to register a tremendous growth in the
coming years.
 PricewaterhouseCoopers in its “Indian entertainment and media outlook 2009" report
has estimated that the Indian Entertainment & Media industry will return to double
digit growth in 2010 

India’s E&M industry witnessed remarkable growth in recent years having consistently
outpaced growth in domestic GDP. While annual average growth in nominal GDP
was14.48% over the period 2004-08, overall E&M growth in 2008 slowed, reflecting weaker
overall economic conditions.

Indian broadcasting is in for a major transformation in light of the global phenomenon of

convergence of telecommunication, computing and audio/video broadcasting. This
convergence has been possible due to technological developments in the field of digital signal
processing, compression techniques, switching, etc. We are passing through a phase of
transition from the predominant analog to digital transmission both in audio and video space.
The way information, communication and entertainment services will be delivered through
the audio-visual media, in India, in the coming years, is going to make a departure from the
present, which is predominantly one way, to the point of interactivity.