Reconsidering Media Economics

Media@Sydney University of Sydney

24 October 2014

Stuart Cunningham and Terry Flew Creative Industries Faculty

Queensland University of Technology

• Dominant media-economic theories– Mainstream (neoclassical) media economics– Critical political economy

• Emergent economic approaches– Institutional economics

• New Institutional Economics (NIE)

– Evolutionary economics

• Major case studies– Public service media (PSM)– The changing ecology of television

• Mainstream (neoclassical) media economics (Picard, 1989; Albarran 2002, 2010; Alexander et. al., 2004; De Vany, 2004; Doyle, 2006, 2013; Hoskins et. al., 2004)

• Critical political economy (Mosco, 2009; Hardy, 2014)

Beyond dualistic thinking

• Economics as a discipline is more diverse and pluralistic than it appears from the outside

• Keynesian revolution of 1930s; other challenges to hegemony of neoclassical theory from institutionalism, behaviouralism, network economics, post-Keynesian economics etc.

• ‘the neoclassical approach … [is] no longer the overwhelmingly dominant paradigm it once was’ (Wildman, 2006, p. 68)

• ‘an economic approach to the media needs to be informed by information economics, and network economics, institutional economics and evolutionary or innovation economics’ (Ballon 2014, p. 76)

Why is this relevant to media studies?

• new developments in media industries and markets are stretching the capacity of the established neoclassical and critical political economy paradigms:

• convergent digital media• Socio-economic value of premarket and nonmarket

forms• Disruption of long established media business models• agentive nature of media audiences• New media/digital content as sources of wealth creation

and economic innovation

Mainstream media economics

• Application of neoclassical microeconomics– Individual as primary unit of analysis– Rational choice assumptions– Market equilibrium prices– Theory of supply and demand

• Influence among media decision-makers• Media policy influence

• ‘Economics, as a discipline, is highly relevant to understanding how media firms and industries operate … [because] most of the decisions taken by those who run media organisations are, to a greater or lesser extent, influenced by resource and financial issues’ (Gillian Doyle, Understanding Media Economics, 2013, p. 1).

• ‘Policy researchers seem to divide roughly between … the “market economics” and “social value” schools of thought, and the two are often so far apart in their assumptions and languages that they are unable to communicate with each other’ (Entman and Wildman, 1992, p. 5).

Worked example of applied media economics: tablet PCs

1. Apple iPad revealed unmet consumer demand for tablets

2. Tablet PCs generated monopoly profits for Apple

3. New suppliers entered the market with lower-cost products (also network effects of Android platform)

4. Apple forced to lower prices and introduce lower cost competitor: iPad Mini

Challenges of media for economics

• Heterogeneous nature of media ‘product’ – difficulty in determining what the ‘price’ is for

• Dual media markets: consumers/advertisers• Tendencies towards concentration of ownership and

market oligopoly• Importance of non-economic principles in media policy

e.g. diversity and media pluralism, public goods, socio-cultural dimensions of media content

Twilight of the media mogul?

Digital transformation of media industries and markets

• Shift from content scarcity to content abundance• What is the content of digital media – products, services

or platforms?• Freely available content and implications for professional

media production• Are content aggregators (Google, Apple etc.) in the

media industries?

Critical Political Economy (CPE)

• understanding historical processes of social change; • mutually constitutive relationship between economic,

social and cultural institutions, relations and practices; • moral philosophy oriented towards critiquing the

industrial structures and social relations of capitalism; • commitment to linking intellectual work with progressive

social movements. (Mosco 2009, p. 4).

Is CPE a ‘big tent’?

• Winseck (2011) proposes that institutional, evolutionary and (some) neoclassical economics is broadly within a commodious CPE

• Contested within the field, where CPE has been defined in opposition to:– Cultural studies – Neoclassical economics– Media industry studies (Meehan and Wasko, 2014)

Revisiting the ‘active audience’ debate

• Cultural studies questioned degree that audiences adhered to ‘dominant ideologies’, pointing to active audience/user agency

• Critiqued among CPE theorists as ‘cultural populism’ (McGuigan 1992)

• The cultural as formative of industrial/market structures or ‘residual and merely reflective’ (Stuart Hall, 1986)?

• But heartland debates in media and cultural studies have done little to conceptually advance what form of media economics should supplement or contend with critical political economy

Power: an immanent critique

• Power (Thompson 1995)– Asked to do too much theoretically?– Relationship between economic, political and

cultural/symbolic power?– Power as top-down (domination) or relational?

• examples

Impasse in media economics

• Neoclassical ME vs. CPE has become a stale rehearsal of well-worn pro/anti-market arguments

• ‘My main argument with many of the versions of the return to Marxism today [is] they share exactly the same worldview as the so-called neoliberals. They think there is one solution to the problem. One thinks that the market will solve everything, the other that doing away with the market will’ (Nicholas Garnham, interview with Christian Fuchs, 2014, p. 121).

Institutionalism

• Long history in the social sciences– Middle-range theories (Merton)– Structure/agency dialectic (Giddens)– Historical path-dependency

• Neoclassical focus on rational choice individualism has historically marginalised institutional economics

• Dissenting tradition: Veblen, Galbraith• Communication studies: political economy of Harold Innis

and Canadian comms. school• ‘it is … on individuals that the system of institutions imposes

those conventional standards, ideals, and canons of conduct that make up the community’s system of life’ (Veblen 1909 [1961], p. 38).

New Institutional Economics (NIE)

• Douglass North, 1993 Nobel prize winner - economics had cut itself off from history, neglecting the historically evolving role of institutions and the significance of how such institutions develop over time

• NIE maintains continuities with mainstream microeconomics, particularly in retaining architecture of rational choice theory in its analyses of individual behaviour – different to ‘old’ institutionalism and economic sociology

Key NIE concepts

• Bounded rationality– while individual behaviour can be intentionally rational, ‘in

practice … all decision makers (entrepreneurs, consumers, politicians, etc.) act subject to imperfect information and limited cognition’ (Furubotn and Richter, 2005, p. 556).

• Transaction costs– ‘costs of running the economic system’ (Kenneth Arrow) -

include market engagement costs, managerial transaction costs, and political transaction costs

• Uncertainty and imperfect information– Ex ante/ex post imperfect information

• Asset specificity– both the nature of the asset and its use are incompletely defined – ‘A list/B list’ in creative industries (Richard Caves)

The firm as a nexus of contracts

• Origins with Coase (1937)• Institutional form than economises on transaction costs• Implicit and relational contracting• Contracts rely upon trust, social networks, reputation• Applicable across both private and public sector

institutions

Institutions in NIE

• institutions as ‘the humanly devised constraints that structure human interaction’ (North, 1994, p. 360)

• Institutional arrangements/governance structures (micro)• Institutional environment/ ‘rules of the game’ (macro)

– Formal institutions: rules, laws, policies etc.– Informal constraints: norms, conventions, cultural codes etc. –

links to history and culture

Levels of NIE analysis (Williamson)

Level of theory Level of analysis Frequency of change

Purpose

1) Social theory Embeddedness, informal institutions, ‘mental maps’, beliefs, norms

100-1000 years Often non-calculative; spontaneous

2) Law and politics

Institutional environment; ‘rules of the game’; governing institutions

10-100 years Getting institutional environment right

3) Transaction cost economics

Governance structures; contracts; regulations

1-10 years Getting governance structures right

4) Neo-classical economics

Resource allocation; prices; employment; incentives

Continuous Getting marginal conditions right

Public Service Media (PSM) case study

• Transition from PSB to PSM in context of media convergence

• Spectrum scarcity case for PSB no longer plausible• Public good/merit good case challenged in multichannel

environment• PSBs not the only providers of ‘quality’, ‘niche’ or

‘minority’ content• Diversity of PSB histories – no single template

Political economy, PSBs and citizenship

• PSBs seen as central to nation building, citizenship and the public sphere

• Not all PSBs are non-commercial, and even ‘non-commercial’ PSBs have commercial activities

• Normative definition of PSB: does not include, for instance, CCTV as world’s largest state-run broadcaster

• Challenges of PSB Charters – lead or follow ‘public taste’?

• Private providers can achieve public good e.g. Google Books case

Core NIE propositions relevant to PSM

• Public and private sector organisations/firms as a ‘nexus of contracts’

• Separation of ownership from management, and principal-agent problem

• Tendency to expand into conglomerates – risk of becoming too big

• Relational or incentive-based contracting – comparable employment arrangements across public and commercial media

Relational contracting in public sector media – how much is Tony Jones worth?

• ABC salary “leak” reminder that there is no longer a “base pay” for ABC presenters

• Differential salaries reflect various performance-based (relational) contracts within the organisation

Governance challenges for PSM

• Accountability of PSM managers to the public – via the government?

• Should a PSM be trusted to regulate itself?• Distinctiveness of PSM histories and organisational

cultures• Political problem: electoral politics increasing a ‘battle for

political property rights’ – loss of autonomy for public institutions

Public Value Tests (PVT) and PSM innovation

• Public Value Tests being applied to digital expansion of PSBs in EU

• How is ‘public benefit’ to be assessed?• EU: media pluralism established in broadcasting context

(PSB) but role of PSM in digital environment is contested• Ex ante tests as an inhibitor of PSM innovation• Innovation increasingly central to PSM remit

Evolutionary Economics

• Emphasises non-equilibrium processes and dynamics of capitalist transformation from within (contrast to neo-classical static equilibrium)

• Technological and institutional change endogenous to market economies

• Joseph Schumpeter – creative destruction – ‘bourgeois Marxist’ (Catephores)

• Strong influence upon innovation economics

• Kondratieff and Schumpeterian notions of long-wave cycles• five from the Industrial Revolution:

(1) steam and cotton,

(2) steel and railways,

(3) chemistry and electrical engineering,

(4) petrochemicals and cars, and

(5) ICT

• expansion of the fifth or a new, sixth, wave consisting of biotech, pharmaceuticals, recycling and alternative energy, software, mobile communications, and digital technology?

Evolutionary account of media in the economy

Economic model (1) welfare (2) competitive (3) growth and

(4) innovation

Typical indicative content

Arts, crafts, material culture, heritage, PSB?

‘cultural industries’: film, broadcasting, music, publishing

‘creative industries’: digital content, new, Internet and mobile media

Sub-discipline/approach

Cultural economics

Neo-classical (descriptive)/

Political economy (critique)

Evolutionary economics/innovation economics

Policy framework Subsidy/grant Industry policy investment/innovation

• evolutionary economics provides a non-teleological, non-totalistic account of the dynamics of capitalism that is as dynamically conflictual as its Marxist counterpart

• a theoretical and historical framework for a more adequate understanding of the nature, scope and rate of change media industries are undergoing,

Conclusion• Intention of the book is not polemical – for or against one or

other school of thought – but rather to identify merits of diverse strands of economic thought in understanding changing media environment

• ‘Trade’ (Nelson and Winter) between economics and media, comms. & cultural studies can generate new insights into long established issues e.g. technological determinism

• Opening the ‘black box’ of capitalist dynamics promotes a better understanding of the economy/culture interface

• ‘dual face’ of capitalism as ‘both a system fundamentally grounded in violence and the most effective engine for bettering the material condition of mankind ever known’ (Ott & Milberg, 2004- Centre for Capitalism Studies)

• Merits from point of view of policy advocacy (Entman & Wildman)